The Hierarchies of Global Finance: An Anti-Disciplinary Research Agenda

ABSTRACT

This article critically assesses the economics discipline’s capacity to capture the structural features and political economy implications of contemporary financial processes in the global South, with a particular focus on South Africa. Delving into the complexities of financial processes in South Africa, the article proposes an alternative, anti-disciplinary framework for understanding drivers and impacts of financial processes. We show how such an approach cannot simply be about adding social or political perspectives to mainstream economics, but rather about interrogating how we think about economic systems themselves, drawing on a variety of theoretical and disciplinary insights. This is about taking an open and holistic approach that centers history, power, structures, and social relations. With an issue such as finance, critical political economy approaches from a variety of disciplines allow us to see that finance cannot be separated from the wider economy or from the social relations it forms part of today and historically. This becomes particularly clear when considering how racial, gender and class relations both impact and are impacted by financial processes in South Africa. We conclude with recommendations for studies of changing financial processes globally and in the global South.

KEYWORDS:

• Global finance
• hierarchy
• anti-disciplinarity
• global South
• South Africa
• imperialism

JEL CODES:

• F3
• O1 A120
• B5

1. Introduction

It is widely acknowledged that the global financial crisis (GFC) of 2007–2008 was exacerbated by over-leveraged and under-regulated financial sectors, in an intellectual context where prevailing economic thought supported the idea of a positive-sum relationship between financial depth and economic performance. Beyond being critiqued for not being able to predict the GFC, economists are also often considered to be implicated in the creation of the crisis itself, given that prevailing economic theory supported financial reforms and practices that destabilized the financial system (Brown and Spencer 2014). The economics field was thus heavily criticized in the wake of the crisis, and the field was arguably under pressure to ‘get real’, by better embedding analysis of the financial sectors in an understanding of its relationship to ‘real’ economic issues, such as jobs, productivity, and investment. However, the innovations and development that have taken place in the economics field are limited by the narrow theoretical and methodological boundaries of the discipline. This article argues that if the economics field wants to ‘get real’, it will need to open up theoretically and methodologically to tools and approaches outside of the economics discipline itself. Only with such an openness, which harks back to a time when before disciplines had erected such rigid boundaries, can economists again become equipped to begin to answer the question we are posing in this article: how can we understand the historical and structural determinants of financial processes and their unequal impacts globally?

Since the GFC, the topic has been intensely studied across a variety of disciplines. This paper argues that because of the way that the mainstream of the economics field has developed since it formally became a discipline in its own right, economic analysis has become increasingly incapable of capturing the structural features and political economy implications of contemporary financial processes. Given the many ways in which financial processes have been changing in recent decades, finance has become a topic of research outside of the economics field itself, with ‘financialization studies’ itself also becoming an increasingly recognized sub-field (e.g., Mader, Mertens, and van der Zwan 2020). In these studies, various aspects of the changing financial system have come under scrutiny, such as changes in the spatial organization of the global economy, as the reconfiguration of society and the class system, or as the mutation of culture and how we relate to ourselves. These issues, as the editors of the International Handbook of Financialization point out, may not be mutually exclusive, but rather together provide a more holistic picture of the changing financial relations across the globe (Mader, Mertens, and van der Zwan 2020).

While the literature on finance has shifted in recent decades, so too has the ways agents and institutions interact with financial markets since the 1970s. For example, there has been a shift in financial intermediation from banks to financial markets (Storm 2018) and an introduction of financial market logic into areas and domains where it was previously absent (Epstein 2005). What’s more, financial markets have evolved at rapid pace in the Global South as well, with these markets becoming increasingly integrated into global financial systems (Musthaq 2021a; Bortz and Kaltenbrunner 2017), driven in part by the strong push from international financial organizations for countries in the South to develop and deepen their financial systems (dos Santos 2011; Vernengo and Ford 2014; Gabor 2021). These policy recommendations have been based on neoclassical assumptions about how financial markets work. The message has been to develop domestic financial markets through accelerated account liberalization with the increased participation of foreign investors who would provide liquidity, change the monetary regime towards inflation targeting and floating exchange rate (rather than controlling the exchange rate), while liberalizing and privatizing markets to reduce the ‘distorting’ influence of governments (Isaacs and Kaltenbrunner 2018). While these recommendations were meant to stimulate economic development and reduce volatility, this has often not been the case (Dafe et al. 2023). In order to understand why these policies have in many ways failed, we need to unpack the theoretical and methodological assumptions that they are based on before exploring alternative ways of understanding finance.

South Africa is a good example to explore the consequences of these theoretical assumptions, and the policy recommendations that follow from them given that it by the end of the 1990s followed the policy recommendations of capital account liberalization and inflation targeting (Isaacs and Kaltenbrunner 2018). With liberalization, the nature of South Africa’s global financial integration shifted, its financial institutions became internationalized, and the country saw a drastic increase in outstanding foreign assets and liabilities. To understand the drivers and consequences of these changes, we argue that an anti-disciplinary approach is needed. We draw in examples from South Africa throughout this article to demonstrate this.

The article is structured as follows. Section 2 briefly tracks the evolution of the economics discipline and outlines the limits to the ways in which the discipline approaches financial processes. Section 3 outlines what we believe are the main contributions from the social sciences to understanding financial processes, including the centering of structure, power, history, and social relations, and draws on empirical examples from South Africa to illustrate this argument. Section 4 concludes by summarizing the main contributions to understanding finance from an anti-disciplinary approach and outlines key recommendations for studies of changing financial processes, especially in the Global South.

2. How has Analysis of Finance in Economic Development Evolved?

Since the marginal revolution in economics, economists shifted towards an understanding of capitalism as one that saw the system as made of a myriad of interdependent rational individuals coordinated through market exchange, replacing the social, class-based vision of political economy that dominated prior to the marginal revolution (Milonakis and Fine 2009). In this new vision, that continues to dominate, key value categories such as prices, wages, and profits, were argued to be determined by market mechanisms, leading — in equilibrium — to optimal resource allocation (Robbins 1935). With the marginalist revolution, ‘social’ phenomena came to be neglected in economics, implicitly relegated to other social sciences, or seen as external to economic processes (Brown and Spencer 2014). The other social sciences, such as sociology and anthropology, then, became the fields which could provide explanations for the realm of the non-rational, such as norms, customs, and traditions, thus turning the distinction between economics and other social sciences into a distinction between rational behavior in the market studied by economists and non-rational behavior, both within and outside the market, studied in other disciplines. Similarly, the marginal revolution also paved the way for removing the political and historical from economics (Alves and Kvangraven 2020). Indeed, the idea that other social sciences could explain economic phenomena such as financial markets, or even the GFC, was ruled out ‘almost by definition’ (Brown and Spencer 2014, p. 942). By the 1950s, the dominant economic orthodoxy was based on neoclassical economics, and ‘dissenting’ schools were placed under the term ‘heterodox’ (Lee 2009).

While there has been development in economic theory since then, such as the introduction of market imperfections, information asymmetries, and the recognition that human behavior is not always rational, the starting point for analysis has remained the same within modern economics, where imperfections and irrationalities are viewed as deviations (Madra 2017). Although introducing deviations could be a way to open up to insights from other disciplines, the social elements acceptable to the economics discipline are those that seek to build on rational choice theory (Brown and Spencer 2014). This is because of the economics field’s practice of engaging with other disciplines through economics ‘imperialism’ (Boulding 1969; Milonakis and Fine 2009). A classic example of this is the work of Economics Nobel laureate Gary Becker (1976), who introduced social dimensions within neoclassical economics by introducing market-like economic interaction within the social sphere, based on neoclassical principles, thus falling short of serious engagement with non-economic motivations. Regardless, mainstream economics has been identified as the least interdisciplinary of social science fields (Fourcade, Ollion, and Algan 2015).

This brief history of the discipline is important because it has had a major impact on how finance has come to be studied. Indeed, neoclassical principles have also been applied to economists’ understanding of the role of finance in the economy. As such, finance is thought to play a major role in stimulating growth through increasing savings and increasing efficiency of allocation of resources (Itaman 2021). This positive assessment assumes that well-functioning, liberalized financial markets are the most effective way of allocating finance to investors (Walras 1954/1874; Arrow and Debreu 1954; Fama 1970). The mechanisms through which this is meant to happen is thought to be through financial markets reducing information and transaction costs through the facilitation of trading, hedging, and diversifying risk (Levine 1997).

The mainstream of the field shifted quite substantially in its approach to finance in the wake of the GFC, from consensus around the idea ‘that financial markets contribute to economic growth is a proposition too obvious for serious discussion’ (Miller 1998, p. 14; see also King and Levine 1993) to the qualified assessment that ‘ … as is the case with many things in life, with finance you can have too much of a good thing’ (Cecchetti and Kharroubi 2012, p. 1). In the mainstream economics literature, this latter idea has been popularized as the ‘inverted U — shape’ or ‘bell-shaped’ relationship between financial depth and growth. This literature has led to a flourishing of empirical papers attempting to measure the ‘threshold’ at which finance remains good for growth (see Itaman 2021 for an overview). This is in line with the general methodological approach that is dominant in economics today, which is characterized in terms of its enduring reliance upon methods of mathematical modeling, expressed in the mathematical deductivism and its ‘laws’ or ‘uniformities,’ interpreted as correlations or regularities (Lawson 2013).

Despite findings suggesting that the empirical and theoretical foundations of the positive finance-growth nexus are weak (e.g., Arestis and Sawyer 2005), this critique has not led to a fundamental theoretical and/or empirical shift in the ways that finance is approached within the mainstream of the economics field. While this new body of literature claims to be breaking from previous findings on links between finance and growth, it remains largely within the confines of late neoclassical economics, where financial markets are assumed to function and be embedded in the real economy in similar ways across the world, rather than assessing them as complex, changing, and geographically and historically specific. Despite the observation that there can be ‘too much’ finance, the relationship between finance and growth is still considered to be a universal phenomenon that can be studied through cross-country regressions. This has, thus, led to a continuation of the ‘black-box’ methodology famously critiqued in the so-called Deaton-report (see Banerjee et al. 2006).¹

The growing number of papers dealing with the channels through which finance might be related to growth (e.g., La Porta et al. 1997; Law and Singh 2014) suffer from the same methodological weaknesses as work on the finance-growth nexus at large. Although the recognition that various types of institutions matter is important, institutions cannot be seriously studied and understood solely through running cross-country regressions. Furthermore, the ad hoc choice of variables in these regressions reveal a weakness in the underlying theoretical framework and the channels through which these variables may be related to economic development. By and large, these studies simply introduce various types of institutions as dummy variables in regressions, rather than unpacking how the institutions may coevolve with financial systems. Furthermore, while the literature tends to universalize the relationship between finance and other variables, it also tends to confine itself to national boundaries in its analysis, making it more difficult to grasp the uneven and global evolution of financial structures and systems.

Given that cross-country regressions are often what economists resort to when they do not have a satisfactory theory to explain socio-economic phenomena (Hoover and Perez 2004), what alternative theoretical and methodological approaches are at our disposal as social scientists? In the next section, we explore how we best can understand changing financial processes, drawing on alternative insights from other social science disciplines, including heterodox economics, political economy, anthropology, sociology, and history.

3. An Anti-disciplinary Research Agenda

As mentioned, with the cementation of neoclassical economics as the core of the mainstream of the economics discipline, what has come to be known as heterodox economics was excluded from the economic field (Lee 2009), which is a research program we believe can be fruitful for an anti-disciplinary and holistic approach to global finance. Heterodox economics is a relatively contested term, as it is an umbrella term for many competing approaches to economics. Broadly, it can be conceived of as the study of production and distribution of economic surplus, including the role of power relations in determining economic relationships, a study of economic systems, and tendencies associated with it, and the employment of theories that have these issues at their core (Kvangraven and Alves 2019). In heterodox economics, the notions of equilibrium and efficiency found in the mainstream are replaced with a more general focus on the historical development and evolution of the economy in its relation to society (Brown and Spencer 2014). Heterodox and political economy approaches to finance draw on long-forgotten economic ideas, such as those of Minsky (1974), Marx (2004[1867]), Keynes (1930), Robinson (1952), and Schumpeter (1911). These theories have been developed further and built upon in heterodox economics, geography, and international political economy.

Although heterodox economics is now a sub-field of economics, its roots are in political economy, which existed in a pre-disciplinary era and goes beyond the disciplinary boundaries of contemporary social science (Wallerstein 2003; Milonakis and Fine 2009). Therefore, many strands of heterodox economics and political economy operate within this pre-disciplinary tradition, taking a holistic approach to the study of political economy, not distinguishing between history, society, and politics. What’s more, there is a central focus on power and conflict within heterodox economics, as was the case in pre-disciplinary political economy. For example, many heterodox economists stress the conflict between capital and labor over the distribution of income, the role of patriarchy and white supremacy in determining distribution of power, and the power of capital in determining important societal transformations such as the functioning of global value chains, the ways in which we address climate change, and — crucially for this study — the structure of global finance and its role in shaping an uneven global system.

Methodologically, heterodox economics centers openness, relationality and totalities (Lawson 2013). To this end, heterodox approaches tend to draw on mixed methods, combining quantitative and qualitative aspects of economics and non-economics disciplines (Brown and Spencer 2014). Taking a holistic approach to global finance means recognizing that finance is not necessarily separate from other economic processes, but that finance is a central part of the way the economy itself operates, thus moving beyond the separation between the ‘financial’ and the ‘real’. However, heterodox economics cannot necessarily capture the evolution of global finance in a satisfactory manner, without also drawing on key insights from other social sciences and humanities, such as anthropology, sociology, and history.

Although we believe there are insights to learn from each of these disciplines, we believe the separation of scientific inquiry into disciplines is itself a problematic way of organizing ideas. We therefore call for anti-disciplinarity, given that disciplines tend to sustain conservative systems of knowledge production and tend to depend on positivist categorizations drawing on colonial ideas of people and space (McKittrick 2015, 2021; Gilmore 2022; Nasong'o and Ikpe 2022). Therefore, we pull out strengths from knowledge production at the margins and in the radical corners of relevant social science disciplines and argue that there are three overarching contributions to draw from the social sciences to understand the role of finance in a global and historical perspective. These are (1) historical grounding, (2) a structural theoretical and methodological understanding of power, and (3) centering the intertwined nature of social relations and financial structures. Only with such a broad and rich toolbox, are we able to develop an answer to our research question: How can we understand the historical and structural determinants of financial processes and their unequal impacts globally?

In the following sections, we unpack the three pillars of this research agenda, with particular reference to South Africa as an example of a Global South economy where neoclassical approaches to finance fail to capture many of the crucial economic and societal structures that financial processes are shaped by and embedded in. South Africa was incorporated into the global financial system at an early stage and possesses one of the oldest stock exchanges among emerging economies, making the country a good case study to scrutinize the allegedly developmental effects of financial development and financial integration.

3.1 Historical Grounding

To understand contemporary changes in financial processes in South Africa, it is crucial to ground the analysis in history. This allows us to both trace continuity and transformations over time, and to inform our understanding of drivers and effects of global uneven financial processes.

South Africa's integration into the global economy since the mineral discoveries of the late nineteenth century provides a good example of how historical grounding lends important insights to understanding contemporary shifts in operations of finance and financial relations. The City of London played a central role in channeling British investments, as well as investments from other European capitals into the nascent South African mining industry, in particular after the discovery of gold in 1886. Remarkably close to contemporary arguments by mining finance professionals as to why the City of London has held its central position as a financial hub (Styve 2019), it was London’s ‘institutional matrix of insurance, brokerage, Stock Exchange, banking and refining facilities [that] provided the Witwatersrand mines with financial and other services which were increasingly essential (…)’ (Van Helten 1982, p. 539). Gold sourced from South Africa was essential to Britain’s ability to finance free trade globally and to keep up trust in the gold standard of the time (Cain and Hopkins 1980, p. 487; Van Helten 1980, p. 234). In this early period of the establishment of the mining industry in South Africa, the fact that the price of gold was externally determined meant that increasing costs could not be transferred to raising prices, and the gold mining companies instead continued to push down working costs. The gold reef in what would become Johannesburg, was of low-grade ore, and when deep-level mining eventually became necessary, massive capital investments were needed (Hart and Padayachee 2013, p. 63; Richardson and Van Helten 1982, p. 329). This also led to amalgamation of mine ownership early on, with ownership of the industry becoming highly concentrated in six major mining and finance houses (Feinstein 2005, p. 103). Building on practices from the diamond industry to institute an extremely racialized and exploitative migrant labor system, with devastating impacts on social relations throughout the region, the mining industry in collaboration with the nascent South African state (unified in 1910) relied on the super-exploitation of African mineworkers to ensure profits were made, including for the London investors. During the later apartheid period, Karwowski, Fine, and Ashman (2018) argue that financial services became an important part of the drive by mining conglomerates to diversify across the economy, at the same time as state-led expansion to promote Afrikaner participation at the leading heights of the economy challenged the dominance of international capital. Within what Fine and Rustomjee (1996) termed the Minerals-Energy Complex, capital was kept inside South Africa due to sanctions against the apartheid regime, leading to both higher concentration of ownership and the increasing development of financial markets. After the end of the apartheid regime, South Africa has reintegrated into global markets in a manner which has continued to heighten the financialization of the economy (Karwowski, Fine, and Ashman 2018).

Analyzing the South African case historically, points the analysis both towards the imperial impetus of the early integration of South Africa’s economy into London’s financial markets in the late nineteenth century, but also towards how these long-term historical legacies have repercussions for the contemporary ways that the financial system operates. While London is no longer the major source of financial investments into the South African mining industry, the City of London has continued to be a central financial hub for mining finance. Major mining companies, such as Anglo American, were allowed to move their primary listings to London in the late 1990s, from where they have been able to expand globally, instead of investing in the South African economy, which might be considered a paradox given the political emphasis put on attracting foreign capital to the country (Styve 2019). Within South Africa, despite the growth of a black capitalist elite, the mining industry itself remains highly racialized² and the remnants of the exploitative migrant labor system can still be seen, for instance with the high number of rock-drillers still coming from the Eastern Cape and Lesotho (Chinguno 2013, p. 644).

Placing the long South African history of integration into international financial markets within a broader global context also highlights how the dominance of finance capital is by no means only a contemporary phenomenon. Many scholars have pointed to the historical precedent of the ‘belle epoque’ from the 1870s to the First World War in terms of the global mobility of finance capital, but even earlier precedents can be found going all the way back to the Italian city-states of the fourteenth century (Arrighi 2010). In the accumulation cycle that was characterized by British hegemony, Arrighi (2010, pp. 169–171, 220) traces the period of British financial expansion from the 1870s until the 1930s. Whereas material expansions are focused on increasing production and growth in trade, financial expansions are ones where financial capital dominates (Arrighi 2010, p. 87). The intensification of world trade and material expansion in the mid-nineteenth century meant that competition was heightened, and profit rates were lowered, paving the way for a switch from trade and production to finance. In this context it made increasing sense to keep some capital liquid (instead of reinvesting it in industries with heightened competition and lower profit rates) and let the City of London brokers invest it in whatever part of the world economy where higher returns could be found (Arrighi 2010, pp. 169–170). Arrighi (2010, p. 173) points to the role of the Rothschilds to illustrate this shift from production to high finance. This is also relevant for the connections between London and South Africa, as the Rothschild family played an important role in bankrolling Cecil Rhodes’ mining ventures in South Africa in the 1880s and 1890s (Chapman 1985). The financial expansion of the latter part of the British cycle of capital accumulation coincides with British and European capital expanding and investing in the South African diamond and gold mines in the last decades of the nineteenth century.

South African historiography has always paid close attention to economic and financial questions, and the historiographical debates of the 1970s produced a rich and wide-raging body of work on the relationship between economic development, racial hierarchies, and the state (Saunders 1988). The term racial capitalism was prevalent within these debates (Pierre and Hudson 2020), precisely to center the inextricably intertwined nature of racism and capitalist expansion that was so evident in the development and history of the mining industry in South Africa³ (Johnstone 1976; Legassick and Hemson 1976; Wolpe 1972). On a world scale, Cedric Robinson’s deployment of the term in Black Marxism referred to how European capitalist expansion was already based on racial hierarchies from its inception.⁴ The historical approach to the development of capitalism taken by scholars within the black radical tradition and pan-Africanist scholarship further centers the role of trans-Atlantic slavery and the intertwined nature of racial hierarchies and capitalist expansion (James 1938 [1963]; Robinson 2000 [1983]; Rodney 1972; Williams 1944; Ralph and Singha 2019), not leaving aside the importance of gender (see Claudia Jones’ work in Davis 2008; Davies 2011). The resurgent interest in the term also goes to show how central it is to understand how contemporary capitalism is precisely racial capitalism (Bhattacharyya 2018; Jenkins and Leroy 2021), and the necessity of employing a deeply contextualized historical approach that pays close attention to questions of race, gender and class (as we will come back to further on under social relations).

Beyond South Africa, within historical approaches to financial processes and economic questions more generally there is a key distinction to be made between economic historians who are often located in economics departments and who employ quantitative methods and use large data-sets on the one hand, and historians of capitalism who, located in history departments, often pay more attention to broader sets of power relations within a global historical context, and emphasize questions of race, gender and the social underpinnings of the economic order (Eichengreen 2019, p. 21). While we recognize the value of systematizing historical economic data, the theoretical framework employed in quantitative approaches matters, and using neoclassical economic theory to test historical economic patterns leaves us back where we started with the failures of mainstream economic approaches to understand financial processes. Rather, combining a historical analysis over the longue durée with a theoretical framework that recognizes the importance of power structures to financial expansions therefore become central.

3.2 A Structural Analysis of Power

The key strength of heterodox economics is its structural theoretical and methodological approach to finance as a global process, which centers the role of power. As we will see, this is crucial for understanding the uneven outcomes associated with financial processes generally, in South Africa — and beyond. This is important given that one of the main drawbacks of mainstream approach to economics and finance is its lack of understanding and analysis of power beyond market relations (Ozanne 2016). While, of course, power features in mainstream economics as well, it is seen as an imperfection and an incompatibility with perfect competition (Palermo 2007). As such, it shows up as market power in the form of monopoly power in different segments of labor, product, and credit markets, leading to market friction and imperfections. In heterodox economics, on the other hand, capitalism is altogether a system of power (Palermo 2007, p. 359).

In contrast to the naturalization view of finance in capitalism in the mainstream of the field (Wood 2003), in heterodox approaches, capitalism is seen as exploitative and polarizing, and finance within it may play a destabilizing, destructive, and extractive role (Alami et al. 2022). This has consequences for how heterodox economics approaches finance, both theoretically and methodologically, and thus opens the door for a totally different understanding of global finance. Heterodox economists recognize money as political and as socially embedded. As Arestis, Nissanke, and Stein (2005, p. 248) write, money is ‘not simply driven by investment needs, the productivity of capital and the real return on holding money,’ but is a social institution. Social institutions, in turn, are a part of society’s uneven power relations. Indeed, heterodox economists argue that financial processes are inseparable from prevailing social relations of production (Alami et al. 2022).

We argue that there are three key implications of this structural approach that centers power for our understanding of financial processes globally, and especially their impact on countries in the Global South. First of all, this leads us to analyze how unequal power relations impact global finance and the development of financial systems in developing countries. Second of all, this puts us in a position to uncover the distributional impacts of these power relations. Third, and finally, it opens the door for analyzing the destabilizing nature of global finance.

Let’s consider first how unequal power relations impact global finance and financial systems in the periphery. To understand the often-polarizing effects of finance, seeing finance as a part of a capitalist system of accumulation centered on profit extraction dominated by capital, becomes central. At the global level and to understand finance in the periphery, theories of dependence, subordination, and imperialism become particularly important (Kvangraven 2023). Since the classical theories of imperialism of Luxemburg, Lenin and Hilferding, Marxist economists have understood that monetary and financial phenomena take specific forms in the spaces that have been coercively integrated into the global economy (Alami et al. 2022). Centering imperial power relationships in our study of finance makes it possible to see the extraction of locally generated surplus through the global financial system (Norfield 2016; Suwandi 2019; Ricci 2018).

As we will deal with towards the end of this section, the ways in which this coercion took a specifical historical form is central for understanding the particularities of how finance works in and impacts areas that have become subordinate in the global economy through a processes of development of underdevelopment (to borrow Frank’s terminology). History also matters in the contemporary ways in which imperialism manifests itself and impacts financial processes, and historical colonial relations have continued in new, mutated forms (e.g., Gilbert et al. 2023). There are many examples of such continuity across heterodox and political economy literature, for example Marxist work that analyzes financial arbitrage as a form of ‘imperial rent’ (Musthaq 2021b), studies of the continuity of coloniality of financial systems in postcolonial contexts (e.g., Amin 1974; Nkrumah 1965; Koddenbrock and Sylla 2019; Koddenbrock, Kvangraven, and Sylla 2022), and studying how class struggle shapes cross-border financial management, which in turn results in geographical differentiation (Alami 2020). Regarding the latter, this allows for structural theorization and opens the door for exploring how financial processes may be class- and race-based, rather than centering finance on the individual or nation state (which we will come back to in the section on social relations). This stands in contrast to mainstream economics which is centered on either methodological individualism or methodological nationalism, where either individuals or nation states are seen as the most relevant units of analysis.

Given that financial development in peripheral economies has taken place within the context of such unequal global integration, an emerging literature in heterodox economics has started to study this through the lens of ‘peripheral’ or ‘subordinate’ financialisation (Becker et al. 2010; Painceira 2012; Bonizzi, Kaltenbrunner, and Powell 2020). Financial subordination is a relation of domination that penalizes actors in the periphery disproportionately and expresses itself as constraints on agency of actors, contributing to patterns of uneven spatial development (see Alami et al. 2022 for full elaboration). For example, Bonizzi, Kaltenbrunner, and Powell (2020) show how the hierarchical nature of both global monetary and production relations make for a specific form of financialization that differs from the dynamics observable in advanced capitalist economies. Besides, scholars have long found that the international financial system forces costs on countries in the periphery through a variety of mechanisms (Tavares 1985; Gevorkyan and Kvangraven 2016; Akyüz 2017; Lampa 2021; Musthaq 2021a; Dutt 2021; Levy-Orlik 2022; Alves 2023). In the case of South Africa, this manifests itself both in the ways in which shifts in operations of finance have unfolded historically — and how the benefits and costs are distributed — as well as the external vulnerabilities that have arisen from the South African financial sector’s integration into the global economy from a subordinate position in a hierarchical global economy (Ashman and Fine 2013; Isaacs and Kaltenbrunner 2018). Such vulnerabilities and the extractive nature of the financial deepening that has taken place in South Africa is difficult to capture within the mainstream approach to finance.

This has policy implications as well. For example, the policies promoted by state managers in the South African Finance Ministry were inspired by neoclassical and new Keynesian economic ideas, and accordingly considered ‘capital controls as heterodox and risky’ (Gallagher 2015, p. 117). The approach outlined in this article, however, demonstrates that such policies are not neutral or technical tools, but rather have highly uneven distributional impacts between social classes.

What have been the distributional effects of these uneven and volatile capital flows? The relatively open capital accounts also led to capital inflows that fueled rapid credit extension to the private non-financial sector, most of it directed to the household sector (Alami 2018), and, more generally, the international aspect of financialization has been characterized by the powerful role that international financial markets play in restructuring political, economic and social life (Kaltenbrunner and Painceira 2015). This political landscape also had an impact on how finance has evolved and how financial capital was distributed. Since the end of Apartheid, capital flight has continued to be a major issue for the South African economy, with short-term capital inflows financing long-term capital outflows (Ashman, Fine, and Newman 2011). These inflows largely benefited a small minority who were the beneficiaries of conglomerate ownership and control.

South Africa also has a high degree of monopolies in its banking sector, with the banking sector has become less competitive in recent years (Kvangraven, Koddenbrock, and Sylla 2021). South Africans have been included into the financial system on highly uneven terms. As Bond (2013, p. 569) puts it, ‘financial circuits of capital exacerbate capitalism's intrinsic economic, social and environmental inequalities.’ This is particularly visible in periods of ‘financialization’, where the underlying production of value shrinks in relative terms compared with the rising value of financial capital. This leads to what Trotsky originally termed uneven and combined development. In South Africa, this is particularly visible in the ways that mining companies can access capital with ease and at affordable rates through the equity markets (Karwowski 2015), while black South African workers in the mines are exploited through micro-credit schemes (as was revealed after the Marikana massacre of 2012) (Bond 2013; Bateman 2019). What’s more, beyond their limited access to affordable mortgage loans that have become a new asset class for the financial sector, poor and middle-class communities in South Africa are sometimes evicted from their neighborhood following asset bubbles and high rents prices, two phenomena linked to the corporate intrusion in the housing sector (Migozzi 2019; Kvangraven, Koddenbrock, and Sylla 2021).

The third insight that heterodox theories provide is their attention to how finance can be destabilizing. For example, heterodox economists have shown that financial development is often followed by banking crises and economic downturns (Arestis and Sawyer 2005, Arestis, Demetriades and Luintel 2001). What is central in heterodox accounts is the endogenous nature of financial fragilities and inherent risks of international capital flows. In such a view, volatility becomes not the consequences of misguided policies and misaligned fundamentals, but an endogenous outcome of a hierarchical capitalist system and the uneven terms upon which developing economies are integrated into it (Arestis 2001; Barbosa 2011; Grabel 1996; Kaltenbrunner 2015; Alami et al. 2022).

Heterodox theories of finance also point to how, for example, accumulation of finance may favor unproductive assets, which is also relevant for understanding finance in the Global North (Marx 2004[1867]; Schumpeter 1911; Keynes 1930). This is also of relevance for South Africa, where capital inflows largely go to speculation, rather than productive investments, which further increase financial fragility. Indeed, Karwowski (2015) finds that mining companies largely use financial markets to support their speculation in mining assets, rather than investments in production and extraction. What’s more, rather than external finance flowing to productive investments, it ends up as cash holdings on corporate balance sheets. Meanwhile, firms in South Africa that do want to make investments in the real economy are largely unable to access finance through formal banking channels (Kvangraven, Koddenbrock, and Sylla 2021). To be able to understand these vulnerabilities in South Africa’s international financial integration, we need to center heterodox theories that are aimed at understanding precisely these fragilities and new forms of external vulnerabilities (Isaacs and Kaltenbrunner 2018). This is particularly important since many of these dynamics are either under-theorized or entirely neglected by mainstream literature.

3.3 Centering the Intertwined Nature of Social Relations and Financial Structures

While heterodox and political economy scholarship provides important insights into structural features of financial systems in developing countries and the ways in which they are integrated in the global economy, these approaches also suffer from some important limitations, in particular with regards to how social relations are both shaped by and underpin financial and economic structures (Alami et al. 2022). Anthropological perspectives can, for example, expose and unpack the ways that financial markets develop (Rethel 2018), how financial markets generally reinforce class, race and gender hierarchies (Radhakrishnan 2018; see also Chong 2015; Gilbert and Sklair 2018; Elyachar 2005), as well as how financial systems impact ‘everyday life’ (e.g., Davis 2009; Langley 2009; Pryke and du Gay 2007; Hillig 2019). Furthermore, economic anthropology can also offer insights regarding how international hierarchies are sustained, for example through imperialism or nostalgia for financial stability (see also Gilbert et al. 2023; Bernards 2021). Insights from the ways that sociologists and anthropologists approach agency can provide fruitful avenues for gaining a deeper understanding on the one hand of how financial processes impact agents and communities and is mediated through local practices, and on the other, how social practices can drive and shape shifts in financial practices.

‘Local’ concepts (such as householding, obligation and saving) challenge the often top-down accounts of ‘financialization of everyday life’ that are more prevalent in heterodox economics (James 2021). Indeed, ethnographic work across the globe has demonstrated that financial processes affect hierarchies that are embedded in social relations (Bähre 2020; Ribeiro and Escobar 2006). For example, in economic anthropology, there is a strand of literature that sees the expansion of finance as another medium for shaping and constraining social relationships (Pryke and du Gay 2007). Through ethnographies, it becomes increasingly possible to understand agency rather than seeing structures ‘imposed’ on victims (James 2021). For example, the impact of financial processes on gender hierarchies has been widely studied in anthropology (see Bähre 2020 for an overview). In South Africa, women often continue to have to support and remain intimate with their less fortunate relatives, thus taking on financial obligations on their behalf (James 2017), and intra-household inequality remains persistent (Bassier et al. 2021).

The increasing penetration of financial markets through micro-lending practices has long been recognized as having the potential to be exploitative among anthropologists, heterodox economists, and other social scientists (e.g., Peebles 2010; Ghosh 2013; Guérin 2014; Morvant-Roux et al. 2014; Trisal 2020; Brickell et al. 2020). As Bond (2013) shows for the case of mineworkers in Marikana in South Africa, paying close attention to how social relationships are formed and sustained through credit and debt relations can also reveal how micro-lenders are regulated by the social context in which they both live and operate (James 2014; Krige 2019). The vilification of small-scale moneylenders in Soweto by both state and civil society actors encourages what Krige (2019, p. 405) terms the ‘financialization of poor people’s money’ towards formal banking. While not trying to romanticize local moneylenders, Krige (2019, p.423) shows how this official vilification fails to recognize the dense social connections involved and the extent to which the personal and social nature of these types of credit relationships allows for negotiating the terms of loans and repayments. The long history of stokvels in South Africa with different forms of rotating savings and credit clubs that were often run by urban women (Burman and Lembete 1995; Lukhele 1990) have been seen as new market opportunities the formal banking sector, but some of these have also been transformed in what Krige (2019, p. 62) calls forms of ‘financialization from below’.

Social practices themselves can also stimulate financial development, thus contributing to explaining financial practices and systems, rather than only studying its particularities and effects. For example, social scientists have argued that causal explanations of shifts in the financial system can be found in changes in everyday social practices (Zelizer 1994; Pitluck, Mattioli, and Souleles 2018). In relation to Bangladeshi financial systems within the global financial hierarchy, Gilbert (2019, p. 62) documents how entrepreneurs, bankers, and nation-branding experts ‘have the capacity to both reinforce and rework the hierarchies in which the country is placed by analysts in the global financial centers.’ The work on the anthropology of global systems can also give fruitful insights both on drivers and effects of subordinate financialization because it adds analyzes of agency to our understanding of structural processes (Kalb 2013). This is what Kalb (2013) has called ‘structural contingency’. Perhaps one of the most fruitful lessons from anthropological inquiry is also its openness and insistence on developing theory based on a deep engagement with real life processes, rather than starting out with theory driven research (Kapherer 2018).

If we begin by understanding financial processes as always already embedded in social relations⁵ that contain complex constructions of raced, gendered and class-based hierarchies, the analysis of financial processes becomes both richer and more grounded in social realities. In contrast to the mainstream view of identities as individual and additive and the traditional Marxist accounts of treating class as a base that determines all social relations, bell hooks’ (2000, p. 118) formulation of a ‘white supremacist, capitalist patriarchy’ allows for a holistic and systemic approach that can interrogate how financial processes are simultaneously constituted by and exacerbates race, gender and class — based hierarchies. Looking at how finance capital dominates within the global economy, we have to account for how global white supremacy operates as the racial dimensions of an international power system, and how white privilege and power structure global capitalism (Beliso-De Jesús and Pierre 2019, p. 65).

In the case of South Africa, the work of Alami (2018, 2020) lays out how the management of cross-border flows were shaped by both racialized and class-based processes, driven by both unequal power relations within South Africa and globally. He finds that the purpose of cross-border finance management was central for consolidating and deepening specific modes of managing class relations in a changing international context. For example, various events related to class struggle and protests at several points in South African history triggered acute episodes of capital flight, forcing the state to design and implement capital controls to prevent the large-scale outflow of resources (Alami 2018). The working class also had an indirect influence on the design of capital controls through the various government attempts to control and integrate them. Here, also, a historical approach is key. When Britain abandoned the gold standard in 1931, it triggered massive capital outflows from South Africa (Bond 2003). The legislative framework for capital control management was developed in order to manage class relations and to protect ‘poor white workers’ and to ‘avoid their radicalisation’ (Davies et al. 1976, pp. 11–12). With import substitution industrialization in the first half of the twentieth century, sophisticated financial markets and new financial institutions were developed by the mining houses and the state, which played an important role in mediating money-capital inflows, largely from British financial institutions (Alami 2018). Lifting capital controls on non-residents during the democratic transition period in South Africa played an important role in reassuring global capital that South African (Black) state managers — a lot of them former trade unionists, liberation fighters, and overt socialists — would abide by its norms and disciplines (Alami 2020).

In terms of how hierarchies of race and gender impact financial processes themselves, racist and sexist perceptions among investors and financial institutions is a good example. For instance, racist perceptions of South Africa and the region more generally affect how international investors’ relation to South Africa, even in comparison with Brazil and many other emerging markets (Alami 2020). Drawing on the decolonial work of Grosfoguel (2016), Alami elucidates how South Africa is positioned further down the global hierarchy of superiority and inferiority that characterizes coloniality and global race relations, and how these matter for understanding how capital relation impinge upon the state in South Africa. Anti-black and racialized hierarchies form a key part of how political risks are evaluated by investors (Styve and Gilbert 2023). The category of ‘political risk’ itself is intimately tied into how African state capacity has been demonized within development discourses that continues to insist on African ‘difference’ and ‘lack’, forming part of a broader power structure of global white supremacy (Pierre 2020).

Similarly, going back to the example we opened this article with, the GFC itself can hardly be explained without reference to social relations and how particular financial practices are both racialized and gendered. The financial inclusion program that was supposedly meant to give previously excluded groups access to mortgages, subprime loans were offered predominantly to women and ethnic minorities, albeit at higher costs and with more disadvantageous terms than white Americans (Dymski, Hernandez, and Mohanty 2013). This, in turn, led to a disproportionate scale of foreclosures and wealth losses for this group in the aftermath of the GFC. Such discrimination was further intensified for single mothers, suggesting racist and sexist preconceptions about this group’s ability to pay back mortgages (Flynn et al. 2020). Arguing that ‘the term subprime mortgage has become a racial signifier in the current debate about the causes and fixes for a capitalism in crisis’, Paula Chakravartty and da Silva (2012, pp.364–365) analyze the GFC through a lens of race and empire (see also Schuster and Kar 2021). Showing how the racialized constructions of Blacks’ and Latino/as’ as lacking in ‘creditworthiness’ underpinned the high-risk, high-profit ventures of subprime mortgages in the first place, they place the GFC within a longer history of colonial and racial capitalist expansion:

Beyond the immediate politics of blame, our interest is in situating the racial moment of the financial crisis in the last three decades of neoliberal backlash waged across the postcolonial (global) South. As a starting point for our discussion we assume that these recent histories are themselves embedded in the colonial and racial matrix of capitalist accumulation of land (conquest and settlement), exploitation of labor (slavery, indentured labor, forced migration), appropriation of resources, and ultimately the very meaning of debt in what Walter Mignolo calls the modern/colonial world system. (2012, p. 364)

The mechanisms for the extraction of financial profits then rely on the racial and gendered making of ‘unsuitable economic subjects’, that have to be understood as a fundamental part of the racial logic of global capitalism, a racial logic that defines the very notion of the modern subject (Chakravartty and da Silva 2012, pp. 365, 382). Introducing critiques of the constitution of economic subjecthood in this way challenges the foundational categories that economists operate with. However, destabilizing that might be, it opens up for an analysis that is able to account for the fact that certain places and people are rendered ‘affectable others’ of financial expansion and crises, ensuring capital’s access to the value they produce through what da Silva (2007, 2014, p. 5) terms an analytics of raciality as a modern strategy of power.

It is worth noting that late neoclassical economic thought tends to omit relational values and cannot easily theorize social relations, given its atomistic view of individuals, their identities, and relationship to other humans (Nelson 1995; Kesar 2020), even within more contemporary developments within late neoclassical theory (Milonakis and Fine 2009; Madra 2017; Alves et al. 2024).⁶ With a more open approach to the relationship between social relations and financial processes (and vice versa), we believe economic analysis will be better suited to understand the complexities of changing financial processes across the globe.

4. Conclusion

Delving into the complexities of financial processes in South Africa’s case demonstrates that to understanding real drivers and impacts of financial processes, a deep kind of anti-disciplinarity is needed — one that is not simply about adding social or political perspectives to mainstream economics, but rather about interrogating how we think about economic systems, drawing on a variety of theoretical and disciplinary insights. This is not about adding extra perspectives from different disciplines but taking an open and holistic approach that centers history, power, structures, and social relations.

With an issue such as finance, these critical approaches that can be found outside of the mainstream of the economics field allow us to see that finance cannot be separated from the wider economy or from the social relations it forms part of today and historically, including racialized and gendered relations. This means it will not be possible for the mainstream of the economics discipline to integrate these lessons, given the structures of knowledge production that it supports and the way it excludes and disciplines alternative ways of knowing. On the contrary, an anti-disciplinary approach that breaks down disciplinary boundaries and allows for heterodox and radial approaches will be more amenable for understanding financial processes.

While recognizing how finance impacts agents and communities, how finance is mediated through local practices, and how social practices themselves can drive financial processes, helps us better understand the drivers and manifestations of changing financial processes, it is important to not lose sight of the uneven and hierarchical nature of these processes. Micro-level studies thus need to be situated within macro-level theorizing about how racial capitalism operates as a global system. We need to combine these different levels of analysis and perspectives not simply in order to understand financial processes better, but to challenge the very structures that produce and reproduce global white supremacist, capitalist patriarchy. While this is clear in the case of South Africa, as we have demonstrated throughout this article, it holds true beyond South Africa as well.

Acknowledgements

This article has benefited greatly from feedback from many colleagues and friends. Since the beginning of the Price of Wealth project back in 2019, which was funded by the Wenner-Gren Foundation, we have received sustained and constructive feedback from participants of the project. We are indebted to Rick McGahey, Teresa Ghilarducci, and Gustav Pebbles for inviting us to be a part of this project and for engaging very constructively and generously with our ideas and various versions of the article from the beginning to the end. Danilyn Rutherford, Donna Auston and Kathryn Derfler from the Wenner-Gren foundation provided academic, logistical and moral support throughout. We are also grateful to our friend Paul Gilbert with whom we had early discussions about the nature and potential of the field of anthropology as a way of enriching economic analysis, but also the drawbacks of anthropology itself and the need to move beyond disciplines. All the workshop participants provided incredibly useful feedback on the article, with a special thanks to Carly Schuster and Isabelle Guérin for giving particularly detailed comments. Last but not least, thanks to the editor and anonymous reviewers of the Review of Political Economy, who provided excellent feedback and helped us polish the article for publication. All errors remain our own.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 This report argued that World Bank research methodology on finance and development between 1998 and 2005 was excessively focused on cross-country comparisons and cross-country regressions. Furthermore, the report deems such regressions to be useful to illustrate general patterns but points out that they cannot be reliably used for policy conclusions. What’s more, the report considers the link between finance and growth to be ‘too black-boxy’ to provide any practical guidelines for policymakers (Banerjee et al. 2006, p. 111).

2 African men represent about 70 per cent of the semi-skilled and unskilled workers in the mining industry, while white men still hold 60 per cent of top management positions (Department of Labour, 2016, 112).

3 The debate was also spurred by liberal claims that the system of job reservations during apartheid was inimical to economic growth. In opposition to this claim, the radical scholarship produced at the time showed how racial segregation had been and continued to be central to capitalist growth in South Africa (Saunders 1988).

4 An example of mainstream analysis of identities that attempts to go beyond the individual to consider group inequalities is stratification economics (for a review, see Chelwa, Hamilton, and Stewart 2022).While this is an improvement on methodological individualism, the analysis tends to still center on group ‘rationalities’ rather than individual rationalities, thus to some extent remains committed to a rational choice framework.

5 For an important reminder of the South African origins of the term racial capitalism, and its strong political potency, see Peter James Hudson and Jemima Pierre’s editorial in the Black Agenda Report, 16 December 2020, https://www.blackagendareport.com/racial-capitalism-black-liberation-and-south-africa.

6 While social relations is a central term within the anthropological tradition there are many different approaches to how to define the term. For our purposes here we focus on social relations as a complex set of social relationships within a broader societal structure of raced, gendered and classed hierarchies. See for example Baviskar and Ray (2020).