Abstract
The chapter stresses that all economies need payments systems and liquidity to function. Development, however, requires long-term support for projects and start-ups and such support the financial system under-provides. Since the 1980s, banks have become preoccupied with lending to the property sector and capital markets tend to favour well-known business groups in raising finance. Meanwhile most large banks have shifted to the trading of securities whose contribution to growth and development is questionable. Similar trends are visible in the developing countries. In the process, rent-seeking and moral hazard issues have multiplied in both sets of countries. The case of the Bank of Credit and Commerce International (BCCI) (1972–1991) provides a salutary lesson in how otherwise well-meaning attempts at providing financial services in the developing countries can end painfully.
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Notes
- 1.
This is a somewhat stylized version of events. For instance, in both nineteenth-century Europe and the USA some of the initial investments in infrastructure were made by the private sector and some investments in production were made by the State.
- 2.
The planning regimes of, say, Malaysia and Thailand, were much less rigid than those of China and Vietnam which were centrally planned economies and were also less rigid than the planning system of South Korea.
- 3.
It is important to stress this as neoliberals are ever-ready to take credit for the successful development experiences of East Asia.
- 4.
It is important to note that in the context of dire predictions of an imminent property and banking collapse in the country buying an apartment requires a hefty deposit, usually 30% of the purchase price, and mortgages whose term is rarely over 15 years, a markedly different picture to the situation in the USA or UK.
- 5.
China has always had a publicly owned banking sector. South Korea nationalized banks in 1961 and privatized some of them in 1998. India nationalized its banks in 1969 and Pakistan in 1974 but the latter began to privatize them in the early 1990s.
- 6.
Japanese industrial development was choreographed by MITI and led to the emergence of the Zaibatsu. In South Korea, banks were nationalized by General Park and were used for the development of the Chaebol.
- 7.
These fines may seem impressive but they constitute only a tiny proportion of their assets. In other words, they have been let off lightly.
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Ahmed, S. (2018). Financial Services, Growth and Development. In: Ruling or Serving Society?. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-00521-4_3
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DOI: https://doi.org/10.1007/978-3-030-00521-4_3
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