Literature on financial market liberalization focuses heavily on state activity in allocating preferential credit. I consider state activity in promoting nascent equity markets by asking why a state would create and promote a market in which the transaction costs are high, the potential rate of return is low, and firms are reluctant to list shares. I examine the case of the West African regional stock exchange and propose that the central bank for the West African Monetary Union created it to mediate the relationship between this region and the world economy. I propose that states and domestic markets act as complements rather than as rivals in some instances of bourse creation. Moreover, bourses in developing economies present a different set of relationships among states, public and private lending authorities, and market participants than their counterparts in more developed financial environments. This illuminates a need for further research in this area.
When evaluating emerging stock markets, analysts usually fit them into a model of corporate governance derived from Western industrial experience, one where shares are dispersed and shareholders influence firm management through the price mechanism, or one where shares are held in blocs and banks play a role. This book challenges this approach and the underlying assumptions, which are focused on economies at relatively high levels of development. It argues that the political dimension inherent in developing countries prevents the institutional formation of a price mechanism in corporate governance along Western lines. For these markets, stock is a political as well as an economic instrument that has negotiated the transitions associated with building and dismantling the state sector since the 19th century. The book begins with a historical overview of stock markets in developing countries and the international political circumstances that at times facilitated and at times hampered their growth. By focusing on the multiple possible connections between the ownership of shares of an individual firm and the control of rights attached to them, it details how those who wish to issue stock in emerging markets must comply simultaneously with the changing requirements of external actors and internal political constituencies. It then presents case studies of share issues from Latin America, Asia, Eastern Europe, and Africa, which build from the level of the firm, to the state, to the international system across the same time span. The book concludes with reflections on the role of equity finance in broader processes of privatization, development, and economic globalization.
In Money and Banks in the American Political System, debates over financial politics are woven into the political fabric of the state and contemporary conceptions of the American dream. The author argues that the political sources of instability in finance derive from the nexus between market innovation and regulatory arbitrage. This book explores monetary, fiscal and regulatory policies within a political culture characterized by the separation of business and state, and mistrust of the concentration of power in any one political or economic institution. The bureaucratic arrangements among the branches of government, the Federal Reserve, executive agencies, and government sponsored enterprises incentivize agencies to compete for budgets, resources, governing authority and personnel.
This chapter sets forth an explanation for international convergence in state behavior in creating and promoting emerging stock markets. Focusing on the commanding heights of privatized industry, it uses the metaphor of a two-level game from international relations theory to argue that when political leaders privatize large enterprise, they must negotiate with individuals outside the state to seek outcomes that are acceptable to structural international necessity, and they must negotiate with domestic constituencies to seek outcomes that are politically acceptable at home. To do so, policymakers create the specific financial instruments, with specific ownership and control characteristics. Since the new offerings joined whatever shares may or may not have already been listed on a given exchange, the resulting financial institutional structures fail to converge on one “model” of corporate governance or another, as Western financial institutions have converged over time. This theoretical premise would thus predict a large number of new exchanges appearing, at least in name, yet having vastly different volumes and types of listings, relative to the size of the local economy.
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