2. Financial Inclusion and Building Financial Resilience

There have been several other financial crises that involve southern or emerging economies since the 1980s including Asia (1997), Russia (1998), and Argentina (1998).

Financialization is related to but distinct from the expansion of markets and trade, sometimes referred to as commodification. Commodification involves linking producers directly with consumers through markets. Commodification transforms goods and services that may have been used by the producer to meet his or her own needs. Instead of consuming the goods that one produces one sells (a portion) of these goods and purchases (a portion) of the goods that one needs for household consumption. As commodification proceeds, the role of finances and financial services will expand through the expanded use of cash, credit, savings, and investments by traders, hawkers, retailers, and consumers.

Sandel argues that excessive emphasis on markets is objected to on two general grounds: fairness and corruption (2012, pp. 110–13). The fairness objection highlights the limitations of the market under conditions of inequality or crisis. A person who is chronically poor or acutely struggling because of a natural hazard event might sell his/her land for a deflated price or possibly sell a body part. Inequality in outcomes leads the poor person to a further impoverished state. Not so for the non-poor person who can draw on assets such as insurance. The corruption objection relates to how the good in question is degraded by assigning a price. Allowing people to purchase admission to university, as opposed to meriting it through their academic achievement, is an example of degradation, in this case of the university and its staff. Sandel argues that expanding money incentives crowds out non-market incentives. The example he provides is of a Swiss village that voted on whether to accept a proposal that a nuclear waste facility be set up there. Initially the plebiscite was based purely on the notion of civic duty and 51% supported the arrangement. They added monetary compensation to each villager and this led to a decline in support to 25% (p. 115). The motivations were not additive but, in fact, were subtractive. Adding a financial incentive undermined the civic motivation and lessoned the local support for the nuclear waste facility. Adding an avenue whereby wealthy people can “buy” admission to university would lead to a similar effect on prospective and current students (and staff). The knowledge that one can pay their way in erodes that status, if not the content, of the institution turning some people off university or toward another university. He argues that the erosion effect outweighs the price effect (p. 119). Sandel points out that excessive commercialization changes the nature of the good. When land is given voluntarily by the Swiss community for nuclear waste storage it involves a civic contribution but when money is involved then financial payment gets conflated with civic duty. Moreover, Sandel argues that ethical behavior is not a scarce resource as Arrow and others argue but, in fact, can be an expanding good as one ethical act can lead, through ripples, to a series of other ethical acts, without diminishing the total pie or remaining ethical acts (pp. 126–27). Economists might assume that money can “sweeten the pot” and Sandel might argue the reverse that it corrupts the pot. Arguably context matters so that in some cases money might be additive and in other cases it might be subtractive. For instance, can money enable someone to overcome a barrier and then, once dieting/not-smoking/sending the kids to school, realizes the benefits and becomes motivated. Moreover, Sandel seems to assume that there are no other, and conflicting, monetary influences. Is that true? What about the media that obsesses about food and, in the past at least, romanticized cigarette smoking? Can a monetary incentive to diet (or to quit smoking) counter these pressures? The question of social virtue has been examined quite extensively in the social capital literature (Putnam 1993; Woolcock and Narayan 2003). One interesting conclusion of this literature is that social virtue is often path dependent, in that strong virtues today are the basis for strong virtues in the future.

The UNDP estimates that in 2015 there were already 7.1 billion mobile subscriptions (UNDP 2015, pp. 80–81).

There are many other interesting indicators of financialization. For instance, Ferguson argues that business schools are growing as more undergraduates anticipate getting a job in a bank: in 1970, 5% of graduates went into finances, whereas this increased to 15% by 1990, and 20 of male graduates in 2007 expected their first jobs to be in banks (Ferguson 2008, p. 5).

A related question is, what can be used as money? It is commonly argued that money is whatever people believe it is (Siklos 2004, p. 15; Ferguson 2008, p. 27). But money has traditionally taken the form of coins, paper, and more recently, electronic form in credit and debit cards.

For instance, an early debate played a “balanced” approach to economic development that sought to grow a wide range of sectors to an “unbalanced” approach that identified leading sectors that dynamically pull the entire economy forward.

In its formative years in the post-colonial period, starting in the post–World War II period, the study of development was deeply influenced by economic theory. Sociology made substantial contributions during this time, but these were less policy related. Anthropology’s contribution has more recently been critiqued for its focus on understanding diverse local people for the purpose of drawing them into and being controlled by the colonial and then the modern state system. Both economic theory generally and the subdiscipline of development economics were quite different from economic theory today. The discipline was more diverse, and much economic thinking theorized a much larger role for the state in the economy. The neoclassical school in economics was evident but not as dominant as it is today. It co-existed with Keynesian economics, and Keynesian economics dominated macroeconomics. The neoclassical school co-existed with even more interventionist economic theories such as Marxist theory. While Marxist theory was not considered a part of the canon or economic orthodoxy it certainly influenced economic thought at the time. Development economics, as compared to economic theory, was even broader in its approach in that it encompassed neoclassical economics and spanned Marxist and dependency theories of economic development and underdevelopment. While theoretically diverse compared to development economic thinking today, the role of finances were, as in general economic theory, not central.

For instance, in a popular textbook of the period written by Canadian Benjamin Higgins (1968, 1959), Economic Development, there are no chapters or subchapters on the topic and in fact “banking” and “finances” do not even appear in the index. The book spends about one-half of its volume on grand theories of economic development and another one-third on policies, with the remaining material on case studies.

This includes Marxists, who saw class conflict as the principal cause of poverty and its resolution through revolution as the principal means of development; dependency theorists, who saw North–South exploitation as the root of global poverty and disengaging from the North the ticket to Southern development; and liberal—as distinct from neoliberal—theorists, who saw the state the key actor in reforming the market for the common rather than private good.

One common foreign capital debate at this time dealt with examining the role and impact of multinational corporations (MNCs) on the Global South. Proponents noted the benefits associated with MNCs including capital and technology inflows, while opponents noted the limitations such as the lack of linkages into the broader economy.