Correciones y vaivenes (vía Actualidad Económica, Ago. 2015)

La bolsa China ha sido (con permiso de Grecia) una de las grandes protagonistas de la actualidad económica en los últimos meses. Desde occidente, y como siempre pasa con respecto a China, observamos estos vaivenes con una mezcla de miedo e histerismo que acaban dando lugar a un inevitables sobre reacciones.

En los países avanzados, la evolución de las acciones funciona como un indicador adelantado. Sus precios recogen los beneficios esperados de las empresas, que a su vez son un reflejo general de la economía. Los mercados de valores están abiertos a todo el mundo, y las compañías para cotizar tienen que cumplir estrictos (aunque siempre mejorables) normas de transparencia. Con todas sus imperfecciones, se trata de mercados accesibles y transparentes.

En el caso de China, la reciente caída de la bolsa no alerta de la existencia de problemas económicos (igual que la subida previa no anticipaba un crecimiento mayor) sino que, sobre todo, es un ajuste derivado de las disfuncionalidades crónicas y gran opacidad con las que operan las bolsas del gigante asiático.

Se trata de un sector aún en pañales. De entrada, los mercados se han abierto relativamente hace poco al gran público. Hasta fecha muy reciente, tan solo unos pocos inversores cualificados podían invertir.

Por otro lado, en China cotizan empresas de todo tipo y los criterios para cotizar son opacos y arbitrarios. En muchas de ellas, el Gobierno sigue siendo el accionista principal . Otras veces se trata de compañías que se desenvuelven en mercados regulados donde la rentabilidad depende del criterio del político de turno.

Además, el sistema bancario esta profusamente intervenido y prácticamente la totalidad de los préstamos los monopolizan empresas públicas, la mayoría insolventes desde hace tiempo, que aguantan por contar con el apoyo tácito de los poderes públicos.

Finalmente, en los últimos meses hemos asistido a una fiebre de OPV. Hay una importante lista de espera de empresas chinas que quieren saltar a los parqué, y la racionalidad no es siempre empresarial, sino política. El Gobierno incentiva muchas salidas porque entiende que fortalecen el tejido empresarial del país y facilita su necesaria internacionalización.

Todas estas circunstancias interfieren en la libre fijación de precios y, aunque en el corto plazo propician crecimientos vertiginosos, en el medio acaban propiciando correcciones igualmente intensas.

Dicho esto, la reciente corrección supone una acomodación de los precios a los indicadores fundamentales de muchas empresas, que acumulaban subidas desorbitadas. En el caso de Shanghái, por ejemplo, la revalorización anual superaba el 150%. Por ello, el ajuste en sí no debería de ser motivo de alarma. Es consecuencia de la gran volatilidad de un mercado disfuncional, que todavía necesita de muchos avances en su liberalización para funcionar normalmente.

Es opinión de este analista, los verdaderos problemas procederán, si acaso, del flanco político. La próxima gran reforma de China, su make or breake, es la del sistema bancario y financiero que debiera permitir a China abrir su hoy cerrada balanza de capitales. Se trata de una empresa tan ambiciosa como lo era a finales de los años ochenta el aterrizaje de la inversión extranjera y la libertad comercial en las zonas francas de la costa, y su implementación requerirá la puesta a punto de un escenario más transparente e integrado escenario global.

Un empeño no exento de correcciones y vaivenes.

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Notes on China by Napoleon Bonaparte #history

5115.- ORDRE.
París,  7 vendémiaire an IX
(28 septembre 1800)
Le Premier Cónsul ordenne que
A-Sam, Chinois,  originaire de Nankin, sois embarqué sur l’une des corvettes commandées par le capitán de vaisseau Baudin pour être conduit, aux frais de la République,  à l’île de France, et de là dans sa patrie.
Il est expressément recomandé au capitaine Baudin et aux chefs militaires et d’administration de la marine d’avoir pour A-Sam les égards qui ‘ il mérite par sa qualitat d’étranger et par la bonne conduite qu ‘ il a tènue pendant son séjour sur le territoire de la République.
                                      BONAPARTE
Arxives de l’Empire.

Greece is a pawn in fight between France, Germany by W. Watts (Market Watch)

There are two factors that must be remembered to make sense of the long-running eurozone debt crisis.

The first, and better known, is that the euro is a very flawed currency. As has been noted repeatedly since before the first euro note ever rolled off a printer, it is very hard to share a currency without also sharing fiscal policy.

The second is that the shared currency was always first and foremost a political, rather than an economic, project. It was part of the dream held by postwar European politicians, including giants like former French President François Mitterand and Germany’s Helmut Kohl, who viewed an evermore united Europe as the best way to inoculate the continent against another devastating war.

But despite a genuine desire for a peaceful and integrated postwar Europe, political and economic rivalries didn’t disappear.

At the risk of oversimplification, Germany and France have long been jealous of one another. While the countries both recovered rapidly from World War II, Germany’s economic miracle was a source of envy for France. In particular, French officials resented the primacy of the Bundesbank, Germany’s central bank, which served to dictate monetary policy across much of Western Europe.

At the same time, many German politicians resented playing what seemed like second fiddle to Paris when it came to European affairs and global diplomacy. While Germany remains somewhat ambivalent about what it is role should be in the world, some Germans saw the euro as a way to co-opt France’s political primacy in Europe.

In other words, Germany thought it was putting one over on France, and vice versa.

It was a troubling scenario, as was noted by economist Martin Feldstein back in 1997: “What is clear is that a French aspiration for equality and a German expectation of hegemony are not consistent. Both visions drive their countrymen to support the pursuit of EMU, and both would lead to disagreements and conflicts when they could not be fulfilled.”

There were bitter fights between France and Germany in the run-up to the launch of the euro. Germany’s desire to limit the euro to a small club consisting of itself, France and some like-minded fiscally austere allies, such as the Netherlands, conflicted with France’s desire for a broader euro.

France, seeking to end the ability of Spain and Italy to competitively devalue at the expense of French exporters, wanted those southern European countries inside the euro.

Germany’s efforts were undercut when a slowdown ensured it missed some of the stringent criteria it had insisted be a test for euro membership. With Germany and France both fudging their way in, there was no way to keep the so-called Club Med countries out.

Those divisions have only deepened. In a weekend of negotiations that came perilously close to seeing a country forced out of the euro, Germany, the Netherlands, Finland and a handful of former Eastern bloc countries sought to play hardball. France and Italy, though wary of Tsipras after his snap decision to call a referendum, lined up on the other side.

While a Grexit was averted, at least for now, it is clear that the eurozone’s ong festering political divisions now rival its fiscal divisions. More political turbulence almost certainly lies ahead.

 

Grecia y el sueño europeo de JM de Arielza (ESADE)

Valery Giscard D’Estaing pronunció el 28 de mayo de 1979 un emotivo discurso en Atenas, en el que daba la bienvenida a Grecia a las Comunidades Europeas. El político francés presidía el Consejo Europeo, había apadrinado esta adhesión y no dudó en utilizar su buen griego clásico para cantar las alabanzas de la civilización nacida hace más de 2500 años. El hecho de que no muchos asistentes entendiesen sus loas no le impidió extenderse en ellas. Se trataba de la segunda vez que el club europeo abría sus puertas a un nuevo miembro. A diferencia de la ampliación de 1973, las Comunidades habían tenido muy en cuenta un imperativo político: la necesidad de anclar en las instituciones de Bruselas a la recién recuperada democracia griega.

Giscard apoyaba a fondo al primer ministro Konstantinos Karamanlis, quien había regresado del exilio para ganar las elecciones, aprobar la constitución de 1975 y formular la petición de adhesión a las Comunidades Europeas, invocando el acuerdo de asociación de 1961 que abrió a Grecia las puertas del Mercado Común.

La petición de ingreso fue acogida con reservas debido a los problemas sociales y políticos que arrastraba el país, la debilidad de su sistema financiero, una alta inflación y una agricultura poco modernizada. Pero el tándem franco-alemán impuso su visión geopolítica e invocó la pertenencia de Grecia a la OTAN desde 1953. Grecia ingresó en 1980 con un trato favorable para su agricultura y unos períodos transitorios generosos que permitieron ensayar su adaptación en otros sectores. La Comisión por primera vez estableció la siguiente condición: para convertirse en Estado miembro el candidato debía garantizar la democracia y el imperio de la ley.

Los socialistas y comunistas griegos votaron en contra de la ratificación del tratado de adhesión. A diferencia de España, no hubo un gran consenso pro-europeo detrás de esta decisión de tanto calado constitucional. Cuando Andreas Papandreou, líder del PASOK, ganó las elecciones en 1981 anunció que renegociaría los términos de la adhesión e incluso convocaría un referéndum para decidir sobre la permanencia en las Comunidades, una consulta que nunca llegó a realizar. El socialista consiguió a cambio un incremento de los fondos europeos. En Bruselas, los sucesivos gobiernos helenos se granjearon enseguida fama de hiper-nacionalistas por su tendencia a vetar cualquier aproximación a Turquía por parte de las Comunidades.

El peso político y económico de España, que empezaba a negociar en 1977 su ingreso, alertó a los negociadores comunitarios de que nuestro país podía ser una “gran Grecia” si, una vez dentro de Europa, imitaba el comportamiento de Atenas. El presidente Giscard no tuvo reparos en vetar varias veces estas negociaciones, que se alargaron ocho años años y acabaron con condiciones mucho más exigentes que las de la adhesión griega.

Por su parte, el país heleno no desarrolló, como otros recién llegados al proyecto de integración, un europeísmo que le llevase a un proceso de modernización de la economía y la sociedad. Nunca consiguió organizar un sistema eficaz para cobrar impuestos y desarrollar una cultura cívica para entender por qué pagarlos. Aunque parte de sus elites sí hicieron suyo el sueño europeo, la mayoría de los ciudadanos se conformó con entenderlo como un apoyo financiero continuado.

Una vez cayó el muro de Berlín, Grecia centró sus esfuerzos políticos en conseguir que Chipre ingresara en la Unión Europea junto con los países del Este. En 2002 consiguió unirse al euro ya en marcha sin hacer mucho ruido, presentando unas estadísticas oficiales sorprendentes en las que como por ensalmo había desaparecido la inflación y el déficit público quedaba en un 1,5%. En 2004 el nuevo gobierno conservador anunció que el verdadero déficit era del 8,3%. Pero la celebración de los Juegos Olímpicos ese año en Atenas llevó a aumentar la deuda sin reducir el gasto público, aprovechando que se podía financiar en las mismas condiciones que Alemania. Los acreedores no valoraron el riesgo de seguir financiando alegremente a un país que se endeudaba a toda velocidad.  Justo en ese año, Francia y Alemania, en vez de aceptar sanciones por incumplir los límites de gasto público señalados en el Pacto de Estabilidad y Crecimiento, lo reformaron para hacerlo más flexible, una señal nefasta hacia países como Grecia.

En otoño de 2009, en plena crisis financiera y repitiendo la “confesión” de 2008, el gobierno recién elegido del PASOK hizo de nuevo las cuentas y comunicó a Bruselas un déficit del 14%, en lugar del 2,7%. Los líderes europeos con la ayuda del FMI tuvieron que improvisar en mayo de 2010 un primer programa de rescate, al que siguió un segundo programa y un verdadero rediseño de la moneda común para evitar que una pequeña parte de la economía de la zona euro pudiese amenazar la viabilidad del proyecto entero. Desde entonces, la financiación a Grecia por 240.000 millones de euros no ha impedido que crezca el desempleo, se hunda la economía y aumente la deuda hasta casi el 180% del PIB. Solo el gobierno de Antonis Samaras consiguió enderezar el rumbo por unos meses.

La victoria en enero de la coalición de extrema izquierda de Syriza puso fin a ese momento de esperanza. El comportamiento radical e incompetente del gobierno de Alexis Tsipras en Bruselas ha destruido la confianza de sus socios europeos. El primer ministro ha alimentado la frustración de sus conciudadanos agitando enemigos externos como la “troika”, Alemania, los bancos o una UE insolidaria. Ese peligroso juego ha culminado con el referéndum-chantaje del pasado domingo, el cierre de los bancos y la negociación al borde de la salida del euro para iniciar un tercer rescate, como era de esperar, con condiciones más exigentes que nunca. A nadie le sorprenderá que hace unos días el ex presidente Giscard haya propuesto una “salida amigable” de Grecia de la eurozona, para que “pueda ocuparse de sus problemas financieros, crecer fuera de una moneda fuerte y generar inflación”. De este modo, explica el político francés, “Grecia se prepararía para volver a ingresar en el futuro en el euro”. Para que se le entienda mejor, esta vez no lo ha dicho en griego clásico.

Lenin and Marx: Sound Money Advocates? by Louis Rouanet (Mises Institute)

Most modern socialists are in favor of inflation, because it is supposed, in Keynes’s words, to “euthanize the rentiers.” It doesn’t mean however, that the “founding fathers” of socialism were in favor of inflation. In fact, the opposite is true. Karl Marx had a wide knowledge of the economic literature and even though he’s usually wrong, he was correct in his preference for a gold standard.

As for Lenin, he was in his writings opposed to inflation and saw paper money as a means used by the bourgeois capitalists to enrich themselves. Even though Marx and Lenin were not supporters of inflation, they supported sound money for the wrong reasons. But, at least, we can say that concerning money they did not succumb to naïve inflationist views.

Karl Marx, Inflation, and the Gold Standard

Marx applied the labor value theory to money. According to Marx, the use of a particular commodity like gold or silver for money rests on the fact that — like all other commodities — there is an amount of “socially necessary labor” required to produce it. If, for example, one ounce of gold requires ten hours’ labor, its value is equal to another product requiring ten hours’ labor. Marx’s labor theory led him to say that “Although gold and silver are not by nature money, money is by nature gold and silver …”

What Marx put forward was that the total value of needed currency represented a total amount of labor value, and therefore a total weight of gold. According to Marx, if the total of gold is replaced by inconvertible paper money and the paper money is then issued in excess, prices will go up:

If the paper money is in excess, if there is more of it than represents the amount of gold coins of like denomination which could actually be current, it will (apart from the danger of falling into general disrepute) represent only that quantity of gold, which, in accordance with the laws of circulation of commodities, is really required and is alone capable of being represented by paper. If the quantity of paper money issued is, for instance, double what it ought to be, then in actual fact one pound has become the money name of about one-eighth of an ounce of gold instead of about one-quarter of an ounce. The effect is the same as if an alteration had taken place in the function of gold as a standard of prices. The values previously expressed by the price £1 will now be expressed by the price £2.

Therefore, Marx opposed the use of inflation as a means for increasing production. However, Marx’s monetary theory is very confusing. Concerning money, Karl Marx owes nothing to Ricardo. He was influenced by Tooke and the Banking school while he was very critical of the Currency school. Furthermore, Marx was fiercely opposed to Peel’s Act of 1844 which forbade notes unbacked by metallic money. Oddly enough however, Marx was criticizing fiduciary credit as being “fictitious capital” which seems to be in contradiction with his opposition to Peel’s Act.

We must keep in mind, however, that the main difference between Marx and other economists is that Marx was simply trying to describe how capitalism operates, with or without inflation. He was not saying that inflation will improve or destroy capitalism. In Marx’s view, capitalism is inevitably unstable and doomed. For him, workers must abolish capitalism and replace it with socialism, in which there are no problems of prices, inflation, crises, and unemployment.

Lenin, the Bolsheviks, and Inflation

The following quote is often attributed to Lenin: “The best way to destroy the Capitalist System is to debauch the currency.” This supposed statement has circulated widely among economists and the public. Hellwig remarked that: “It is almost a ritual, on the occasion of the required tributes to a stable monetary standard, to quote Lenin as a bogeyman.”[1] The problem is that this quote has never been found in Lenin’s works. The first attribution of this statement was made by J.M. Keynes in his book The Economic Consequences of the Peace (1919). No one at the time challenged what Keynes was attributing to Lenin, and even today, this quote is still used by some sound-money advocates. However, Lenin’s few remarks on monetary matters give the opposite impression from the remark attributed to him by Keynes. In September 1917, before the Bolsheviks overthrew the government in power, Lenin wrote an article on “The Threatening Catastrophe” where he speaks about money and banking. Of inflation he said:

Everybody recognizes that the issue of paper money is the worst kind of a compulsory loan, that it worsens the conditions principally of the workers, of the poorest section of the population, that it is the chief evil in the financial confusion. … The unlimited issue of paper money encourages speculation, allows the capitalists to make millions, and places tremendous obstacles in the path of the much-needed expansion of production; for the dearth of materials, machines, etc., grows and progresses by leaps and bounds. How can matters be improved when the riches acquired by the rich are being concealed?

This paragraph could have been written by an Austrian economist, and it is known that the Marxist tradition is sometimes close to the Austrian analysis concerning business cycles (see Huerta de Soto’s Money, Bank Credit and Economic Cycles). Like Lenin, we believe that inflation can foster income inequality, hamper economic growth, impoverish the poor, and cause asset inflation.

However, once they were in power, the Bolsheviks were responsible for hyperinflation. In Socialism, Ludwig von Mises wrote:

The Bolshevists, with their inimitable gift for rationalizing their resentments and interpreting defeats as victories, have represented their financial policy as an effort to abolish Capitalism by destroying the institution of money.

Mises is right, but he forgot to say that political opportunism and not ideology was the reason why communists used inflation. Basically, for the communists, inflation is wrong when communists are not running things, but it is all right when they are in control. Professor E.H. Carr wrote:

None of the Bolsheviks wanted, or planned, inflation. But, when that happened (since the printing press was their main source of revenue) they rationalized it ex post facto by describing it as (a) death to the capitalists and (b) a foretaste of the moneyless Communist Society. Talk of this kind was widely current in Moscow in 1919 and 1920. … Keynes in 1919 had no special knowledge of Lenin; everything that came out of Moscow was automatically attributed to Lenin or Trotsky, or both.

Hayek wrote once that as long as it remains theoretical, socialism is internationalist, but when it is put into practice, it becomes violently nationalist. We should also say: as long as it remains theoretical, Marxism is anti-inflationist, but when it is put into practice, it becomes violently inflationist.

Grecia y los sueños rotos, M. Trías Sagnier (La Vanguardia)

Grecia ha estado presente en nuestro imaginario colectivo como un lugar de ensoñación. Una combinación de Kavafis y vacaciones por las islas del Egeo, evocadores del viaje odiséico, nos llevó a contemplar ese precioso país como algo cercano al paraíso en la tierra. En Grecia nos sentimos enraizados en lo más noble de la simbología cultural europea. La razón imponiéndose al mito, la democracia a la tiranía, el equilibrio frente a la desmesura. Y de allí la obra cultural helenística, Roma, el Renacimiento y la Ilustración, en un recorrido marcado por la luminosidad de Holderlein y el heroísmo de Lord Byron.

Pero el gran historiador Arnold J. Toynbee nos recordó que la Grecia moderna no es más heredera de la Grecia clásica de lo que lo somos los europeos occidentales, sino tal vez mucho menos. Grecia no tuvo propiamente renacimiento, ni la Ilustración asentó allí sus raíces. Se mantuvo cristiana, es cierto, pese a entrar en el ámbito del imperio Otomano, tras la caída de Constantinopla. Pero lo hizo en la órbita de la cristiandad oriental, una esfera compartida con los territorios cristianizados desde Bizancio: Rumania, Bulgaria, Serbia y sobre todo Rusia. Quedó al margen de la evolución cultural, artística y política que llevó a Europa a la Modernidad. El conjunto monástico del Monte Athos muestra en todo su esplendor la comunión cultural de ese mundo, que enarbola el águila imperial de dos cabezas como recuerdo de su origen bizantino.

La Grecia moderna es un país complejo, de marcado cariz balcánico, que encuentra sus raíces en la lucha contra Turquía. Lucha desgarrada que, tras la guerra de independencia, prosigue en las primeras décadas del Siglo XX con los intercambios poblacionales que obligan a los griegos de Asia Menor y de Estambul a abandonar sus hogares, al tiempo que los turcos de Tesalónica y otras zonas eran desplazados en sentido inverso. Así se conforman dos naciones de marcado carácter étnico en un territorio en el que estos grupos culturales antes convivían bajo la tolerancia del sultanato decadente. También contribuye a la conformación del moderno desgarro helénico la configuración geoestratégica surgida de Yalta. Tras la liberación de la cruenta invasión nazi, Grecia se debate entre la opción de buena parte de su pueblo por dar apoyo a los partisanos y el acuerdo entre Stalin y Churchill que sitúa a Grecia en la órbita británica. Una guerra civil frecuentemente olvidada acaba saldándose con la imposición de un régimen prooccidental.

El estado griego, carente de una tradición administrativa y sin una sociedad civil estructurada que lo apoyara surfeó por las aguas de la política europea, aprovechando sus recovecos que le permitieron la entrada en el Mercado Común y después en el Euro en un monumental ejercicio de falseamiento de cuentas. Pero las raíces de la rebeldía balcánica siguieron allá y Varoufakis nos lo ha evidenciado recientemente con toda su teatralidad. Y Grecia debe definitivamente decidir si quiere unirse a ese complejo fruto postmoderno de la Ilustración que es la Unión Europea o internarse en las no menos postmodernas aguas del bloque civilizatorio ortodoxo, confirmando entonces la tesis de Huntington de que, acabada la época de las luchas ideológicas, las divisiones étnico-religiosas van a conformar el mundo del siglo XXI.

Why growth in finance is a drag on the real economy, Stephen Cecchetti, Enisse Kharroubi 

 

 

A booming financial sector means economic growth. Or does it? This column presents new evidence showing that when the financial sector grows more quickly, productivity tends to grow disproportionately slower in industries with either lower asset tangibility or in industries with higher research and development intensity. It turns out that financial booms are not, in general, growth-enhancing.

Finance and growth are intimately connected. For at least two decades, we have known that for economies to thrive, they need deep and broad financial systems (Levine 1997). But what is true for emerging market economies may not be true in the advanced world. That is, finance could very well be a two-edged sword. When credit is relatively low, or the financial sector’s share of employment modest, higher levels of debt add to growth. But there is a threshold beyond which it becomes a drag. There is now considerable evidence that productivity grows more slowly when a country’s government, corporate or household debt exceed 100% of GDP (see Reinhart and Rogoff 2010, Cecchetti et al. 2011, and Cecchetti and Kharroubi 2012).

The link between financial growth and real growth

In a recent paper (Cecchetti and Kharroubi 2015) we broaden the focus to the study of the relationship between financial growth and real growth. Or, more specifically, the effect of changes in the size of the financial system on total factor productivity growth. And, unlike the level relationship – where finance is good for a while – in this case the result is unambiguous. The faster the financial sector grows, the worse it is for total factor productivity growth. Using panel 20 countries over 30 years, we establish that there is a robust, economically meaningful, negative correlation between productivity and financial sector growth. We also find that causality likely runs from financial sector growth to real economic growth.

Graph 1 plots growth in real GDP per person employed on the vertical axis against two measures of financial sector growth on the horizontal: growth in private credit to GDP (left-hand panel) and growth in the share of total employment that is in financial intermediation (right-hand). We use data on 20 advanced economies from 1980 to 2010. In every case, data are averaged over five year periods and measured as deviations from the country mean. The figure shows a clear negative relationship between financial sector growth and productivity growth. The line running through the scatter plot has a negative slope with a coefficient that is significantly less than zero at the 1% level in both cases.

To ensure that the impression from the graph is in fact an accurate reflection of the relationship in the data, we estimate a simple growth regression that both examines a variety of measures for financial sector growth and controls for things like initial conditions, inflation, the size of government, trade openness, population growth, investment to GDP and the occurrence of financial crises. Our conclusion is quite robust – there is a clear negative relationship between financial sector growth and real growth.

Graph 1. Financial sector growth and productivity growth

http://www.voxeu.org/sites/default/files/image/FromMay2014/cecchetti%20fig1%207%20jul.png

 

http://www.voxeu.org/sites/default/files/image/FromMay2014/cecchetti%20fig2%207%20jul.png

Graphs plot non-overlapping five year averages rates of deviation from country means for Australia, Austria, Belgium, Canada, Switzerland, Germany, Denmark, Spain, Finland, France, the United Kingdom, Greece, Ireland, Italy, Japan, the Netherlands, Norway, Portugal, Sweden and United States over the period from 1980 to 2010. The right hand panel controls for beginning-of-period real GDP per worker.

We can get a sense of the size of the effect by looking at some specific examples. Consider the cases of Ireland and Spain. Starting with Ireland, from 2005 to 2010 the ratio of Irish private credit to GDP more than doubled, growing 16.9% per year. By contrast, over the five years from 1995 to 2000, it grew at a more modest average annual rate of 7.7%. Our estimates (not reported here) imply that this 9.2 percentage point difference has resulted in a productivity slow-down over 2005-2010 of 0.8 percentage points per year compared to the period 1995-2000. This accounts for around 30% of the 2.9 percentage point drop in productivity growth (from 3.3% a.r. to 0.4% a.r.) that occurred over this period.

Turning to Spain, from 1990 to 1995, credit to GDP was almost constant (-0.22% per year) while Spanish productivity was growing 1.7% per year. Fifteen years later, from 2005 to 2010, credit to GDP grew 8.1% a year but productivity grew only 1% a year. Our estimates suggest that, if credit to GDP had been constant instead of rising by 8.1 percentage points, then productivity growth in Spain over 2005-2010 would have the same as it was in 1990-1995 (1.7% per year).

Why finance is doing harm

What is behind this empirical regularity? What is the mechanism by which finance, something we know to be fundamental to the operation of the economy, is doing harm? Our hypothesis is that it arises because finance tends to favour relatively low productivity industries as such industries usually own assets that are relatively easy to pledge as collateral. So as finance grows, the sectoral composition of the economy changes in a way that drives aggregate total factor productivity down. The intuition for this comes from the observation that it is easier to obtain external finance for projects that are based either use tangible capital in their production or produce more tangible outputs. The more tangible a firm’s assets or output, the easier it is to pledge them as collateral for a loan.

We take this prediction to the data and study 33 manufacturing industries in 15 advanced economies. The key to figuring out which sectors are most likely to be damaged from financial sector growth requires that we look for the sectors where pledging of either assets or output is difficult. On the asset side, we can measure this directly from information on asset tangibility. For output, we use research and development  intensity as a proxy.

Our results are unambiguous. When the financial sector grows more quickly, productivity tends to grow disproportionately slower in industries with lower asset tangibility, or in industries with higher research and development intensity.

As for the quantitative implications of these estimates, we find that productivity of an industry with high asset tangibility located in a country experiencing a financial boom tends to grow 2.5-3% a year more quickly than an industry with low asset tangibility located in a country not experiencing such a boom. This is quite a large effect, especially when compared with the unconditional sample mean and volatility of labour productivity growth of 2.1% and 4.3%, respectively.

Financial booms are not, in general, growth-enhancing. And, the distributional nature of the impact is disturbing, as credit booms harm what we normally think of as the engines for growth – those industries that have either lower asset tangibility or high research and development intensity. This evidence, together with recent experience during the financial crisis, leads us to conclude that there is a pressing need to reassess the relationship of finance and real growth in modern economic systems.

Disclaimer: Views expressed are those of the author and not necessarily those of the BIS.