Financialisation of global value chains

The Express Tribune carried a commentary by an independent economist on how global value chains (GVCs), which have underpinned cross-border trade since the 1990s, are being financialised. The writer describes GVCs as a split of production across countries, where manufacturing, marketing and distribution of one product take place in several places. Lead firms based in advanced economies sit at the top, while suppliers are spread across developing nations.

According to the piece, lead firms listed on stock exchanges have lifted dividend payouts and share buybacks since early 2000, using surplus cash to meet shareholder goals. US-based lead firms are described as more financialised than European counterparts, partly because the American tax structure encourages cash distributions. The writer also says lead firms have stretched supplier payment periods while shortening the time they take to collect from customers, which strengthens their own cash position.

The commentary argues that short-term goals, including downsizing that lifts profitability, have replaced the long-term spending on research and development and skilled workers that once defined industrial capitalism. It concludes that financialisation has created more challenges than opportunities for suppliers in developing countries.