Needless to say, in terms of region North America, especially the US, which has become the apex of financial dominance, accounted for a overwhelming share of M&A activity in the study countries in terms of both numbers and value (Charts 9 and 10). Europe was a close second. And given the much larger and more dispersed financial sector in the US, as well the compulsions generated by monetary union in Europe, M&A activity in North America was dominated by intra-country, 'within-border' transactions, whereas cross-border M&A played a much more important role in Europe (Charts 11 and 12). But as the report notes, through strategic alliances the American financial industry has also spread its tentacles across the globe. In the net, the 1990s have seen an acceleration of the concentration of financial power and financial decision-making in fewer hands worldwide.

Chart 9 >> Click to Enlarge

Chart 10 >> Click to Enlarge

Chart 11 >> Click to Enlarge

Chart 12 >> Click to Enlarge
 
The significance of these developments for the observed financial instability and recurrence of financial crises during the years of globalisation should be obvious. The major historical landmarks in the rise to dominance of finance are worth recalling. Till the early 1970s the private international financial system played only a limited role in recycling financial surpluses to the developing countries. The period immediately after the first oil shock saw a dramatic change in this scenario. Since oil surpluses were held in the main as deposits with the international banking system controlled in the developed world, the private financial system there became the powerful agent for recycling surpluses. This power was indeed immense. Expenditure fuelled by credit in the developed and developing world generated surpluses with the oil producers, who then deposited these surpluses with the transnational banks, who, in turn, could offer further doses of credit. By 1981, OPEC countries are estimated to have accumulated surpluses to the tune of $475 billion, $400 billion of which was parked in the developed industrial nations. This power to the finance elbow was all the more significant because a slow down in productivity growth in metropolitan industry had already been bringing the post-War industrial boom to a close - a process that was hastened by the contractionary response to the oil shocks. As a proportion of world output, net international bank loans rose from 0.7 per cent in 1964 to 8.0 per cent in 1980 and 16.3 per cent in 1991. Relative to world trade, net international bank loans rose from 7.5 per cent in 1964 to 42.6 per cent in 1980 and 104.6 per cent in 1991.

Two other developments contributed to the increase in international liquidity during the 1980s. First, the United States had built up large international liabilities during the Bretton Woods years, when the confidence in the dollar stemming from the immediate post-War hegemony of the US made it as good as gold. Such international confidence in its currency allowed the US to ignore national budget constraints on its international spending and resulted in the emergence of strong banking and financial interests with an international agenda. The influence of these interests was reflected in policies that affected domestic manufacturing interests adversely, as suggested by the widening and persistent US trade deficit after the mid-1970s. Second, the loss of manufacturing competitiveness in the US meant that during different periods since the 1970s the dollar lost its position as the only acceptable reserve currency, fuelling speculative demand for other currencies on the part of those holding them. Such speculative demand, needless to say, is sensitive to both interest rate differentials and exchange rate variations, resulting in volatile flows of capital across currencies and borders. The results of these developments are obvious. The daily volume of foreign exchange transactions in international financial markets rose to $1.2 trillion per day by the mid-1990s, which was equal to the value of world trade in every quarter of a full year. In the early 1980s the volume of transactions of bonds and securities between domestic and foreign residents accounted for about 10 per cent of GDP in the US, Germany and Japan. By 1993 the figure had risen to 135 per cent for the US, 170 per cent for Germany and 80 per cent for Japan. Much of these transactions were of bonds of relatively short maturities.
 
There were also other real factors that created pressures for the expansion of finance. These included the changing demographic structure in most of the advanced countries, with baby boomers reaching the age when they would emphasise personal savings for retirement. This was accentuated by changes in the institutional structures relating to pensions, whereby in most industrial countries, public and private employers tended to fund less of the planned income after retirement, requiring more savings input from employees themselves. All this meant growing demands for more variety in savings instruments as well as higher returns, leading to the greater significance of pensions funds, mutual funds and the like.