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    Financialsation & Crisis

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    sushilkhanna
    This document discusses the rise of financialization in Western economies and its implications. It argues that the financial sector has grown rapidly since the 1970s crisis and deregulation, and now appropriates most corporate profits through mechanisms like mergers and asset stripping. This has shifted power to a financial oligarchy and weakened labor. It questions how surplus can be generated without workers, and whether financial profits come just from real assets or also speculative trading. The globalization of finance also extracts surplus from developing nations. India has resisted full financial liberalization but private equity is growing there too.

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    Financialsation & Crisis

    Uploaded by

    sushilkhanna
    33 views20 pages
    This document discusses the rise of financialization in Western economies and its implications. It argues that the financial sector has grown rapidly since the 1970s crisis and deregulation, and now appropriates most corporate profits through mechanisms like mergers and asset stripping. This has shifted power to a financial oligarchy and weakened labor. It questions how surplus can be generated without workers, and whether financial profits come just from real assets or also speculative trading. The globalization of finance also extracts surplus from developing nations. India has resisted full financial liberalization but private equity is growing there too.

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    On the Financialisation of Global Economy and its relation to recent economic crisis

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    This document discusses the rise of financialization in Western economies and its implications. It argues that the financial sector has grown rapidly since the 1970s crisis and deregulation, and now appropriates most corporate profits through mechanisms like mergers and asset stripping. This has shifted power to a financial oligarchy and weakened labor. It questions how surplus can be generated without workers, and whether financial profits come just from real assets or also speculative trading. The globalization of finance also extracts surplus from developing nations. India has resisted full financial liberalization but private equity is growing there too.

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    Download as pptx, pdf, or txt
    33 views20 pages

    Financialsation & Crisis

    Uploaded by

    sushilkhanna
    This document discusses the rise of financialization in Western economies and its implications. It argues that the financial sector has grown rapidly since the 1970s crisis and deregulation, and now appropriates most corporate profits through mechanisms like mergers and asset stripping. This has shifted power to a financial oligarchy and weakened labor. It questions how surplus can be generated without workers, and whether financial profits come just from real assets or also speculative trading. The globalization of finance also extracts surplus from developing nations. India has resisted full financial liberalization but private equity is growing there too.

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    Financialisation and Crisis

    Historical Materialism Conference,


    New Delhi, April 2013

    Sushil Khanna Indian Institute of Management Calcutta

    Finance & Global Economy: Some Issues

    What has fueled the expansion of financial sector in the Western World ? What are the key characteristics of the contemporary financial sector? What is the mode of surplus appropriation? How does this financialisation of economy change our understanding of contemporary capitalism? What does it mean for developing economies?

    Finance and Capitalist Crisis

    During the last century all crisis have begun from the financial sector The crisis of 1930s, often attributed to excesses of speculative finance? When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done -Keynes

    Regulation of Finance & Revival of Capitalist Accumulation

    The excesses and the crisis ( 1930s) it caused, led to a regime that constrained the role of finance in the economy

    Glass-Steagall Act that prohibited banks from undertaking investment banking activities; later also insurance (1956). Interest rate regulation Control on financial conglomerates Fixed exchange rates

    Post War Golden Age of Capitalism

    Crisis and Rise of Neo-Liberalism

    Capitalism faced its first post-war crisis in 1973; caused by :

    Rising trade deficit of USA and accumulation of dollar reserves Increase in oil/energy prices Revelation of limits to US power (Vietnam debacle)

    Followed a decade of volatility in exchange rates and crisis of accumulation and expansion

    Rise of Neo-Liberalism

    Characterized by: Deregulation of business & privatisation of State Enterprises Expansion of market into new corners (water supply, municipal services) Dismantling of social programmes & weakening of trade unions Unrestrained global competition

    Making of a New Regime of Accumulation

    End of fixed exchange rates and expansion of trading / speculation in foreign exchange markets Globalization of finance (initially limited to TRIAD and later to few developing countries) Erosion of Glass Steagall restrictions and rise of self-regulation Mergers & rise of financial conglomerates Universal banking

    The New Regime of Accumulation

    Monetarist policies that used interest rates to control inflation destroyed funding ability of banks and thrift industry Key role of Securitisation ( financial paper suitable for global structure - Minsky) Enhanced the funding capability of financial market -- as opposed to banks Conformity of Institutions across nationsability of creditors to capture assets that underlie securities(L. American Debt Crisis)

    The New Regime of Accumulation

    This was accompanied by capital account liberalisation and globalisation of production and trade Western oligopolies increasingly under pressure from Third World producers Financial sector begins to grow at rates twice as fast as real economy sometimes unconnected to real economy

    Increasing share of financial profits

    Rising share of FIRE in USA GDP

    Changing share of corporate profits-US

    Finance Today -- Speculative ?


    We now know that Financial System no longer serves need of production /real economy Only 3 per cent of the UKs 6 trillion (= 200 bn) financial sectors assets constitute lending to business (manufacturing, retail, transport etc) Consumer loans & mortgages = 1000 bn Rest ( 82 per cent) are all financial assets How do we understand the financial entities lending to each other? What does it mean for the economy? Or for capitalist accumulation?

    Mode of Surplus Generation & Appropriation

    How can the financial sector capture bulk of the profits of the economy? What then is the power of multinational monopolies and corporate barons behind every product market? Can there be surplus generation and appropriation without workers? If so, what is the mechanism of surplus extraction by the financial sector?

    Shift in power to Financial Oligarchy

    while .. these entities( boardrooms of giant multinationals) (control) allocation of resources. the occupants of these boardrooms are themselves to an increasing extent constrained and controlled by finance capital (Paul Sweezy, 1994)

    Mechanism of Surplus Extraction

    Surplus still generated only in real economy Corporate restructuring driven by financial entities; operations of M&A; private equity & hedge funds which rely on high dividends and stripping of assets and assumption of debt before being sold off -- transfer surplus to the financial sector Pressure to cut costs to be competitive forces down wages and rise in household debt

    Third World in the Web of Global Finance Capital

    The rise of Asia (now Africa) often celebrated as `Empire striking back or spread of capitalism to hitherto pre-capitalism societies But sweat shops of Asia actually transfer surplus from their underpaid workers to boardrooms of giant multinationals and finally to financial oligarchy Western MNCs still manage to capture bulk of consumer spending, (on account of IP, brands, marketing etc.)

    Is this adequate explanation?

    Only partially, -- since though surplus from real sectors is transferred to financial oligarchs, it is not adequate to explain the large share Profits also arise from `mark to market of esoteric financial securities, and financial assets can exchanged for real economy assets.

    Financial Liberalisation in India

    Capital account convertibility to prop-up a growing financial sector held back by


    Narasimham I 1997-98 Narasimham 2 2006 Still India has incipient financial liberalisation and entry of private equity and hedge funds with rising conflict with promoters.

    In Conclusion

    How do we understand capitalism today with its large financial structure? How is this financialisation linked to weakening of the working class movement? How will capital resurrect itself for a new regime of accumulation? Can developing countries play a role in redefining the role of finance? State owned banks and financial entities?

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