Financialization and the impasse of capitalism

Abstract

This article considers the inextricable relationship between globalization and financialization. It then argues that the decisive characteristic of financialization is the preeminence of financial accumulation over productive accumulation and of capital-as-property over capital-as-function. The importance of intercorporate power relationships in the distribution of surplus value is demonstrated. After a short setback in 2009, claims to surplus value have continued to grow faster than its production and appropriation, implying that financial profits have become harder to earn. The outcome is the unabated intensity of asset trading and endemic global financial instability.

Notes

Notes

1 I am aware of the controversies around the status of Volume III of Capital, and of Part 5 in particular. But this does not affect the extreme importance of the theoretical avenues Marx opened up in those chapters.

2 Despite a fall in 2008–2009, the combined global debt of governments, nonfinancial corporations, and households has grown by $72 trillion since the end of 2007. The advanced and emerging market economies’ nonfinancial sector debt now amounts to some 225 percent of world GDP. The increase is smaller but still pronounced when measured relative to world GDP. However, there has been a retrenchment in private debt buildup among advanced economies. It is marginally on the rise but well below its peak (see Mbaye and Moreno Badia 2019).

3 Marx emphasised, “this collection of small amounts, as a particular function of the banking system, must be distinguished from the banks’ functions as middlemen between actual money capitalists and borrowers.”

4 Duménil and Lévy 2011 spent a lot of energy trying to present them as strong pillars of effective demand.

5 These were calculated by McKinsey Global Institute, even if the estimates only have the status of a proxy as market valuations were used for their calculation. They grew at a compound annual average rate of 9 percent from 1990 to 2007, with a sharp acceleration in 2006 and 2007 (+18 percent). That year the ratio of financial assets to world GDP rose to 359 percent (McKinsey Global Institute 2009). The 20-year period of strong growth was brought to a halt by the 2007–2008 financial crisis. Due to soaring public debt following the government rescue of the major banks in the United States and Europe in 2008, and again in Europe in 2012, global financial assets in 2013 surpassed their precrisis totals, even if McKinsey regretted that “growth has hit a plateau and slowed to an anemic 1.9 percent since the crisis” (McKinsey Global Institute 2013).

6 Sweezy (1994) wrote: “This theory is best described, I think, as an “overaccumulation” theory. It holds that under monopoly capitalism as it has developed in the advanced capitalist countries during the twentieth century there is a strong, persistent, and growing tendency for more surplus value to be produced than can find profitable investment outlets. … the result will be a decline—or slowdown in the rate of growth—of output and income, with rising unemployment and falling rates of utilization of productive capacity. And this situation in turn puts an added damper on investment and economic growth.” (Sweezy 1994: 42)

7 Duménil and Lévy (2011: 153) argued that the rate of accumulation is closely related to the “level of retained profits,” what is left to managers once interest and dividends are paid. Later in the book, when they offered their expertise to U.S. policymakers, one point concerning the need to “invert neo-liberal trends towards dis-accumulation” (Duménil and Lévy 2011: 301).

8 These are all appropriations of surplus value and appear as “profits without production” only at the level of the individual firm. The problem is that Krippner’s term was subsequently used by some Marxists to characterize contemporary capitalism more broadly.

9 Indeed, the “capitalist mode of production has brought matters to a point where the work of superintendence, entirely divorced from the ownership of capital, is always readily obtainable” (Marx 1981: Chap. 23, p. 511).

10 For an enlightening update on U.S., productivity, see Smith (2018).

11 According to UNCTAD (2014), following the “shift to services,” international M&A operations reached a peak around 2004–2006. Estimates published in a recent official U.S. study indicated that global activity in mergers and acquisitions surpassed $5 trillion in 2015, about $2.5 trillion of which was in the United States, “the highest amount in a year on record.” Deals surpassing $10 billion accounted for 37 percent of global takeovers in 2015, almost double the average of 21 percent for the previous five years (Economic Report of the President 2016). The process has pursued since. In 2018, “Rising global trade tensions did not manage to stifle acquisitions: Deals involving companies based in different countries accounted for more than 40 percent of all announced transactions” (Grocer 2018).

12 http://www.storebrandsdecisions.com/news/2010/02/02/wal-mart-creates-global-merchandising-centers-to-streamline-sourcing

13 An interesting historical account is given by Bellofiore and Halevi (2010).

14 In this model, “the four key aspects of intermediation are 1° maturity transformation: obtaining short-term funds to invest in longer-term assets; 2° liquidity transformation: using cash-like liabilities to buy harder-to-sell assets such as loans; 3° leverage: employing techniques such as borrowing money to buy fixed assets to magnify the potential gains (or losses) on an investment; 4° credit risk transfer: taking the risk of a borrower’s default and transferring it from the originator of the loan to another party” (Kodres 2013: 1-2).

15 The board almost apologized for using the term: “some authorities or market participants prefer to use other terms such as “market-based financing” instead of “shadow banking.” It is important to note the use of the term “shadow banking” is not intended to cast a pejorative tone on this system of credit intermediation. However, the FSB has chosen to use the term as this is most commonly employed and has been used in the earlier G20 communications” (Financial Stability Board (2011: 1).

16 “Banking institutions have built stronger capital and liquidity buffers that, together with reforms to the rules governing money market funds, strengthen the ability of institutions to withstand adverse shocks and reduce their susceptibility to destabilizing runs. Recovery and resolution plans have helped ensure that risks leading to the failure of financial intermediaries are borne by the institutions and investors taking the risks and not U.S. taxpayers” (Board of Governors of the Federal Research System 2018).

17 https://www.ft.com/…/db97c650-1ec6-11e9-b126-46fc3ad87c65

18 Bernanke defined the term in 2010: “A too-big-to-fail firm is one whose size, complexity, interconnectedness, and critical functions are such that, should the firm go unexpectedly into liquidation, the rest of the financial system and the economy would face severe adverse consequences.”

He continued, “Governments provide support to too-big-to-fail firms in a crisis not out of favoritism or particular concern for the management, owners, or creditors of the firm, but because they recognize that the consequences for the broader economy of allowing a disorderly failure greatly outweigh the costs of avoiding the failure. If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved.” (Bernanke 2010: 1)

19 A March 15, 2019, financial newsletter returns to the event: “AIG’s swaps on subprime mortgages pushed the company to the brink of bankruptcy. As the mortgages tied to the swaps defaulted, AIG was forced to raise millions of dollars in capital. As stockholders got wind of the situation, they sold their shares, making it even more difficult for AIG to cover the swaps. AIG was so large that its demise would have impacted the entire global financial system. The $3.6 trillion money-market fund industry had invested in AIG securities. Most mutual funds owned AIG stock. Financial institutions around the world were also major holders of AIG’s debt” (Amadeo 2019).