The degeneration of capitalism from a system of production to a speculative orgy

As an economic system, capitalism took root and developed globally because of its success in driving production, promoting the accumulation of capital, and delivering economic growth. Marx’s Capital analyses and describes its success as an economic system in driving capitalists to out-compete each other, insatiably re-investing their surpluses to generate ever-greater profits to accumulate still further, extending the working day, using child labour, and bringing workers together in factories and mills so that modern machinery could be utilised to its fullest potential, and the work which had previously been performed by artisans could be subsumed within and tied to the workplace’s ever faster work rate:

One capitalist always kills many. Hand in hand with this centralisation, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the co-operative form of the labour process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labour into instruments of labour only usable in common, the economising of all means of production by their use as the means of production of combined, socialised labour, the entanglement of all peoples in the net of the world market, and with this, the international character of the capitalistic regime. (Marx 1867, 714–15)

That fundamental driving force of the system to produce more and more, on an ever-expanding scale, to out-compete your rivals lost its primacy long ago. Today, a large part of that energy and action goes on speculation and deal-making, trying to grab a bigger size of the existing pie – baked by someone else – rather than contribute towards the production or creation of new goods and services. There have been historic attempts to create more sustainable models of economic activity, still based on the capitalist system, most notably out of the wreckage of the speculative frenzy that led to the 1929 Wall Street Crash and the global Great Depression of the 1930s that amongst other things contributed to the rise of Nazism and the path to World War Two. The post-war era, to which much is owed to John Maynard Keynes – from his critique of the post-World War One settlement (Keynes, 1919), to his magnum opus on how to tackle recession and unemployment (Keynes 1936), through to his role in the Bretton Woods planning for new economic institutions and policies for a regulated and co-operative economic regime.

When that ‘golden age of capitalism’ broke down in the 1970s, it paved the way for the Thatcher and Reagan era of deregulation, privatisation and free-market globalisation, which led ultimately to the 2007–2008 international financial crisis and the subsequent global recession of 2009. But instead of a new direction, the subsequent decade has seen the costs of the speculative failures transferred to the mass of the population via the politics of austerity, whilst corporate leaders have continued along the trajectory of speculation and deal making, with no serious attempt to realign the economy to focus on what today needs to be a Green New Deal. Instead, a major focus continues to be the ‘rent seeking’ search for new areas of society where existing activities can be monetised, with the anticipated revenues and profits speculated on through bond and share sales. There is less focus on the intrinsic merits of the new ‘product’, and more on the likely movement of the newly issued shares, with money to be made from the process of speculating on such movements, quite apart from the gains to be made from those who guess right. (The costs of guessing wrong are often passed on to others, through ‘limited liability’, or being ‘too big to fail’.)

Share buy-backs represent another aspect of this unproductive deal-making speculative model for today’s corporate sector.¹ Rather than a company’s profits being invested in research and development or new facilities, they are used to buy their own company’s shares, hence boosting the price, and benefiting the shareholders – both those who sell, and those who haven’t sold and hence enjoy their increased wealth, caused by a rise in the value of the shares they retain. Opportunities for insider dealing and other corrupt practices are fostered and fester.

In ‘Do corporate insiders use stock buybacks for personal gain?’, Lenore Palladino investigates whether corporate insiders sell their own personal shareholdings more frequently when they are executing stock buybacks using corporate funds. Examining transactions for nonfinancial corporations with publicly traded stock from 2005 to 2017, Palladino finds that net insider sales of over $100k are nearly twice as common in quarters when stock buy-backs are also occurring than in non-buyback quarters. Palladino conducts an empirical analysis of the relationship between stock buybacks and insider transactions – and finds that a ten percent change in stock buy-backs is associated with a half-percent change in corporate insiders selling their personal shareholdings, holding other factors constant. This suggests that executives may indeed be taking advantage of the regulatory loophole left in the regulation of stock buybacks, and that policymakers should reform the regulations governing stock buybacks and corporate insider share-selling.

1. Capitalism unleashed

Just as the drive of capitalist firms to continually expand led them to expand overseas and globally, so the new era of speculative capitalism has done likewise. Indeed, Thatcher in Britain followed by others across the world deliberately took off the leash that Keynes and others had placed on the ability of capital to roam the world looking for nothing more than a speculative opportunity to make some money for its owners at the expense of others.² In ‘Empirical evidence on international capital immobility: a consumption-based approach’, Sulaiman Al-Jassar and Imad A. Moosa propose a measure of capital mobility based on consumption patterns and consumption-income correlation, and find that capital mobility is actually surprisingly low. And that it is lower for low-income than high-income countries. This is because while capital mobility provides benefits to some, it can be detrimental to the recipient country, which encourages them to impose capital controls. Capital mobility is thus being impeded by this ‘home bias’, which is to be welcomed, as it derives from the failure of the supposed benefits of international capital mobility to materialise.

While these speculative funds that swirl around the globe on the look out for opportunities to exploit may have no intention to assist anyone but their financial owners, there is another type of financial flow that does have a positive intent, namely remittances. In ‘Disentangling the relationship between remittances and financial development: evidence from Jamaica’, Regan Deonanan, Benjamin Ramkissoon, Dana Ramkissoon and Roger Hosein examine the relationship between remittances and financial development – meaning the development of the banking and financial system – in Jamaica using annual data from 1976 to 2016. They find that in the short run remittances actually substitute for financial development, whilst promote financial development in the long run. They also find that it is remittances rather than financial development that is the driver. Thus, the focus shouldn’t be on the financial sector, but rather on practical ways of assisting the process of receiving remittances. In the longer term, if financial development can help direct any resulting savings into productive uses, then so much the better.

In ‘Savings and the informal sector’, Stephen Dobson, Carlyn Ramlogan-Dobson and Eric Strobl note that in many countries the informal sector is a vital source of employment and income, yet little is known about the impact of this sector on savings, which are crucial in promoting investment and growth. Through the research reported in their paper, they find an inverse relationship between savings rates and the informal sector when the informal sector is small, but that once the informal sector reaches a certain size, further growth in the size of the informal sector boosts savings rates. This is positive, but they argue that rather than allowing the informal sector to grow unchecked, it is in everyone’s interests – not least those otherwise stuck in the informal sector – for policy to focus on removing barriers for successful operation of business in the formal sector, thus enabling people and productive operations to move from the informal to the formal sector of the economy.

In ‘The first job and occupational trajectories: young workers in Brazil between 2002 and 2016ʹ Bárbara Christina Pereira Da Silva Carrijo, Sandro Eduardo Monsueto and Larissa Barbosa Cardoso analyze the impact of the first job on the occupational trajectory of young people in Brazilian metropolitan regions between 2002 and 2016. The main model estimated the probability of a young person obtaining a job of higher socio-economic status in comparison with the first job obtained one year prior. Results indicate that the first job was predominantly in activities of lower socio-economic status, mainly for young women, although no important differences were observed regarding the level of qualification between genders. The type of occupation taken to enter the labour market has important consequences on a person’s occupational trajectory. In other words, a dependency relation was detected. The article offers empirical evidence of a dependency relation between the quality of the position obtained as a first job and the future trajectory of young people in the Brazilian labour market. This impact tended to be greater among women. The immediate policy implications are the greater need to address the quality of positions created as points of entry to the market.

In ‘The economic and social determinants of participation in physical activity in Brazil’, Luan Vinicius Bernardelli, Camila Pereira and Michael A. Kortt examine the economic and social factors that influence the frequency of participation in physical activity in Brazil. Employing a modified allocation of time framework, they use data from the 2015 Brazilian National Household Sample Survey to analyse the frequency of participation in physical activity for men and women between the age of 18 and 64. They find that household income has a very small but positive effect on the frequency of participation in physical activity while, in contrast, full-time employment and caring for dependent children have a larger negative for both men and women. Thus, they argue, social policies such as those designed to make physical activity more convenient in the workforce may help to facilitate more frequent participation in physical activity.

In ‘Specialization and KIBS in the Euro area: a vertically integrated sector perspective’, Davide Antonioli, Claudio Di Berardino and Gianni Onesti note that the imbalances among countries belonging to the European Monetary Union (EMU) have been analysed under several angles in recent years, but often neglecting the evolution of economic and productive structures. They fill this gap by analysing country specialization through the differences in the inter-industrial linkages that affect economic systems competitiveness and production processes. They use the input-output subsystem approach exploiting the latest WIOD release (2018) to investigate the role of business services, with a special focus on knowledge business services (KIBS), in shaping the EMU countries’ productive structures through their integration in the manufacturing sectors. The results show that disparities are growing in the composition of productive structure, and that these are even more pronounced when considering inter-sectoral dynamics.

2. Conclusion: the need for an economics of human wellbeing

In his review article ‘A Man for a Crisis: Keynesianism, economic theory and the future of civilization’, Vishnu Padayachee touches on many of these issues, as well as the problem of increased income and wealth inequality that capitalism unleashed has created. Padayachee quotes the argument of Skidelsky (2018) that:

The reinvention of macroeconomics requires inserting society into the study of economics. Marx understood this just as much as Keynes – and in some respects better, because he understood that individuals were members of classes, and their behaviour needed to be explained in terms of their class membership. (Skidelsky 2018, 386).

In different ways, but across the board, the economy needs to be redirected, away from financial speculation, monetisation of as many activities as can be profitably exploited, and deal making, towards a focus on human wellbeing and environmental and social sustainability. This means a return to a focus on actual outcomes, in terms of goods and services, within the context of the climate crisis whereby production needs to be sustainable, so that the focus shifts to the quality of life and human wellbeing, rather than increased economic growth for its own sake.

Notes

1. See the various critiques from William Lazonick, including Lazonick, Sakinç, and Hopkins (2020).

2. Hence Andrew Glyn’s characterisation of this era of free-market globalisation as ‘capitalism unleashed’ (Glyn 2007).