Financialisation, Neoliberalism and the Crisis
This book has primarily been concerned with providing a relatively simple overview of Marx’s political economy, especially as presented in the three volumes of Capital. This chapter seeks to apply that political economy to the global crisis of capitalism at the time of writing, which presents itself as deriving from a major dysfunction within the financial system, with devastating repercussions across each and every aspect of economic and social reproduction. But, in light of the issues raised in the previous chapter, and other issues of power and conflict around war, gender, race, poverty and development, for example, it is important to bear in mind that the current crisis is neither an acute break with the past, nor is it confined to narrowly defined economic issues. Indeed, crises tend to accentuate and, to that extent, reveal the nature and contradictions of the society in which we live; this is especially well illustrated by the fall from grace of the financial fraternity. However, the merciless light shone by the crisis obviously does not render contemporary capitalism an open book, to be easily read from cover to cover in large print. So, whilst neoliberalism temporarily suffered a crisis of legitimacy in addition to its economic crisis, the reasons for the latter as well as proposals for resolution remain disputed across the intellectual and political spectrums, and within Marxism itself.
The Crisis of Financialisation
Each crisis incorporates specific characteristics, whether by virtue of proximate causes, depth, breadth or incidence across the economy, ideology or political system, or through its differential impact within and between economic sectors or upon segments of the working class in each country, or for other reasons. But the current crisis – meltdown even – is remarkable across a number of separate dimensions as well as in their combination. First, the crisis was not initiated by a tulip bulb, South Sea Island or dot-com bubble, or even a stock market frenzy or commodity crash – although stock markets in different countries witnessed considerable speculative turmoil in the period leading up to the crisis as well as in its wake. The crisis spread from the US sub-prime market, a market that provided mortgage finance to the poorest households of the country. Of course, locating the origin of the crisis still leaves open the question of why it should have triggered such a worldwide blast.
Second, no one blames the poor for the speculative boom or the crash and its aftermath. Far from it; unlike in other instances of economic malfunction in recent times, ‘excessive’ wages and benefits have nowhere been targeted as causal, as has occurred in the past, according to neoclassical, Keynesian or even Marxian ‘profit squeeze’ views – helping to legitimise, more or less explicitly, the shift of the burden of adjustment onto working people and the poor. This time, finance and its excesses are obviously to blame, but (wait for it!) finance must be rescued in order to prevent an even worse impact upon the rest of us, whose hardening times for years to come are thereby legitimised. Not your fault, or anyone else’s for that matter (conveniently leaving aside the neoliberal incentives to finance and generalised promotion of the interests of the rich); but the milk is spilt, the pitcher is broken, and so we have to work together to fix it, with less to go around in the meantime.
Third, despite its severity, unprecedented since the 1930s, the current crisis both closed a 30-year period of relative slowdown in accumulation in the West, after the ‘Keynesian’ post-war boom, and announced a ‘new normal’ of slower growth rates around the world lasting into the indefinite future. Whatever its immediate causes in the US housing market and elsewhere, the crash and its severity are not simply the result of some manic, overstretched phase of financialised accumulation, whose contradictions, tensions and conflicts have induced a corresponding reaction in the opposite direction and which may be expected to resolve itself through the spontaneous ‘purging’ of those excesses. Rather, the crisis is clearly nested within the neoliberal mode of accumulation which consolidated itself after the demise of post-war Keynesianism.
Fourth, the current crisis is one in a sequence of financial or balance-of-payments crashes that have affected mostly poor and middle-income countries on a regular basis since the late 1970s. These have generally been contained even when severe within particular regions, not least through multilateral state intervention engineered by the US Treasury Department and implemented by the World Bank, the International Monetary Fund and the institutions of the European Union. Today’s situation is different. For the transmission mechanisms of the current crisis have overwhelmed even the unprecedented degree of state intervention seeking to control and temper its worst effects and geographical spread. The limitations of macroeconomic policy and international co-operation, most notably signalled by the domino effects emanating from the sub-prime crisis itself, reflect the complexity of contemporary financial asset structures. This has led to significant difficulties in selecting what to target for rescue, by what criteria, to what end, how, for how long and at what cost, and what supplementary policies are necessary at the domestic and the interstate levels.
These factors are indicative of a broader crisis in neoliberalism, requiring an explanation of some sophistication. At a superficial level, and only with minor exceptions, there seemed to be no neoliberals left in the wake of the crisis. The dramatic failure of the financial system induced a desperate search for remedies through a return to mild and finance-led Keynesianism and piecemeal and reactive state control, even public ownership of finance and industry, which would have been anathema only months before. The ideological acrobatics required to justify these policy choices, as well as the deficiencies in institutional mechanisms for formulating and implementing policy, were all too obvious. Even so, the extraordinarily expensive measures involved in ‘rescuing’ the economy were initiated by the ultra-neoliberal US president G.W. Bush in the twilight of his administration and were continued smoothly by his presumably very different successor, Barack Obama. The same fundamental continuity across distinct political actors was also observed in the United Kingdom, France, Italy, and many other countries. Invariably, the policies addressing the crisis were unmistakably neoliberal and they were meant to be reversed as soon as possible. To put into perspective the depth of the crisis of finance and the extent of state intervention, two facts are striking. One is that the resources offered to shore up the financial system far exceed the total revenue accrued from all privatisations ever. The other is that the rescue packages would have been sufficient to eliminate world poverty for the next 50 years, if not indefinitely.
At a deeper level, neoliberalism is attached to a specific mix of ideology, scholarship and policy in practice. But this mix has gone through two phases: the first, shock phase was based on extensive state intervention to promote private capital as far as possible, with limited regard to the social, economic and political consequences – a Reagan/Thatcherism that was most notoriously imposed upon Eastern Europe under this very terminology of shock therapy. But the ‘just do it’ ethos of the first phase of neoliberalism (which talked about leaving things to the market, but used the state to promote private capital – not least in its oppressive relations with working people) neither originated with nor has been confined to transition economies. The second phase, Third Wayism or the ‘social market’, which continues to this day, has witnessed different modalities of state intervention, both to temper the worst effects of the first phase and, more importantly, to sustain what has become the defining characteristic of neoliberalism itself: financialisation. For the past 40 years, financialisation has prospered through, and under the guise of, the promotion of the market (i.e. private capital) in general. In practice, this means the subordination of social reproduction to financial market imperatives in everything from privatisation and deregulation to inflation targeting, the commercialisation of public services, and the diffusion of personal credit and private insurance as opposed to reliance on social welfare.
Inevitably then, the crisis brings the significance of finance to the fore. It is difficult to exaggerate the expansion of the financial system over the past 40 years. There has been a proliferation and growth of the financial markets themselves, in terms of derivatives, futures, foreign exchange, mortgages, government instruments, as well as stocks and shares, and the penetration of finance into areas of economic and social reproduction that had been removed from the direct control of private capital in the previous era of Keynesian welfarism and ‘modernisation’. This applies to health, education, energy, telecommunications, transport, housing finance, pensions, benefits, social care, and much more. In addition, industrial corporations have been thoroughly caught up in financialisation, with a drive for ‘shareholder value’ through financial dealings, restructuring, and changes in corporate governance dominating the sources of profitability, often at the expense of investment to expand and enhance capacity and increase productivity.
These economic considerations are embedded in a new pattern of imperialism (so-called ‘globalisation’), not least in the wake of the Cold War. Both the strengths and the weaknesses of the United States as hegemonic power have intensified and been exposed in recent years. In contrast, the collapse of Soviet-style socialism and the weakness of progressive movements, despite some green shoots, in Latin America for example, are striking. So is the rise of China, its conversion to capitalism, and its provision of wage labour to world capitalism numbering tens if not hundreds of millions of workers. Equally significant is China’s peculiar relationship with the United States, with regard to the major support it offers to recycling the US fiscal, trade and current account deficits. China is far from alone in this, even across the ‘developing’ world, and Germany and Japan have been at least as important in sustaining both the dollar and the US trade deficit for even longer. This reveals an extraordinary mix of US strength and weakness, with the dollar as world money commanding external support: at the time of writing, any moves to supplant its corresponding roles as reserve currency and means of payment are marginal at most. The result is that the value of the dollar has been volatile; but it has not crashed, despite its potential fragility and the widely recognised structural weaknesses of the US economy – weaknesses of the sort that would lead to collapse in the value of any other currency.
Not surprisingly, as the orthodoxy has been left floundering during the crisis, Marxist and heterodox scholarship and commentary have assumed a more prominent role. The issue, however, is less to observe than to explain, which requires locating these developments within an analytical framework. In particular, three issues need to be confronted. First is the reasons for the slowdown of the past 40 years, particularly given conditions that could not have been more conducive to capital accumulation, including legal and regulatory incentives to capital, stagnant if not declining levels of money and social wages, weakness of labour and progressive movements, expansion and ‘flexibility’ of the global workforce, and neoliberal hegemony in policy, politics and ideology. Without an explanation for the slowdown, it is impossible to explain why such a financial crisis should have emerged and why it has been so severe, and to specify what is the nature of the crisis itself, beyond its immediate economic parameters.
Second is to unravel the significance of financialisation and its relationship to the accumulation of (productive) capital. Paradoxically, whilst finance and financialisation have attracted extensive attention from Marxist scholars, there has been relatively little by way of attempt to embed finance within Marx’s own analysis. This even extends to the tradition laid down by and through Rudolf Hilferding – not least, no doubt, because his notion of finance capital seems insufficiently attuned to the diversity and extent of today’s financialisation, which goes far beyond the relationship between banks and industry. Despite the understandable draw of Marxist political economy in light of the crisis, much more attention has been focused on Hyman Minsky than on Karl Marx when it comes to the role of finance in the crisis.
Third is how to locate the role of class struggle in these circumstances, in which it seems both weak and removed from its classic location for Marxism, at the point of production. Of course, one of the mantras of neoliberalism is ‘flexibility’ in labour markets, which, in practice, is imposed on behalf of capital through state intervention using legislation and, where necessary, authoritarianism. This has contributed to the cumulative decline of working-class strength, organisation and activism, whilst the influence of organised labour in social reproduction has also been weakened through depoliticisation, disorganisation, privatisation, declining job security, and so on. These pose both analytical and strategic challenges, which, even before the crisis, have been addressed in terms of arguments ranging from the ‘demise’ of the working class and capitalism as we knew them to the emergence of new (more or less anti-capitalist) social movements.
In addition to these three analytical issues – the slowdown, financialisation, and the role of class – is a strategic fourth: how to respond in the dire circumstances of economic crisis and weakened progressive movements. The relationship between reform within capitalism and socialist revolution to transcend it raises the classic Marxist conundrum of how to advance one without compromising the other. But, currently, these considerations seem a utopian luxury, since, despite the severity of the economic crisis and the corresponding crisis of the legitimacy of neoliberalism, both radical reform and revolution are off the agenda.
Our own approach to these three analytical issues is to deploy and develop Marx’s theory of accumulation, both logically and historically, on the basis of the categories of analysis offered in the three volumes of Capital. We have argued that Marx’s theory addresses accumulation as the quantitative expansion of productive capital through its continual and uneven restructuring, generally into larger and more complex units, organised, in today’s world, primarily through transnational corporations. Crucially, though, the pace and rhythm of the restructuring of capital is largely dependent upon agencies other than the industrial capitalists themselves, especially state policies and the working class, and the restructuring of other capitals in competing markets and in finance, as well as through more general transformations of economic and social life. Each of these elements may be more or less conducive to accumulation by restructuring, as well as being uneven in their effects. Their impact is contingent upon the shifting configurations and conflicts of economic, political and ideological interests within the bounds set by the system of accumulation as a whole. The role of the state is paramount across all of these constituent factors, including economic policy deployed in conjunction with the exercise of force, and state-sponsored arguments for the legitimacy of the dysfunctions, inequities and iniquities of capitalism.
This abstract account may be developed by emphasising, as already indicated, that the current slowdown is not due to working-class strength or militancy and, accordingly, that explanations for the crisis must be sought in intra-capitalist relations. In particular, crucial to the explanation is the process of financialisation – something that is now recognised by all. But this looks slightly different once set in Marx’s categories of analysis. For what marks financialisation in the neoliberal era, as was hinted at in Chapter 12, is the expansion of interest-bearing capital (IBC) across the economy as a whole, including the financial operations of putatively independent industrial corporations, as well as in health, education, welfare, consumer credit, housing, and so on. Accordingly, in hybrid forms, IBC has actively promoted accumulation of financial (fictitious) capital at the expense of productive assets. Although profitable for individual capitals, and in the short term, this has been dysfunctional for the sustained accumulation of capital in general, both quantitatively and qualitatively.
In short, financialisation is underpinned by the quantitative expansion of IBC and its extension across the economy, sometimes driving the restructuring of industrial capital, and sometimes at the expense of it, thus influencing, both directly and indirectly, the broader impact of neoliberalism upon social reproduction. The accumulation of financial assets has taken priority, both systemically and in policy, over the accumulation of industrial capital, despite (and, to some extent, because of) the rapid growth of the proletariat across the globe. This is strikingly revealed in the current crisis by the extent to which the state has intervened on behalf of finance, when, in far more favourable circumstances, expenditure of much more modest proportions has been denied, not only to health, education and welfare, but also to the development of industry, the provision of infrastructure and the management of international competition.
Given our understanding of the slowdown, crisis and the financialised underpinnings of neoliberalism, how are we to locate class struggle and the reform/revolution divide? Consider three extreme, possibly caricatured, positions. One perceives finance merely as some epiphenomenon, implying that strategy must be focused back upon the working class, organised at the point of production. The problem here is that such activism has proved to be weak and possibly weakening, and to be disconnected from struggles around issues that will, by necessity, proliferate away from production – for example, over wages, benefits and social provision, but also over and around the environmental catastrophes unleashed by global capitalism. The second extreme is to bypass both the economic crisis and the realities of production and to focus instead on continuing confrontations around the environment, lifestyle choices, and the multiplicity of discriminations routinely (re)produced by contemporary capitalism. However significant these concerns may be, attempting to confront them separately from their structural roots in production is unlikely to be more successful in the future than it has been in the recent past. The third is to concentrate on something akin to attacking ‘exploitation in exchange’ by finance, building upon popular antipathy to discredited bankers, while bypassing the systemic questions posed by the financialisation of production and social reproduction under neoliberalism. There are significant analytical as well as political problems in posing issues purely in terms of finance versus the rest of us, whatever merits this may have as a strategic and opportune starting point. For example, and to reiterate the previous point, what about other forms of exploitation and oppression, especially in production itself, for which reform of the financial system offers little by way of purchase?
An alternative is not so much to reject the three extremes just presented as to move beyond them by connecting production and class to the specific struggles engendered by economic and social reproduction under neoliberalism. As should be apparent, the ways in which financialisation has intervened in economic and social reproduction are both pervasive and heterogeneous and so, accordingly, will be the more or less spontaneous reactions to their effects and the search for alternatives. From a Marxist perspective, and from others as well, it is much easier to see the need to smash the financial system than either to bring this about or to attach it to more deep-rooted, effective and secure movements for economic and social transformation. As Marx famously put it in The Eighteenth Brumaire of Louis Napoleon (1852):
Men make their own history, but they do not make it just as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered, given and transmitted from the past. The tradition of the dead generations weighs like a nightmare on the brain of the living.
What is true of our brains is equally true of our material circumstances. Crises in mortgage finance (and their connection to the provision of housing) are distinct from those of the environment (and the neoliberal push for trading in carbon futures, for example, which has conjured into being a vast new market that creates actual profits while pretending to address the environmental disasters of capitalism), and from crises in the public and private productive spheres, whether for health, education or welfare. Of necessity, these arenas of struggle will be as diverse as are the alliances that might be formed to challenge specific facets of neoliberalism, and which can help to strengthen, broaden and transform individualised, often financialised, struggles towards a renewed vision of alternative modes of provision based on the values of democratic control and solidarity, rather than on the extraction and distribution of surplus value. This transformation is unlikely to happen spontaneously: a positive platform for social mobilisation, inspired by careful analysis and theoretical understanding, remains essential. In this regard, the contribution offered by Marxian analyses and experiences of struggle remains indispensable. Such prognoses stand shoulder to shoulder with the slogan that marks the epitaph on Marx’s gravestone, a quotation of his eleventh thesis on Feuerbach: ‘Philosophers have hitherto only interpreted the world in various ways; the point is to change it.’
As with much of Marx’s writings, this call to nineteenth-century socialists should be interpreted both as a means of gaining understanding and also as an imperative to act. It remains valid into the twenty-first century as we seek to abolish capitalist society, drawing upon reaction against the contradictions and inequities that it throws up, their study through the best tools of the social sciences, and, most importantly, the practical experiences of struggle of a multiplicity of groups, associations, unions, political organisations and the masses of millions which breathe life into them.
In general, the Marxist literature on financialisation and the current crisis divides between those who think finance is crucial and those who think it is not, and between those who argue that the current crisis is a delayed consequence of the failure to resolve the contradictions of accumulation in the post-war (‘Keynesian’) period and those who see the current crisis as being due to financialised restructuring and its social and economic consequences. Financialisation has been examined from different perspectives in the Marxian literature; for a review, see Fine (2012b, 2014). Much has also been written about the ongoing crisis; see, for example, Gérard Duménil and Dominique Lévy (2011), David McNally (2011), Leo Panitch and Martijn Konings (2008), Martijn Konings and Leo Panitch (2008), and recent issues of the Cambridge Journal of Economics, New Left Review, Historical Materialism and the Socialist Register, and the wealth of material available on the Dollars and Sense (www.dollarsandsense.org) and Socialist Project (www.socialistproject.ca) websites, among many others. Each and every left journal and website dedicated to political economy or otherwise will include a great deal of useful readings. However, financialisation has rapidly become so widespread and amorphous in its use across the social sciences (other than mainstream economics where it is notably absent), that Brett Christophers (2015a and b) has, in debate with critics, denied it any analytical purchase. This is a position which we consider untenable once financialisation is seen in terms of the extensive (to new areas of activity) and intensive (within existing areas) expansion of interest-bearing capital in a neoliberal context. See especially Kate Bayliss et al. (2015).