Wednesday, 11 December 2013

The financialization of capitalism: "Profiting without producing"

City: analysis of urban trends, culture, theory, policy, action

Financialization is a systemic transformation of capitalism that has occurred during the last four decades. This paper shows that the concept of financialization originates in Marxist theory, though its meaning remains unclear. It then proposes a theory of financialization as rooted in the altered behaviour of the fundamental agents of capitalist accumulation, including non-financial corporations, banks and workers. Finance has reshaped the activities of all three, also resulting in new forms of profit. It follows that opposing financialization is a complex process that involves creating public financial institutions but also re-establishing public provision for workers across a broad range of activities. Financialization cannot be reversed without re-establishing the command of the social and collective over the private and individual for the modern era.

The global crisis of the 2000s has lifted the curtain on the transformation of mature and developing capitalist economies during the last three decades, confirming the pivotal role of finance, both domestically and internationally. Finance-related capital permeates economic activity, and interacts with financial markets in ways capable of generating enormous profits but also precipitating global crises. Contemporary capitalism is ‘financialized’ and the turmoil commencing in 2007 is a crisis of ‘financialization’.

The economic processes and social relations characteristic of financialization represent a milestone in the development of capitalism. The catalyst of the crisis in 2007 was speculative mortgage lending to the poorest workers in the USA during the 2000s, the loans being subsequently traded in ‘securitized’ form in global financial markets. It is hard to exaggerate what an extraordinary fact this is. Under conditions of classical, 19th-century capitalism, it would have been unthinkable for a global disruption of accumulation to materialize because of debts incurred by workers, including the poorest. However, this is precisely what has happened under conditions of financialized capitalism, an economic and social system that is much more sophisticated than its 19th-century predecessor.

Financialization has emerged gradually during recent decades. To be sure, capitalist economies are continually restructured due to pressures of competition and the underlying drive to maintain profitability. However, some transformations have a distinctive historical significance, and financialization is one of those. The change that has taken place in mature capitalist economies and societies since the late 1970s requires appropriate attention to be paid to finance.