From Socialist Voice, August 2010

Showing “financialisation”


For some time now Socialist Voice has been highlighting the process of “financialisation” that has occurred in the monopoly-capitalist economy over the last number of decades.
     The process, a result of the crisis of stagnation that exists in the “real” economy, has led to this Great Financial Crisis, has left many economies particularly exposed to it, and has forced governments that support the capitalist system to engage in a massive and unprecedented redistribution of wealth from working people, the unemployed, pensioners and their social services to financial institutions.
     The crisis has also exposed the fundamental stagnation and over-production capacity that exists in manufacturing and other areas. Therefore it is not an effective medium for accumulated capital to be invested in and so reproduce itself as more capital (the essence of the system). Consequently, accumulated capital needs a different avenue. Finance and speculative investment have provided that avenue.
     A recent issue of Socialist Voice showed why and how two profitable companies, Pfizer and Wyeth, merged and were then forced to engage in a massive global culling of staff and production facilities in an attempt to avoid over-production. Then there is Hewlett-Packard’s plan to cut nine thousand jobs globally, following its merger with EDS—again two profitable companies requiring a destruction of production and servicing facilities. This is the brink that the global economy operates on.
     It should be noted that when we use the term “over-production” we do not actually mean the production of too many goods for the world’s population to consume—for that would be a tremendous positive factor, given the billions of people starving, and anyway an impossibility under capitalism. No, we mean the over-production of goods as commodities that can be sold and turned into money and profit.
     From this it is clear that, rather than finance leading to the decline in manufacturing, as some social democrats might argue, the deep crisis that exists in manufacturing led to the necessity of an avenue for accumulated capital to be invested in; and in walked finance.
     This is important in outlining alternatives and in campaigning for a better, more humane world, as attempts by social-democrats to reinvigorate manufacturing under capitalism will ultimately fail.
     So, let’s turn to the figures.
     This set of numbers concentrates on the trends in the American economy, as the dominant and most advanced monopoly-capitalist economy. The source of these numbers is the Bureau of Economic Analysis of the US Department of Commerce.
     In 1959, corporate profits from manufacturing were $26.5 billion (absolute figures—not to be confused with the rate of profit). This grew to $97.7 billion by 2003, that is, 3.6 times the 1959 profits. Corporate profits in 1959 for the entire non-financial sector (including manufacturing) were $43.2 billion, and this grew to $431.8 billion by 2003—ten times the 1959 profits. Corporate profits from finance were $7.6 billion in 1959 and grew to $274.6 billion by 2003—a whopping thirty-six times their 1959 profits.
     It’s clear that finance represent to the American economy, in profits, more than five times that of manufacturing. With total corporate profits for 2003 at $864.2 billion, finance represents approximately a third of all corporate profits, reaching a peak of 45 per cent in 2002! Finance is now the source of by far the greatest corporate profits of any sector in the United States.

Percentage of domestic corporate profits from financials


     One result of the role played by finance in the global economy is speculative bubbles and debt. Investors, who often act as sheep, borrow huge amounts of money to pump into and blow up the bubble of the latest avenue—energy, dot-com, housing—all in recent years.
     The housing bubble, as is well documented, was a particular feature in the period before the Great Financial Crisis and in Ireland played a particularly destructive role. However, it is important to note that the housing bubble isn’t the cause of the crisis. It was a feature of a system in crisis, a system struggling to avoid inherent problems and contradictions, a highly irrational system where over-production, in a world starving, is to be avoided at all costs.
     The question that must be answered by all seeking a solution is, Will the solution be determined by the accumulation process of capital, or will the needs of society determine our use of resources?
     This will lead us either to bail-outs or to an alternative path, subject to social control and needs.
[NL]

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