FINANCIAL GLOBALISATION AND THE STRENGH OF

1. FINANCIAL GLOBALISATION AND THE STRENGH OF SELF CENTERED, “SELF REGULATED” (c.f. K.Polanyi) FINANCIAL ACCUMULATION François Chesnais

2. 1. “SELF CENTERED” FINANCIAL ACCUMULATION • 2. FINANCIAL GLOBALISATION • 3. “DISTANCE FROM PRODUCTION” • 4. FINANCIAL ACCUMULATION NOT LIMITED TO “CORE COUNTRIES”, ALSO IN BRICS • 5. WHAT TYPE OF INDICATORS • 6. SOME ASPECTS OF THE CURRENT GEO-POLITICS OF FINANCE

3. BRIC: AN ACRONYM COINED BY GOLDMAN SACHS = ECONOMIES « TARGETTED » AS COUNTRIES • WHERE CORE ECONOMY FINANCIAL FUNDS & BANKS COULD EXPAND THEIR OPERATIONS VERY PROFITABLY • WHERE SELF CENTERED, “SELF REGULATED” FINANCIAL ACCUMULATION COULD BE ENCOURAGED & STRENGHENED

4. “SELF-CENTERED” FINANCIAL ACCUMULATION DEFINED AS: * AS MONEY BENT ON BEGETTING MONEY IN FINANCIAL MARKETS WITHOUT LEAVING THEIR SPHERE * AS ACCUMULATED ASSETS WHICH REPRESENT CLAIMS ON CURRENT AND FUTURE OUTPUT, AS LONG AS FINANCIAL CRASHES DO NOT WIPE THEM OUT * « SELF-CENTERED » BUT NOT «AUTONOMOUS », PREDATORY & HENCE DANGEROUSLY DEPENDENT

5. * SUCH FINANCIAL ACCULUMATION IS MAINLY THE OUTCOME OF OPERATIONS MADE BY A SPECIFIC TYPE OF CAPITALIST INSTITUTION, WITH VERY DIFFERENT AIMS & TIME-HORIZONS FROM MANUFACTURING FIRMS * SUCH INSTITUTION INCLUDE BANKS, INSURANCE COMPANIES AND FUNDS (PENSION FUNDS, MUTUAL FUNDS, HEDGE FUNDS) * BUT LARGE CORPORATIONS ALSO INVOLVED IN FINANCIAL ACCUMULATION AS ACTIVE AGENTS & AS MAJOR “VEHICLES” = PREDATORY TRAITS INCREASE CONTINUALLY

6. FINANCIAL INSTITUTIONS CENTRALIZE INCOME THAT IS “SAVED”, e.g. • NOT REINVESTED BY FIRMS IN NEW PLANT (AT LEAST IMMEDIATELY) • NOT SPENT ON GOODS AND SERVICES (BE IT BY PEOPLE EARNING SALARIES OR BY THOSE RECEIVING INCOME ACCRUING FROM PROFITS OR RENT)

7. THE STRONG AMBIGUITY OF SAVINGS • FOR LOWER INCOME LEVELS THEY REALLY REPRESENT A SACRIFICE • AT HIGHER LEVELS THEY ARE SIMPLY A RESULT OF INCOME IN EXCESS OF NEEDS • IN ECONOMIES WHERE EDUCATION, HEALTH & RETIREMENT ARE LEFT TO INDIVIDUALS, THE SUMS PUT ASIDE ARE FODER FOR AND STRENGTHEN FINANCIAL ACCUMULATION

8. UNSPENT INCOME IS USED BY BANKS & FUNDS TO MANAGE “PORTFOLIOS” OF FINANCIAL ASSETS (e.g. BONDS ,SHARES) BANK ACTIVITIES, NOTABLY CREDIT STRONGLY AFFECTED SPECULATIVE OPERATIONS = “WINDFALL GAINS ” (KEYNES). THIS ALSO DONE BY CORPORATIONS FUNDS MODIFY THEIR PORTFOLIOS ALL THE TIME = “ARBITRAGE” = ENDEMIC FINANCIAL INSTABILITY

9. THE TRADING OF ASSETS TAKES PLACE IN “SECONDARY” FINANCIAL MARKETS WHERE ASSETS CAN BE TRADED AT VERY SHORT NOTICE (KEYNES’S “LIQUIDITY”) • FOR BANKS DIFFERENT FORMS OF CREDIT = MAIN SOURCE OF PROFIT • FINANCIAL MARKETS ALLOW THEM TO “SECURITIZE” e.g. TRADE MANY FORMS, NOTABLY MORTGAGE

10. INTEREST, DIVIDENDS, etc. PROCURE INCOME PERTAINING TO RENT, e.g. FORMS OF LEVY ON GDP • LEVY ON TAXES RAISED OR EXPORTSEARNED • LEVY ON GROSS RESULTS OF FIRMS • EFFECT ON INVESTMENT • EFFECT ON INCOME DITRIBUTION = JUMP IN GROWTH OF INEQUALITY IN INCOME & IN WEALTH POSSESSION

11. “GLOBALISATION”: THE WORKING OF THE WORLD ECONOMY BASED ON LIBERALISATION AND DEREGULATION OF • FINANCIAL FLOWS, FOREIGN DIRECT INVESTMENT AND TRADE • MARKED BY PRIVATIZATION & ENHANCEMENT OF PROPERTY (IPR) • PROCESS LED BY FINANCIAL INSTITUTIONS

12. FINANCIAL GLOBALISATION BENT ON: • THE INTERNAL DEREGULATION & OPENING UP OF NATIONAL FINANCIAL SYSTEMS TO PORTFOLIO INVESTMENTS IN A FIRST PERIOD • LATER INCREASINGLY ON *LIBERALISATION OF FDI & THE FREE REPATRIATION OF CORPORATE PROFITS * FREE ACCESS OF FOREIGN BANKS TO DOMESTIC BANKING SYSTEMS

13. PHASES IN THE ONSET OF FINANCIAL ACCUMULATION : * 2° HALF 1960s: EURO-DOLLAR MARKET IN LONDON * AFTER 1975: SYNDICATED LOANS TO DEVELOPPING COUNTRIES AT VARIABLE INTEREST RATE DETERMINED BY U.S. * 1982: MEXICAN & « THIRD WORLD » DEBT CRISIS = SERVICING OF INTERST ON DEBT AT USURIOUS RATES * U.S. & OTHER G7 GOVERNMENT DEBT = MASSIVE TRANSFER OF MONEY TO FUNDS

14. IN 1980s: FUNDS BECOME STRONGER THAN BANKS MAIN VEHICLE OF FINANCIAL ACCUMULATION = INTEREST ON GOVERNMENT DEBT • CORPORATIONS « FINANCIARIZE »: CURRENCY SPECULATION, BUT ALSO CHANGES IN MANAGEMENT STRATEGIES (USE OF MONOPSONY, « HOLLOW CORPORATION », PREDATORY  SOURCING OF TECHNOLOGY, EXTERNALIZATION TO LOW COST VULNERABLE FIRMS, AGGRESSIVE LABOR POLICIES, ETC.)

15. IN 1990s: MAJOR CHANGE IN THE IDENTITY OF OWNERS OF CORPORATIONS WITH SHIFT OF FUNDS PORTFOLIOS TO SHARES • ONSET OF CORPORATE GOVERNANCE • MID 1990s: NEW WAVE OF M&As • NEW PUSH OF FDI, NOTABLY IN ASIA TAKE OFF OF STRONG FDI IN CHINA • IN MANY COUNTRIES MOUNTING PRESSURE ON GOVERNMENTS TO PRIVATIZE AND TO SET UP MARKET-BASED PENSION SCHEMES

16. « DISTANCE FROM PRODUCTION » = KEY DIFFENCES BETWEEN AUTONOMOUS FIRMS & THOSE GOVERNED BY FUNDS • IN FIRMS CONSIDERATIONS OF LONG TERM EXPANSION & GROWTH CAN PREVAIL, LONG HORIZONS • IN FUNDS THE RULE IS « VALUE FOR INVESTORS EACH QUARTER » • LOYALTY OF MANAGERS THROUHGH STOCK OPTIONS • BUT VERY GREAT PRESSURE ON LABOR

17. BEGINNING IN THE LATE 1990s VALUE FOR SHAREHOLDERS BASED MORE ON MORE ON PRICE OF SHARES • SINCE circa 2000, NET OUTFLOW OF CASH FROM BOURSES FIRMS BUY BACK SHARES. NO NEW CASH ONCE IPO FINISHED • INVESTMENT IS FINANCED THROUGH ISSUING CORPORATE BONDS e.g. DEBT

18. TODAY WHAT THE ECONOMIST (31.03.07) CALLS « VULTURE FINANCE » NURTURED BY « EXCESS LIQUDITY » IS OMNIPRESENT * PRIVATE EQUITY OPERATING FOR MUTUAL & HEDGE FUNDS & BANKS * LBOs LEVERAGED BY THE HUGE MASS OF MONEY LOOKING FOR JUICY FINANCIAL INVESTMENT

19. FINANCIAL INVESTORS KEENLY INTERESTED IN « EMERGING MARKETS » • FOLLOWING THE MEXICAN & ASIAN CRISES & THE SHIFT TO SHARES, THE INTEREST OF INVESTORS HAS ALSO SHIFTED = EMERGING ECONOMIES AS • LOCUS FOR PROFIT & ROYALTY REMITTANCES BY TNCs = BETTER VALUE FOR SHAREHOLDERS

20. AS AREAS OF EXPANSION OF MAJOR INTERNATIONAL BANKS THROUGH RIGHT OF ENSTABLISHMENT AND M&As • SHIFT FROM FOREIGN TO DOMESTIC PUBLIC DEBT MUCH OF WHICH HELD BY DOMESTIC BANKS = INTERNATIONAL BANKS ENT ON CASHING IN ON THIS

21. EMERGING ECONOMIESNOT ONLY « TARGETS » ALSO LOCUS OF ENDOGENOUS PROCESSES • FOR FINANCIAL ACCULATION BY LOCAL OLIGARCHICAL GROUPS • FOR THE BUILDING OF LARGE DOMESIC CORPORATIONS • FOR ENDOGENOUS « PURE » FINANCIAL ACCUMULATION BY BANKS & LATTER FUNDS

22. ENDOGENOUS FINANCIAL ACCUMULATION • IN BANKS & INSURANCE COMPANIES CENTRALIZING SMALL SAVINGS • IN PENSION FUNDS WHEN PENSIONS ARE PRIVATIZED • CHANNELS OF ACCUMULATION = HOLDING OF DOMESTIC PUBLIC DEBT • CREDIT AT HIGH INTEREST RATES

23. DOMESTIC FINANCIAL INSTITUTIONS ARE EARLY & STRONG ADVOCATES OF LIBERALISATION IN FINANCE & FDI • DEFENSORS AND INITIATORS OF PRIVATE PENSION SCHEMES • PARTNERS AND EVEN INITIATORS OF TAKEOVERS OF NATIONAL FIRMS BY FOREIGN ONES AND OF M&As BY « MIXED CONSORTIUM »

24. « DELIGHTS OF LIBERALISATION » • FDI LIBERALIZATION AGREEMENTS SPELL THE END OF LISTIAN POLICIES • FIRMS PLAY IN A « NEW LEAGUE » WITH RISK OF UNDER-ESTIMATION OF INTENSITY OF RIVALRY & SCALE OF ENNEMY FINANCIAL STRICKING POWER

25. MEANINGFUL DATA COLLECTION • DATA NEEDED ON FORMS, SCALE & EFFECT OF FOREIGN FINANCIAL TARGETTING • DATA NEEDED ON FORMS & SCALE OF ENDOGENEOUS FINANCIAL ACCUMULATION

26. DATA PROVIDED BY THE EXTERNAL CAPITAL ACCOUNT. • CAPITAL INFLOWS: TOTAL AND COMPOSITION: • FDI, INTERNATIONAL BANK LOANS AND SHORT-TERM CAPITAL • IDEALLY TYPE OF INVESTMENT (GOVERNMENT BONDS, OPERATIONS IN THE HOST STOCK MARKET, ETC.) • CAPITAL OUTFLOWS: IDEM

27. DATA ON GOVERNMENT DEBT (CENTRAL GOVERNMENT & STATE & MUNICIPAL AUTHORITIES • SIZE OF DEBT (IN DOLLARS, % OF GDP, % of EXPORTS, etc.) • IDENTITY OF CREDITORS (FOREIGN OR NATIONAL) • IN THE LATTER CASE BREAKDOWN (DOMESTIC BANKS, PENSION FUNDS, etc.).

28. DATA ON INWARD AND OUTWARD FDI, WITH BREAKDOWN BETWEEN GREEN-FIELD AND M&As • FOR INWARD FDI OF INVESTORS (FIRMS OR FUNDS) & NATIONALITY • FOR OUTWARD FDI COUNTRIES OF DESTINATION AND NATURE OF INVESTMENT (M&A or GREENFIELD)

29. DATA ON M&As & POST-1990s CHANGES IN OWNERSHIP OF: • NATIONAL PRIVATELY OWNED FIRMS: OWNERSHIP BY FAMILIES, BANKS, DOMESTIC PENSION FUNDS, etc. • OF STATE OWNED ENTERPRISES (PRIVATIZATION)

30. ACQUISITIONS BY • FOREIGN CAPITAL: INDUSTRIAL CORPORATIONS (MANUFACTURING, MINING OR SERVICES), FINANCIAL INVESTORS • DOMESTIC CAPITAL (idem) • CHANGES IN THE DEGREE OF CONCENTRATION ACCOMPANYING CHANGES IN OWNERSHIP

31. DATA ON THE FINANCIAL SYSTEM • FINANCIAL DEPTH (FINANCIAL ASSETS AS % OF GDP) • MAIN BREAKDOWN OF ASSETS (BANK DEPOSITS, GOVERNMENT DEBT, CORPORATE DEBT, EQUITY) • SIZE AND GROWTH OF THE NATIONAL CORPORATE BOND MARKET

32. DATA ON THE DOMESTIC STOCK EXCHANGE • CAPITALIZATION AND PERFORMANCE (BACK TO 1995) • LISTED COMPANIES (SECTOR OF ORIGIN, VALUE OF CAPITALIZATION) • REGULATORY REGIME FOR FOREIGN INVESTORS.

33. DATA ON THE NATURE OF SAVINGS & THEIR CENTRALIZATION BY BANKS AND OTHER INSTITUTIONS • SIZE OF HOUSEHOLD SAVINGS AND THEIR COMPOSITION (BANK DEPOSITS, FINANCIAL ASSETS, GOLD, PHYSICAL ASSETS) • SIZE & GROWTH OF PENSION FUNDS

34. DATA ON BANK CREDIT • DISTRIBUTION BY TYPE OF CREDIT (FIRMS, LARGE, SMALL, MORTGAGE, CONSUMER CREDIT, etc.) • COST (INTEREST RATES FOR TYPES OF CREDIT)

35. THE GEO-POLITICS OF FINANCE: A FEW FEATURES • CHANGE IN « THIRD WORLD DEBT » = LARGE TRADE SURPLUSES& DOLLAR RESERVES BY SEVERAL MAJOR COUNTRIES, NOTABLY BRICS • U.S. AS MAJOR DEBTOR COUNTRY • U.S.-ASIA AXIS AS MAIN GLOBAL RELATIONSHIP STRUCTURING WORLD MACRO-ECONOMICS

36. The backbone of the current systemic configuration of the global economy is the US-Asia axis : China & Japan in different as well as in similar capacities ; less crucially Korea &Taiwan ; India in a particular position • All other regions, including the EU, subordinate to this power axis & dependent on the demand pull created by both poles

37. United States needs the : • “China effect” on wages & the price of manufactures • profits and so the capacity to pay dividends made by US TNC exploiting in situ China’s cheap, disciplined labor force • purchase of T-Bonds made by the Central Bank of China

38. Other indirect positive effects for U.S. * Support provided by China to Japan, Taiwan & Korea • it was unwilling/incapable to help Japan out of the post 1990 recession • it needs the purchase of T-Bonds also made by Japan, Taiwan & Korea * Indirect benefits from China’s demand for raw materials to Latin America

39. China needs the United States: • as its principal export market = “U.S. consumer of last resort” • as a source of productive capital but also of managerial know-how and technology to be assimilated and improved • currently China pays the price in the form of outward flows of profits, but already candidate for the M&A of Western firms

40. High vulnerability of these relationships • Risk in a quite near future of transition from “healthy” deflationary conditions to outright deflation • Asia again the seat of strong latent over-accumulation & excess capacity • In other parts of the world system play of capital’s “classical” contradiction

41. Goods must be bought by economic agents with monetary income • Wages provide “demand”, but are viewed by capitalists as “costs” and as “levies” on their profits = inherent pressure to reduce real wages • Large scale resorting to the “China effect” = little leeway to offset a U.S. recession

42. U.S. mortgage & consumer credit expansion has reached its limits • U.S. external deficits put a ever greater strain on the dollar: what the limit level that holders of dollar reserves accept?

43. A major global financial crisis with New York as its heart • Did not materialize in 1998 or in 2001, but it cannot be ruled out because of the huge accumulation of assets (e.g. fictitious capital) and the U.S. deficits • Much harder, possibly impossible for the Fed to resort to new massive “anti-cyclical” credit creation as in the past

44. Any financial incident can trigger off the latent situation created by overcapacity & endemic overproduction • Trade wars which WTO would not be able to control • Monetary blocks, but great tension between rivals for their leadership • Reminder that the global economy created by liberalization is an unregulated one