Finance, Financialisation and the Crisis

1. Finance, Financialisation and the Crisis Sam Ashman [presented @ ATN12, Accra, August’09] Corporate Strategy and Industrial Development Research Programme University of the Witwatersrand

2. Overview of Presentation • Crisis: re-cap on some of the themes covered yesterday • Financialisation and the relationship between neoliberalism and financialisation • Experience of South Africa • Financialisation needs to be set in context of a particular structure of production • Financialisation in SA helped to produce jobless growth and widening inequality • Conclusions and alternatives

3. Deep Structural Crisis • Triggered in the financial sector • Sub-prime crisis→fear of toxic debt→ credit crunch→slashing of output, redundancies, collapse in demand • Spread to real economy, deepest crisis since the 1930s • Bailouts, discussion of return to New Deal • Ideological crisis in developed economies • Debate over the role of the State

4. Financialisation and Neo-liberalism • Volatility of short term financial flows increase vulnerability to crisis • Part of bigger picture of de-regulation as neoliberalism seeks to increase profitability, attack labour • Entails capital restructuring nationally and internationally • Developed States act as agents not victims of corporate globalisation • Inflation targeting; freedom for finance

5. Financialisation and Neo-liberalism • Autonomy of finance • Proliferation of financial actors and markets • Penetration of finance into greater areas of economic and social reproduction – health, education, energy, telecommunications, transport, pensions, housing • Corporations funding investment from retained earnings and private markets, less dependent on banks • Banks seek alternative sources of profits • Qualification: companies act as financial actors in their own right

6. South African context • Effect of financialisation needs to be set in the context of particular structure of production • ‘Minerals Energy Complex’ (Fine and Rustomjee 1996) • Dominance of mining and cluster of industries around it • Developed financial sector • Lack of diversification into other sectors • High dependence on mineral exports

7. Effect of financialisation - outflows • Post 1994 orthodox programme of ‘liberalisation from within’ • Progressive reduction of financial and trade regulation • Managed programme of capital flight – in return for concessions on BEE? • Rose from 5.4% of GDP 1980-1993 to 9.2% of GDP 1994 to 2000 • Major companies re-listed on London stock exchange • Loss of political-economic power post apartheid • Opportunities to be gained internationally

8. Effect of financialisation -inflows • Increase in short term inflows • Growth of speculation and consumer debt • Similarities with the US model of debt driven consumption • Second Houses – property bubble • 2nd/3rd cars – imported, boosts GDP growth • Growth in Credit Card Debt • Jobless growth • Growth in financial services – security guards

9. The 10 sectors receiving most investment in 2008Source: SASSID 2009

10. Change in capital stock across economic sectors 2000-2008Source: SASSID 2009

11. Credit Extension and Investment as Percentages of GDP 1990-2008Source: SARB 2008

12. Private Sector Credit Extension by all Monetary Institutions 1990-2008

13. Main sources and uses of capital in business enterprises 1992-2007Source: SARB 2008

14. Effect of the Crisis • Job losses and short time in mining and mineral products as consequence of falling global demand • Manufacturing output fallen by 25% in the last year • Tighter global and domestic credit markets • SA banks reduced debt post sub-prime crash • 6,000 car repossessions a month, house foreclosures and business bankruptcies

15. Conclusions - Alternatives • Renew debate about state intervention and state’s role in development • Capital controls – reduce capital flight; affect structure of bank liabilities and therefore lending • Stronger role for state directed development finance and Development Finance Institutions • Co-ordination of policy - Industrial Policy, Trade Policy • Finance for investment in what is socially useful