[A-List] accumulation/financialisation - a query

[Jurriaan Bendien]

Well I could do a quick 101 sociological essay on it, I suppose.

1. As regards "financialisation", it is difficult to know what this means, 
particularly because it refers only to quantitative changes in different 
categories of business activity which have existed, for the most part, since 
the early days of capitalism.
The problem is not really a "new regime of accumulation" but the lack of a 
"regime" for accumulation. You can see this in Iraq - huge funds are poured 
in to repair the country, with only very modest effects, they cannot even 
ensure that utilities operate effectively. With marketisation, people will 
often not cooperate other than with what they perceive to be in their 
interest, and in many cases, you cannot even buy their cooperation anymore 
(see also point 9 and 16).

2. Essentially, it means that a much greater proportion of global gross 
profit income is realised as interest and rent income and as capitalisation 
on assets (capital gains), and that a greater proportion of profit is 
derived from commercial trade in assets of various kinds (including trade in 
currency) rather than directly obtained from value-adding production. You 
can make more money faster, with less risk, by trading in assets of various 
kinds, which other people somewhere else have produced.

3. In the case of goods, a product unit may nowadays only take 5 or 20 cents 
to produce, but by the time its global circulation is complete and it has 
reached the final consumer, it may cost $1. That is to say, particularly in 
global markets, there is far more intermediation between producer and 
consumer, and the intermediaries typically take their cut from the product 
value. In the case of services, this applies less, yet the provision of a 
service may be conditional on the supply of a lot of other services as well 
as goods, which may enter into its cost.

4. There are also far more resource monopolies, which yield rents, and which 
mean that the conditions governing the access to a resource (the ability to 
buy and sell it) begin to co-determine its market value more strongly. Also, 
given the contemporary concentration of capital ownership, it is possible to 
buy extremely large assets, which in an earlier period only the government 
could invest in, because nobody else had so much capital or credit.

5. Capital can be tied up in physical productive assets (means of 
production), physical non-productive assets (e.g. residential real estate 
and durable consumer goods), physical products (raw materials, semi-finished 
and final goods), and financial assets; also, a business as a "going 
concern" with a stable level of service provision typically has an 
additional capital value deriving from its ability to guarantee a flow of 
future income - the possession of exclusive skills and knowledge can also be 
capitalised on. So production is only one mode of capital accumulation among 
others (Marxists often forget that).

6. Financialisation then means that a greater proportion of capital value is 
tied up in financial assets and capitalised non-productive physical assets, 
rather than other kinds of assets. The technical basis for this 
financialisation is mainly the spread of computerisation and 
telecommunications technology, the reduced cost of transport, the 
concentration of wealth, and the deregulation of credit, which means that 
one can borrow globally, in a global credit market, and trade globally in 
financial obligations and claims.

7. Organisationally, the corrollary is that more and more assets technically 
belong to banks and financial institutions. Who exactly owns the asset in a 
technical sense - the owners could be dispersed around the globe - may be 
less immediately relevant than the guarantee of a financial claim to present 
and future income from the asset, and this claim can also increasingly be 
traded in.

8. A basic threefold organisational problem of modern capitalism is that (i) 
the investment funds to be managed have grown enormously large, and (ii) the 
owners of those funds are dispersed all over the place, (iii) investments 
are often global (international). As regards (i), this creates a large 
administrative bureaucracy for managing funds, who obviously don't mind 
helping themselves generously to a slice of the wealth. As regards (ii), it 
means that ownership and control of assets are separated, i.e. the people 
who own mostly do not directly control assets. As regards (iii), by the time 
that institutions are investing globally, it becomes much harder for an 
investor to verify what is going on and whether it is really a good thing. 
So the whole activity requires a dose of faith and confidence, a bit of 
religion if you like, plus some detective work to verify the credentials of 
those handling assets.

9. The general ideology of capitalism has always been that private property 
is a good thing, because then you have direct individual responsibility for 
property and that ensures good stewardship of resources. The trouble though 
is that with the massive concentration and centralisation of capital that 
has occurred in two hundred years, it is impossible for individuals to 
manage the largest part of capital funds very much once invested, the funds 
are objectively "socialised" in a sense, and it becomes unclear who is 
really in charge anyway. You get a long chain of "sub-contracting" 
activities and intermediaries. Hence the notion of "governance" - somehow 
you need a disciplinary system of rules that protect owners of capital from 
bad actions by those who effectively control the funds. It could be "fund 
governance", "corporate governance", "global governance" etc.

10. Generally, public servants are subject to strict rules of 
accountability, and what they do is open to public scrutiny, as well as some 
political control through the ballot box. It is relatively transparent what 
goes on. But the same does not hold in the private sector, where "business 
secrets" prevail, the public accountability is more limited and less 
regulated in a legal sense, and share ownership is highly concentrated. So 
long as sufficient dividends are disbursed, nobody cares very much, but in 
times of trouble, there's a problem. Of course, to the extent that 
individuals are encouraged to make their own free choices and manage their 
own funds, this can create an additional problem of cooperation. Yet in 
reality, more freedom for capital usually means more regulation of labour. 
Neoliberalism is not liberal, it is only about creating more lebensraum for 
investors.

11. All of this is taking place in a world where the final consumption 
demand of the masses of ordinary salaried workers is growing only 
sluggishly, while at the same time global productivity in the consumer goods 
industries is generally extremely high. This leads to the phenomena of 
overcapitalisation and excess capacity, which feeds directly into 
financialisation, i.e. the attempt to obtain income more from the 
circulation process of capital, rather than producing more new physical 
assets. It also means a growing proportion of the labour force works in 
services, for those who have the money to pay for those services. The 
corrollary is the growth of the enforcement industry (military, police, 
security services), luxury production, real estate, and speculation of all 
kinds.

12. How are these trends reflected in official statistics? Often not very 
well. Gross product measures theoretically exclude much property income (in 
the form of interest, rents and capital gains) as well as much trade in 
second-hand assets, and there's a big discrepancy between economic personal 
income measures and census-based estimates of household income. The very way 
in which business income should be statistically evaluated becomes a moot 
point, and accounting may become a mere formalism. Insofar as capital gains 
are not taxed in a "property-owning democracy", there is often little data 
on it. And the statistical system often has difficulty coping with 
international transactions, intermediation and the grey economy. The 
traditional accounting concepts used are often based on the idea of the 
family-owned business. Marx used to say "capital can be grasped only in 
motion" but the statistician has to fix this motion to measure it, and if 
the motion of capital increases, it becomes more difficult to measure by 
that fact alone.

13. As regards services, many services are in reality the production of 
goods, or a participation in the production of goods - this is not really 
recognised adequately in the statistical system, because (i) in defining 
services statistically, there is an ambiguity about what exactly is sold and 
what the customer is actually paying for, and because (ii) the nature of the 
labour involved is defined according to the main direct output of an 
establishment. Take for example the production of a new airplane - the work 
in putting it together is subcontracted to literally hundreds of 
sub-contractors and even sub-sub-contractors, many of which supply 
"services" which are really part of building the airplane.

14. The historical trend for services however is firstly their 
autonomisation and specialisation (i.e., they are bought from someone else 
who produces them as a distinct activity, rather than being produced 
in-house) and then their commodification (the transformation of a service 
into a definite final product). The last step in the process, is the 
transformation of a service into an alienable, mass-reproducible tangible 
product that replaces the service. But whether this last step will occur, 
depends greatly on technical and social factors.

15. In view of the above, the idea of a "post-industrial age" is largely a 
poetic myth, or an artifact of statistical classifications. In reality, 
there is globally more and more industry, and more and more physical output 
of manufactured goods, not less. Services likewise become "industrialised" 
in the precise sense that they become mass-producible, according to a social 
standard, and increasingly product-oriented. But globally, the process of 
industrialisation in the manufacturing sense is also strongly braked by all 
the trends I have mentioned - relative profitability longterm and shortterm, 
slow growth of sufficient effective final demand, managerial, governance and 
organisational problems, increased risk perceptions, deskilling, etc.

16. The anxiety of some Western elites about "de-industrialisation" has 
nothing to do with the loss of manufacturing jobs per se. It has to do with 
losing strategic control nationally over the supply of, or access to, 
industrial goods, and the skill-base for producing them. It is just the same 
with agriculture - if your national agricultural base is wiped out, you 
become directly dependent on other countries to supply foodstuffs. However, 
the long run trend is for corporations to control more and more of the 
supply-chains internationally, initially through subcontracting and 
subsidiaries, and then more and more directly. At a deeper level, 
globalisation means increased internationalised interdependence between 
people which the traditional social institutions can no longer control. Not 
only is there no global government, but international law is very difficult 
to enforce. That creates a crisis of leadership and a faster and faster 
turnover of politicians - the responsibilities are immense, the priorities 
unclear, the clash of interests grows, and the material rewards are often 
rather little. Economic doctrines become increasingly meaningless 
generalities, because the real problems concern social organisation - since 
the elites try to cream off as much income with as little work as possible, 
ordinary people want to do that to, every kid on the block wants to do that, 
instant cash. So you get this problem of justifying the work ethic and 
justifying the specific rewards of working, and more and more hostility 
develops to externally imposed strictures on personal behaviour. In that 
case, morality becomes very relativistic and focuses on the limits of 
acceptable behaviour, or who you choose te associate with.

Jurriaan