finance, financialisation and the crisis
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Finance, Financialisation and the Crisis. Sam Ashman [presented @ ATN12, Accra, August’09] Corporate Strategy and Industrial Development Research Programme University of the Witwatersrand. Overview of Presentation. Crisis: re-cap on some of the themes covered yesterday - PowerPoint PPT PresentationTRANSCRIPT
Finance, Financialisation Finance, Financialisation and the Crisisand the Crisis
Sam AshmanSam Ashman[presented @ ATN12, Accra, August’09][presented @ ATN12, Accra, August’09]
Corporate Strategy and Industrial Corporate Strategy and Industrial Development Research ProgrammeDevelopment Research Programme
University of the WitwatersrandUniversity of the Witwatersrand
Overview of PresentationOverview of Presentation
Crisis: re-cap on some of the themes Crisis: re-cap on some of the themes covered yesterday covered yesterday
Financialisation and the relationship Financialisation and the relationship between neoliberalism and financialisationbetween neoliberalism and financialisation
Experience of South AfricaExperience of South Africa Financialisation needs to be set in context Financialisation needs to be set in context
of a particular structure of productionof a particular structure of production Financialisation in SA helped to produce Financialisation in SA helped to produce
jobless growth and widening inequalityjobless growth and widening inequality Conclusions and alternativesConclusions and alternatives
Deep Structural CrisisDeep Structural Crisis
Triggered in the financial sectorTriggered in the financial sector Sub-prime crisisSub-prime crisis→→fear of toxic debtfear of toxic debt→ →
credit crunchcredit crunch→→slashing of output, slashing of output, redundancies, collapse in demandredundancies, collapse in demand
Spread to real economy, deepest crisis Spread to real economy, deepest crisis since the 1930ssince the 1930s
Bailouts, discussion of return to New DealBailouts, discussion of return to New Deal Ideological crisis in developed economiesIdeological crisis in developed economies Debate over the role of the StateDebate over the role of the State
Financialisation and Neo-liberalism Financialisation and Neo-liberalism
Volatility of short term financial flows Volatility of short term financial flows increase vulnerability to crisisincrease vulnerability to crisis
Part of bigger picture of de-regulation as Part of bigger picture of de-regulation as neoliberalism seeks to increase neoliberalism seeks to increase profitability, attack labourprofitability, attack labour
Entails capital restructuring nationally and Entails capital restructuring nationally and internationallyinternationally
Developed States act as agents not Developed States act as agents not victims of corporate globalisationvictims of corporate globalisation
Inflation targeting; freedom for finance Inflation targeting; freedom for finance
Financialisation and Neo-liberalismFinancialisation and Neo-liberalism
Autonomy of financeAutonomy of finance Proliferation of financial actors and marketsProliferation of financial actors and markets Penetration of finance into greater areas of Penetration of finance into greater areas of
economic and social reproduction – health, economic and social reproduction – health, education, energy, telecommunications, education, energy, telecommunications, transport, pensions, housingtransport, pensions, housing
Corporations funding investment from retained Corporations funding investment from retained earnings and private markets, less dependent on earnings and private markets, less dependent on banksbanks
Banks seek alternative sources of profitsBanks seek alternative sources of profits Qualification: companies act as financial actors in Qualification: companies act as financial actors in
their own righttheir own right
South African contextSouth African context
Effect of financialisation needs to be set in Effect of financialisation needs to be set in the context of particular structure of the context of particular structure of productionproduction
‘‘Minerals Energy Complex’ (Fine and Minerals Energy Complex’ (Fine and Rustomjee 1996)Rustomjee 1996)
Dominance of mining and cluster of Dominance of mining and cluster of industries around itindustries around it
Developed financial sectorDeveloped financial sector Lack of diversification into other sectorsLack of diversification into other sectors High dependence on mineral exportsHigh dependence on mineral exports
Effect of financialisation Effect of financialisation - outflows- outflows
Post 1994 orthodox programme of ‘liberalisation Post 1994 orthodox programme of ‘liberalisation from within’from within’
Progressive reduction of financial and trade Progressive reduction of financial and trade regulationregulation
Managed programme of capital flight – in return Managed programme of capital flight – in return for concessions on BEE?for concessions on BEE?
Rose from 5.4% of GDP 1980-1993 to 9.2% of Rose from 5.4% of GDP 1980-1993 to 9.2% of GDP 1994 to 2000GDP 1994 to 2000
Major companies re-listed on London stock Major companies re-listed on London stock exchangeexchange
Loss of political-economic power post apartheidLoss of political-economic power post apartheid Opportunities to be gained internationally Opportunities to be gained internationally
Effect of financialisation Effect of financialisation -inflows-inflows
Increase in short term inflowsIncrease in short term inflows Growth of speculation and consumer debtGrowth of speculation and consumer debt Similarities with the US model of debt Similarities with the US model of debt
driven consumptiondriven consumption Second Houses – property bubbleSecond Houses – property bubble 22ndnd/3/3rdrd cars – imported, boosts GDP growth cars – imported, boosts GDP growth Growth in Credit Card DebtGrowth in Credit Card Debt Jobless growthJobless growth Growth in financial services – security Growth in financial services – security
guardsguards
The 10 sectors receiving most The 10 sectors receiving most investment in 2008investment in 2008
Source: SASSID 2009Source: SASSID 2009
General government services
20%
Business services14%
Finance and insurance
13%
Communication10%
Transport and storage
10%
Wholesale and retail trade10%
Electricity, gas and steam
9%
Other mining 8%
Agriculture, forestry and fishing
3%
Coal mining3%
2008 Top 10 Sectors by Investment (as a % of the total investment)
Change in capital stock across Change in capital stock across economic sectors 2000-2008economic sectors 2000-2008
Source: SASSID 2009Source: SASSID 2009Change in capital stock from 2000 to 2008 for all economics sectors
-40000
-20000
0
20000
40000
60000
80000
100000
Gen
eral
gov
ernm
ent s
ervi
ces
Bus
ines
s se
rvic
es
Fin
ance
and
insu
ranc
e
Oth
er m
inin
g
Tra
nspo
rt a
nd s
tora
ge
Com
mun
icat
ion
Who
lesa
le a
nd r
etai
l tra
de
Ele
ctric
ity, g
as a
nd s
team
Bas
ic c
hem
ical
s
Non
-met
allic
min
eral
s
Med
ical
, den
tal a
nd v
eter
inar
y se
rvic
es
Mot
or v
ehic
les,
par
ts a
nd a
cces
sorie
s
Bui
ldin
g co
nstr
uctio
n
Oth
er m
anuf
actu
ring
Pap
er a
nd p
aper
pro
duct
s
Wat
er s
uppl
y
Exc
ludi
ng m
edic
al, d
enta
l and
vet
erin
ary
Civ
il en
gine
erin
g an
d ot
her
cons
truc
tion
Oth
er c
hem
ical
s an
d m
an-m
ade
fiber
s
Cat
erin
g an
d ac
com
mod
atio
n se
rvic
es
Woo
d an
d w
ood
prod
ucts
Foo
d
Mac
hine
ry a
nd e
quip
men
t
Prin
ting,
pub
lishi
ng a
nd r
ecor
ded
med
ia
Gla
ss a
nd g
lass
pro
duct
s
Coa
l min
ing
Oth
er p
rodu
cers
Met
al p
rodu
cts
excl
udin
g m
achi
nery
Agr
icul
ture
, for
estr
y an
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hing
Pro
fess
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entif
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t
Pla
stic
pro
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s
Tel
evis
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rad
io a
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omm
unic
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n
Leat
her
and
leat
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prod
ucts
Tob
acco
Rub
ber
prod
ucts
Fur
nitu
re
Foo
twea
r
Oth
er tr
ansp
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Wea
ring
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Tex
tiles
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erag
es
Bas
ic n
on-f
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us m
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e an
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role
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rodu
cts
Bas
ic ir
on a
nd s
teel
Gol
d an
d ur
aniu
m o
re m
inin
g
Rea
l 200
0 p
rice
s
Credit Extension and Investment as Credit Extension and Investment as Percentages of GDP 1990-2008Percentages of GDP 1990-2008
Source: SARB 2008Source: SARB 2008Credit extension and investment as percentages of GDP
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
per
cen
tag
e o
f G
DP
Total fixed capital formationPrivate business enterprises: Fixed capital formationTotal domestic credit extensionTotal credit extended to domestic private sector
Private Sector Credit Extension by Private Sector Credit Extension by all Monetary Institutions 1990-2008all Monetary Institutions 1990-2008
Investments
Bills discounted
Installment-sale credit
Leasing finance
Mortgage advances
Other loans and advances
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
% o
f To
tal c
red
it e
xte
nd
ed
to th
e p
riva
te s
ect
or
Private Sector Credit Extension by all Monetary Institutions
Other loans and advances
Mortgage advances
Leasing finance
Installment-sale credit
Bills discounted
Investments
Main sources and uses of capital in Main sources and uses of capital in business enterprises 1992-2007business enterprises 1992-2007
Source: SARB 2008Source: SARB 2008
-50000
0
50000
100000
150000
200000
250000
300000
350000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sources and uses of capital in coporate business enterprises
Net savings
Gross capital formation
Net acquisition of financial assets
Net capital formation (gross capital formation - deprecaiation)
Effect of the CrisisEffect of the Crisis
Job losses and short time in mining and Job losses and short time in mining and mineral products as consequence of falling mineral products as consequence of falling global demandglobal demand
Manufacturing output fallen by 25% in the Manufacturing output fallen by 25% in the last yearlast year
Tighter global and domestic credit marketsTighter global and domestic credit markets SA banks reduced debt post sub-prime SA banks reduced debt post sub-prime
crashcrash 6,000 car repossessions a month, house 6,000 car repossessions a month, house
foreclosures and business bankruptciesforeclosures and business bankruptcies
Conclusions - AlternativesConclusions - Alternatives Renew debate about state intervention Renew debate about state intervention
and state’s role in developmentand state’s role in development Capital controls – reduce capital flight; Capital controls – reduce capital flight;
affect structure of bank liabilities and affect structure of bank liabilities and therefore lendingtherefore lending
Stronger role for state directed Stronger role for state directed development finance and Development development finance and Development Finance InstitutionsFinance Institutions
Co-ordination of policy - Industrial Policy, Co-ordination of policy - Industrial Policy, Trade PolicyTrade Policy
Finance for investment in what is socially Finance for investment in what is socially usefuluseful