Category Archives: Economics

Financialisation and Modern Capitalism

“Financialisation” is an insightful concept when thinking about the modern economy, and how it has changed over the course of the last fifty years. It is something discussed in particular in Greta Krippner’s book “Capitalizing on Crisis” (Krippner 2011).

According to Krippner “financialisation” is associated with a post-industrial economy, and means:

“a broad based transformation in which financial activities… have become increasingly dominant… over the last several decades.”

(Krippner 2011, p.2)

Krippner outlines an example of this process in practice analysing changes in the US economy from the 1960s to the 2000s. Successive policy changes in response to developments in the real economy led to the highly developed financial economy of the 2000s.

In practice this means the corporations come to rely on increasingly on the income from financial investments for their profits, and less on the return on investment in productive industry. Krippner quotes a 2006 study of the Ford Motor Company generating profit primarily by selling loans to purchase cars rather than from the sales of the cars themselves (Krippner 2011, p.3).

This is a fundamental change in how the economy functions, reducing investment in production as companies instead chase profitable financial investments. The system becomes increasingly disconnected from the ‘real’ economy and prone to oscillation and crisis. It’s a process that Marx touches on in Volume 3 of Capital when he describes ‘fictitious capital’, speculation, and the credit system. As more money is invested, the banks use it to create more ‘fictitious’ capital to create more investments and so as the system begins to spiral out of control. It was a process like this which drove asset prices for ‘subprime’ US real estate to unsustainable levels leading to the global financial crisis of 2007-9.

Michael Roberts takes up a similar theme in his analysis of the economy since 2007. His focus is on how companies need to search for different sources of profit as they try to survive a declining rate of profit overall, something which is a standard part of Marx’s analysis of a capitalist economy.

“After 2000, the rate of profit based on net worth remained under the rate against tangible assets for the first time on record, suggesting that the “financial” part of the assets of the capitalist sector became a significant obstacle to the recovery in capital accumulation.”

(Roberts 2016, p.122)

“Profit margins for the large companies are near all-time highs and cash reserves have accumulated, but there is little corresponding investment in the real economy; instead, it is in dividends, stock buybacks, and speculation in financial assets—and, of course, a revival of the property markets.”

(Roberts 2016, p.144)

There is little doubt that weak productive investment is driving poor ‘real world’ economic performance. Analysis by the UCL Institute for Innovation and Public Purposes suggests that “at the root of the UK’s weak economic performance is a low rate of investment“.

“The UK banking sector has largely retreated from funding productive activity in the real economy, and is instead focused on financing and trading existing assets.”

(MacFarlane 2018)

Krippner’s view that individual policy decisions designed to tackle an isolated problem have resulted in long term and fundamental changes to the functioning of the economy  also complements David Harvey’s view on how capitalism handles crises.  For Harvey, building on Marx, capitalism is an inherently unstable system with a number of points where crises can form for different underlying reasons. When a crisis occurs, the response tends to address the immediate short term problem by moving the point of tension elsewhere in the system to re-emerge later.

This is exactly the process that Krippner describes in the US. Policy responses developed in reaction to a present crisis put the economy on the path to the next pinch point and the next crisis, each widening and deepening the influence of finance on the economy as a whole.

“Financialisation” then is a concept that helps the analysis of the modern debt-laden economy both as a response to the tendency of the rate of profit to fall (Roberts) and as a means to avoid an incipient crisis while unintentionally preparing the ground for the next (Harvey).


Krippner, Greta Capitalizing on Crisis (Harvard University Press, Cambridge Massachusetts, 2011)

Roberts, Michael The Long Depression (Haymarket Books, Chicago, 2016)

Harvey, David Marx, Capital and the Madness of Economic Reason (Profile Books, London, 2017)

Macfarlane, L State investment banks as a source of patient strategic finance in the UK (online) (UCL Institute for Innovation and Public Purpose,, accessed 19 January 2018)

Marx, Karl Capital Volume 3 (Penguin, London, 1981)


Review: Capitalizing on Crisis

This is a technically complex work of sociology unpicking and analysing trends in US society, economy, and politics over the course of forty years from the 1960s to the 2000s.

Krippner’s basic thesis is that successive policy decisions over the course of this period, each in response to immediate challenges, have ‘financialised’ the US economy. In other words, have shifted the focus of profit making from investment in productive activity to the ownership and exchange of financial instruments. Even major industrial companies come to make significant portions of their profit from activity in the financial market. This shift has significant implications for how the economy is managed, and the location of future crises.

Krippner demonstrates this through a detailed analysis of economic data and a systematic review of policy shifts during this period. Although this is somewhat dry in places the case is convincing. She defines three separate phases. First the deregulation of the domestic financial market as an attempt to get to grips with the social crisis of the 1960s and 1970s, offering policymakers a ‘reprieve from difficult political choices’. Second the response to the fiscal crisis of the late 1970s and 1980s with growing government deficits which altered the relationship between the domestic and global markets driving a ‘dramatic expansion of credit in the US economy’. Finally on the realisation relying on market mechanisms offered in fact very little restraint on consumers, corporations, or governments how approaches to monetary policy developed incrementally in the period up to 2001 to control the demand for credit through interest rates (as opposed to regulation of the supply).

Although the book was first published in 2011, Krippner stops short of the 2007-9 financial crisis, indicating in the introduction that she considers this to represent a separate stage of development that requires a separated analysis. That said it is clear that the ‘depoliticisation’ of economic decision making that Krippner outlines is a significant factor underpinning the later crisis. As Krippner explains, in making this change the expectation had been that the market would impose a discipline on economic behaviour that political actors were unwilling to do. In fact this has turned out not to be the case at all. The market has promoted and validated a lack of restraint particularly in relation to credit which has left us more exposed than ever to the risk of financial crisis.

Although this is not Krippner’s intention, her analysis is a neat fit for the Marxist view of the long term tendency of the rate of profit to decline (see writers such as Robert Brenner and Michael Roberts). The declining profit possible in productive industry leads to speculation in what Marx called ‘fictitious capital’. This growing financialisation becoming increasing unstable and leading inexorably to crisis. The picture here is one that provides a deep-seated explanation for the financial crisis of 2007-9.

So this is a fascinating book with many implications for further analysis. If a touch dry in places, it is detailed, well researched, and a thought provoking discussion of what underpins the modern economy.

Krippner, Greta Capitalizing on Crisis (Harvard University Press, Cambridge Massachusetts, 2012)

A new mode of production?

Carlota Perez’ chapter in “Rethinking Capitalism” presents an analysis of change and growth in modern capitalism and the potential for a new phase of innovation developing green growth.

Perez uses an analysis similar to Kondratiev long waves and influenced by Schumpeter to break what is sometimes perceived to be continuous technological innovation under capitalism into  a number of distinct phases, each following a recognisable pattern from invention to installation and deployment. Perez shows how each phase is punctuated by a predictable bubble followed by bust and recession. After the failure of this initial wave of investment comes a ‘golden age’ as the technology matures and is deployed across the economy before gradually stagnated. The successive waves start with the initial industrial revolution based on water power and canals, then the development of steam and iron. Steel and chemicals drive another surge in the late 19th century

Perez argues that orthodox economic modelling fails to account for this essentially dynamic and changing nature of capitalism. Instead standard models assume a system based on equilibrium, tending to return to the current historic trend and explaining deviation from this by looking for external influences. In other words they are fundamentally static, predicting that the status quo will continue forever. But we know – and Perez demonstrates – that capitalism has not remained static through it’s history and that the future, with the impacts of automation and climate change, will not be the same as the economic system we experience today.

I believe that what Perez is theorising is what in Marxist terms might be termed changes to the mode or production – albeit within the overall structure of capitalism. While property relations – and therefore the relations of production in Marxist terms – have remained broadly the same over the last 200 years or so, the technologies of production have been subject to profound development and transformation. Although the overarching description “capitalism” is still valid there can be no doubt that the world is a different place than it was in 1800 or 1900.

Perez is proposing that a theory of change is introduced into ‘modern’ economic thinking. Something that Marx was proposing 150 years ago, along with theorising the mechanisms by which it comes about and how it interacts with wider society. Meanwhile the economic models on which policy making is based on locked into the same static view of the world that Marx criticised so mercilessly.

Rethinking Capitalism Jacobs, M. and Mazzucato, M. (Wiley-Blackwell, Chichester, 2016)

Brief Note on Identity Politics

There’s been something of a theme running through my reading recently around identity politics, particular after Hillary Clinton’s failure to defeat Donald Trump. Promoted by the modern left – particularly the neo-liberal leaning left in place of policies of radical economic change it has led the left into a dead end. The pursuit of neo-liberal economics have driven inequality to the point where those at the bottom of the heap are deserting the traditional left in droves in pursuit of someone with a stated opposition to the economic status quo. In other words, the left’s acceptance of neo-liberal economics and the replacement of economic struggle with an agenda based on political rights for minority groups has been a strategic failure.

This long quote from Owen Jones’ “Chavs” captures the point nicely. And “angry new right wing populism” seems like a reasonable description of Donald Trump.

“The demonization of the working class has also had a real role to play in the BNP’s success story. Although ruling elites have made it clear that there is nothing of worth in working-class culture, we have been (rightly) urged to celebrate the identities of minority groups. What’s more, liberal multiculturalism has understood inequality purely through the prism of race, disregarding that of class. Taken together, this has encouraged white working-class people to develop similar notions of ethnic pride, and to build an identity based on race so as to gain acceptance in multicultural society. The BNP has made the most of this disastrous redefinition of white working-class people as, effectively, another marginalized ethnic minority. ‘Treating the white working class as a new ethnic group only does the BNP a massive favour,’ says anthropologist Dr Gillian Evans, ‘and so does not talking about a multiracial working class.’ It is unlikely that the BNP will ever win significant power, not least because of chronic incompetence and infighting, of the kind that crippled the party after the 2010 general election. But its rise is like a warning shot. Unless working-class people are properly represented once again and their concerns taken seriously, Britain faces the prospect of an angry new right-wing populism.”

Accumulated Past Labour and Post Capitalism

Capitalism as a system is based on the continuous accumulation of wealth through the appropriation of surplus labour. One consequence of this is the steady growth in the stock of capital driving enormous changes in productivity. British steel, currently in the news, demonstrates this clearly. Output may have fallen by just over half in the last 40 years from 29m tonnes to 12.5m tonnes, but over the same period the number of people employed dropped by 90%, implying a dramatic increase in productivity over the same period.

This steady accumulation of the outputs of past labour, when held in private ownership, stands opposed to the living. It becomes something which both ensures the continuation of the owner-owned relationship and conditions what work means so that it becomes possible to talk about a half-mile long rolling mill controlled by a shift of 12 workers. In other words it has both a quantitative and a qualitative aspect.

The domination of the past over the present is a theme in Marx discussed in Fredric Jameson’s “Representing Capital”, a book which I reviewed a short while ago. As Jameson writes, it is not the structural relationship between the worker and their tools which is significant, but the sheer volume of capital set in motion. The human becomes an adjunct to the tools with the rhythm of work dictated by the needs of machinery.

“The quantities of the past have been rendered invisible by the production process outlined above, and yet they now surround the worker in a proportion hitherto unthinkable.”

(“Representing Capital”, Jameson, Verso London 2014, p. 102)

The past is therefore ever-present and “towers above” the worker dwarfing “even his collective presence” (ibid). When the means of (re)production are so massive their private ownership is an almost insurmountable barrier to change.

It is however this vast accumulation, and the productivity potential which it brings, that forms one of the key planks underpinning the strand of “post-capitalism” thinking on the left – exemplified in books by Paul Mason and Nick Srnicek & Alex Williams. Modern productive capacity has the potential to truly change the way society is organised, but the structure of existing social relations left unchanged seem likely to lead instead to rising inequality and unemployment as automation becomes more prevalent.

As Srnicek & Williams write:

“Today we see the occluded potential of this approach everywhere, in the fact that the technologies for achieving classic leftist goals (reduced work, increased abundance, greater democratic control) are more available than ever before. The problem is that they remain encased within social relations that obscure these potentials and render them impotent.”

(“Inventing the Future”, Srnicek & Williams, Verso London 2015, p. 150)

The challenge for the left then is how to build a movement which might break these social relations and create something else to take advantage of this potential. Both Srnicek & Williams and Mason have suggestions for how this might be achieved but it is still not clear how a movement which is both intellectually coherent and yet also an ‘organic’ mass movement of the people can be realised – something with Srnicek & Williams rightly identify as a key failing of “Occupy” and other modern protest movements.

Technology, Growth, and Post-Capitalism

Robert Brenner’s book “The Economics of Global Turbulence” is built around the thesis that the developments in the global economy since 1945 have been driven by systemic overcapacity within manufacturing, driving down the rate of profit. The various responses from within the leading capitalist countries have failed to deliver the theoretically expected response – the shift of investment into alternative industries, allowing the economy to adjust to demand through the closure of firms – delivering production which is rebalanced into the equilibrium which orthodox economists believe markets tend towards.

Brenner’s analysis is therefore fundamentally Marxist in approach. He stresses the drivers creating an inherent tendency for the rate of profit to fall based on the response to competitive pressure, meaning that companies are unlikely to exit the field as predicted by orthodox theory but will persist with lower rates of profit for longer than expected periods of time. Government policies have failed to resolve this long term decline either by Keynesian demand management (which simply allows the less competitive companies to survive, continuing the overcapacity) or fiscal and monetary tightening (which creates an economic environment in which reinvesting in other production lines is unlikely). The inability of capitalism to coordinate activity across the economy has resulted in serious and persistent imbalance.

In other words, the global economy since 1945 has not shown a tendency towards equilibrium. Rather the mechanics of capitalism have produced a long slow decay – termed the “long downturn” by Brenner – with moments of crisis precipitated by changing policy responses and the changing global (im)balance between the major capitalist nations.

Since the neo-liberal revolution, these policies have been driven by the orthodox belief that declining profit rates have been caused by over-generous wages and welfare systems. The sustained assault pursued over more than 30 years on earnings and conditions of employment have has however failed to deliver sustained improvement in profit rates. But it has provided quite effective support for asset holders. As Brenner notes in one example:

“[E]ven contemporary economic orthodoxy has failed to establish that inflation rates of up to 8 percent have any negative impact on the economy’s vitality… [T]here is no evidence that reducing inflation below 8 percent yields any gains whatsoever in terms of growth or living standards. For this reason, there are strong grounds for believing that the grand crusade to control inflation, while very costly to most people, has had little positive effect, except, of course, for the owners and lenders of capital.”

“The Economics of Global Turbulence” p.253, Robert Brenner, Verso, London 2006.

Recent writing by Paul Mason and Wolfgang Streeck (among others) has talked of the gradual death of capitalism and the growing emergence of a ‘post capitalist’ world, driven at least partially on capitalism’s failure to deliver a sustained rate of growth, and the impact of the policies pursued across capitalist countries to address the manifest problems. Brenner provides a detailed review of analysis of statistics that could provide a concrete underpinning for this viewpoint.

Brenner takes issue however with one of the proposed causes underlying the slow decline of capitalism, namely the long development swings associated with technological development. This view emphasises that economic growth in the past has been delivered by spurts of innovation, from the original industrial revolution on, and that in the absence of another bout of new technology to spur the economy forward long term decline is inevitable. Brenner considers this view Malthusian, and outlines clearly that the statistics do not support it when the cycle of growth across different countries is considered. In fact it is the inability of a global capitalist economy to coordinate and plan activity which prevents it from being able to take advantage of technological change, and also constricts it’s ability to remain dynamic.

“Continuity of technical change, but a reduction in the ability to make use of it”

“The Economics of Global Turbulence” p.243, Robert Brenner, Verso, London 2006.

Updated for the Verso edition in 2006, Brenner extends his analysis to cover the period from the bursting of the dot-com bubble in 2000-1 to 2006. He identifies the continuation of the tendencies towards manufacturing overcapacity – driven now by the massive growth of China taking a growing share of the global market through low labour costs and an undervalued renminbi. Meanwhile, the US economy is sustained by facilitating a series of financial asset bubbles, most recently in domestic housing, and endemic trade deficits. Brenner highlights the instability this is likely to cause, and of course we all know how this story ended.