Download David Woodward

Neoliberal Globalisation and
Financial Crisis
David Woodward,
PHA3, Cape Town, 6 July 2012
Expansion of the Financial Sector
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•
•
•
Reduced social provision
public  private pensions
social  private health insurance
public  private education, care for elderly =>
reliance on private savings
• Inequality (later)
• Deregulation:
– shift from traditional banking role to finance
Expansion of Finance
•
•
•
•
US: 4% of GDP in 1981  8% in 2007
UK: 5.3% in 2001  8.3% in 2007
Grew more than 3x faster than GDP
More than health and social work (7.1%) or
education (5.9%)
Global
Finance
Reduced social
provision
Increasing
inequality
Rich get
richer
Poor get
poorer
Increasing
savings
Speculative
investment
Limited
increase
in demand
Limited
productive
investment
opportunities
Financialisation – divorce of finance
From real (productive) economy
Speculation Promotes Speculation
Demand for
speculative
assets
High rate
of return
Price
increases
Bubbles, Booms and Busts
• This circularity creates speculative bubbles
• The integration of global finance increases
resources available  much bigger bubbles
• As bubbles inflate, they draw resources from
the real economy
• When they burst, more resources are taken
from the real economy to bail out the financial
system
•  ratchet effect, increasing finance at the
expense of the real economy
Conclusion
• US and UK, finance = c 8% of GDP
• Role is only to get money from those who have it
to those who need it
• In the UK, more than health or education
• Not a good buy even if it worked
• In fact, it is profoundly dysfunctional, and serves
little real purpose
• Strong case for limiting finance to traditional
banking