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Neoliberal Globalisation and Financial Crisis David Woodward, PHA3, Cape Town, 6 July 2012 Expansion of the Financial Sector • • • • 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