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FINANCIAL GLOBALISATION
AND THE STRENGH OF
SELF CENTERED, “SELF
REGULATED” (c.f. K.Polanyi)
FINANCIAL ACCUMULATION
François Chesnais
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1. “SELF CENTERED” FINANCIAL
ACCUMULATION
2. FINANCIAL GLOBALISATION
3. “DISTANCE FROM PRODUCTION”
4. FINANCIAL ACCUMULATION NOT
LIMITED TO “CORE COUNTRIES”, ALSO IN
BRICS
5. WHAT TYPE OF INDICATORS
6. SOME ASPECTS OF THE CURRENT GEOPOLITICS OF FINANCE
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BRIC: AN ACRONYM COINED BY GOLDMAN
SACHS = ECONOMIES « TARGETTED » AS
COUNTRIES
WHERE CORE ECONOMY FINANCIAL
FUNDS & BANKS COULD EXPAND THEIR
OPERATIONS VERY PROFITABLY
WHERE SELF CENTERED, “SELF
REGULATED” FINANCIAL ACCUMULATION
COULD BE ENCOURAGED &
STRENGHENED
“SELF-CENTERED” FINANCIAL
ACCUMULATION DEFINED AS:
* AS MONEY BENT ON BEGETTING
MONEY IN FINANCIAL MARKETS
WITHOUT LEAVING THEIR SPHERE
* AS ACCUMULATED ASSETS WHICH
REPRESENT CLAIMS ON CURRENT AND
FUTURE OUTPUT, AS LONG AS FINANCIAL
CRASHES DO NOT WIPE THEM OUT
* « SELF-CENTERED » BUT NOT
«AUTONOMOUS », PREDATORY & HENCE
DANGEROUSLY DEPENDENT
* SUCH FINANCIAL ACCULUMATION IS MAINLY
THE OUTCOME OF OPERATIONS MADE BY A
SPECIFIC TYPE OF CAPITALIST INSTITUTION,
WITH VERY DIFFERENT AIMS & TIME-HORIZONS
FROM MANUFACTURING FIRMS
* SUCH INSTITUTION INCLUDE BANKS,
INSURANCE COMPANIES AND FUNDS (PENSION
FUNDS, MUTUAL FUNDS, HEDGE FUNDS)
* BUT LARGE CORPORATIONS ALSO INVOLVED IN
FINANCIAL ACCUMULATION AS ACTIVE AGENTS
& AS MAJOR “VEHICLES” = PREDATORY TRAITS
INCREASE CONTINUALLY
FINANCIAL INSTITUTIONS CENTRALIZE
INCOME THAT IS “SAVED”, e.g.
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NOT REINVESTED BY FIRMS IN NEW
PLANT (AT LEAST IMMEDIATELY)
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NOT SPENT ON GOODS AND SERVICES (BE
IT BY PEOPLE EARNING SALARIES OR BY
THOSE RECEIVING INCOME ACCRUING
FROM PROFITS OR RENT)
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THE STRONG AMBIGUITY OF SAVINGS
FOR LOWER INCOME LEVELS THEY
REALLY REPRESENT A SACRIFICE
AT HIGHER LEVELS THEY ARE SIMPLY A
RESULT OF INCOME IN EXCESS OF NEEDS
IN ECONOMIES WHERE EDUCATION,
HEALTH & RETIREMENT ARE LEFT TO
INDIVIDUALS, THE SUMS PUT ASIDE ARE
FODER FOR AND STRENGTHEN
FINANCIAL ACCUMULATION
UNSPENT INCOME IS USED BY BANKS & FUNDS
TO MANAGE “PORTFOLIOS” OF FINANCIAL
ASSETS (e.g. BONDS ,SHARES)
BANK ACTIVITIES, NOTABLY CREDIT STRONGLY
AFFECTED
SPECULATIVE OPERATIONS = “WINDFALL GAINS ”
(KEYNES). THIS ALSO DONE BY CORPORATIONS
FUNDS MODIFY THEIR PORTFOLIOS ALL THE
TIME = “ARBITRAGE” = ENDEMIC FINANCIAL
INSTABILITY
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THE TRADING OF ASSETS TAKES
PLACE IN “SECONDARY” FINANCIAL
MARKETS WHERE ASSETS CAN BE
TRADED AT VERY SHORT NOTICE
(KEYNES’S “LIQUIDITY”)
FOR BANKS DIFFERENT FORMS OF
CREDIT = MAIN SOURCE OF PROFIT
FINANCIAL MARKETS ALLOW THEM
TO “SECURITIZE” e.g. TRADE MANY
FORMS, NOTABLY MORTGAGE
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INTEREST, DIVIDENDS, etc. PROCURE
INCOME PERTAINING TO RENT, e.g.
FORMS OF LEVY ON GDP
LEVY ON TAXES RAISED OR
EXPORTSEARNED
LEVY ON GROSS RESULTS OF FIRMS
EFFECT ON INVESTMENT
EFFECT ON INCOME DITRIBUTION =
JUMP IN GROWTH OF INEQUALITY IN
INCOME & IN WEALTH POSSESSION
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“GLOBALISATION”: THE WORKING
OF THE WORLD ECONOMY BASED
ON LIBERALISATION AND
DEREGULATION OF
FINANCIAL FLOWS, FOREIGN DIRECT
INVESTMENT AND TRADE
MARKED BY PRIVATIZATION &
ENHANCEMENT OF PROPERTY (IPR)
PROCESS LED BY FINANCIAL
INSTITUTIONS
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FINANCIAL GLOBALISATION BENT ON:
THE INTERNAL DEREGULATION &
OPENING UP OF NATIONAL FINANCIAL
SYSTEMS TO PORTFOLIO INVESTMENTS
IN A FIRST PERIOD
LATER INCREASINGLY ON
*LIBERALISATION OF FDI & THE FREE
REPATRIATION OF CORPORATE PROFITS
* FREE ACCESS OF FOREIGN BANKS TO
DOMESTIC BANKING SYSTEMS
PHASES IN THE ONSET OF FINANCIAL
ACCUMULATION :
* 2° HALF 1960s: EURO-DOLLAR MARKET IN
LONDON
* AFTER 1975: SYNDICATED LOANS TO
DEVELOPPING COUNTRIES AT VARIABLE
INTEREST RATE DETERMINED BY U.S.
* 1982: MEXICAN & « THIRD WORLD » DEBT
CRISIS = SERVICING OF INTERST ON DEBT
AT USURIOUS RATES
* U.S. & OTHER G7 GOVERNMENT DEBT =
MASSIVE TRANSFER OF MONEY TO FUNDS
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IN 1980s: FUNDS BECOME STRONGER
THAN BANKS MAIN VEHICLE OF
FINANCIAL ACCUMULATION = INTEREST
ON GOVERNMENT DEBT
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CORPORATIONS « FINANCIARIZE »:
CURRENCY SPECULATION, BUT ALSO
CHANGES IN MANAGEMENT STRATEGIES
(USE OF MONOPSONY, « HOLLOW
CORPORATION », PREDATORY SOURCING
OF TECHNOLOGY, EXTERNALIZATION TO
LOW COST VULNERABLE FIRMS,
AGGRESSIVE LABOR POLICIES, ETC.)
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IN 1990s: MAJOR CHANGE IN THE
IDENTITY OF OWNERS OF CORPORATIONS
WITH SHIFT OF FUNDS PORTFOLIOS TO
SHARES
ONSET OF CORPORATE GOVERNANCE
MID 1990s: NEW WAVE OF M&As
NEW PUSH OF FDI, NOTABLY IN ASIA TAKE
OFF OF STRONG FDI IN CHINA
IN MANY COUNTRIES MOUNTING
PRESSURE ON GOVERNMENTS TO
PRIVATIZE AND TO SET UP MARKETBASED PENSION SCHEMES
« DISTANCE FROM PRODUCTION » = KEY
DIFFENCES BETWEEN AUTONOMOUS
FIRMS & THOSE GOVERNED BY FUNDS
 IN FIRMS CONSIDERATIONS OF LONG
TERM EXPANSION & GROWTH CAN
PREVAIL, LONG HORIZONS
 IN FUNDS THE RULE IS « VALUE FOR
INVESTORS EACH QUARTER »
 LOYALTY OF MANAGERS THROUHGH
STOCK OPTIONS
 BUT VERY GREAT PRESSURE ON LABOR
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BEGINNING IN THE LATE 1990s
VALUE FOR SHAREHOLDERS BASED
MORE ON MORE ON PRICE OF
SHARES
SINCE circa 2000, NET OUTFLOW OF
CASH FROM BOURSES FIRMS BUY
BACK SHARES. NO NEW CASH ONCE
IPO FINISHED
INVESTMENT IS FINANCED
THROUGH ISSUING CORPORATE
BONDS e.g. DEBT
TODAY WHAT THE ECONOMIST
(31.03.07) CALLS « VULTURE FINANCE »
NURTURED BY « EXCESS LIQUDITY »
IS OMNIPRESENT
* PRIVATE EQUITY OPERATING FOR
MUTUAL & HEDGE FUNDS & BANKS
* LBOs LEVERAGED BY THE HUGE
MASS OF MONEY LOOKING FOR
JUICY FINANCIAL INVESTMENT
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FINANCIAL INVESTORS KEENLY
INTERESTED IN « EMERGING MARKETS »
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FOLLOWING THE MEXICAN & ASIAN
CRISES & THE SHIFT TO SHARES, THE
INTEREST OF INVESTORS HAS ALSO
SHIFTED = EMERGING ECONOMIES AS
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LOCUS FOR PROFIT & ROYALTY
REMITTANCES BY TNCs = BETTER VALUE
FOR SHAREHOLDERS
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AS AREAS OF EXPANSION OF MAJOR
INTERNATIONAL BANKS THROUGH
RIGHT OF ENSTABLISHMENT AND M&As
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SHIFT FROM FOREIGN TO DOMESTIC
PUBLIC DEBT MUCH OF WHICH HELD BY
DOMESTIC BANKS = INTERNATIONAL
BANKS ENT ON CASHING IN ON THIS
EMERGING ECONOMIES NOT ONLY
« TARGETS » ALSO LOCUS OF
ENDOGENOUS PROCESSES
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FOR FINANCIAL ACCULATION BY LOCAL
OLIGARCHICAL GROUPS
FOR THE BUILDING OF LARGE DOMESIC
CORPORATIONS
FOR ENDOGENOUS « PURE » FINANCIAL
ACCUMULATION BY BANKS & LATTER
FUNDS
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ENDOGENOUS FINANCIAL
ACCUMULATION
IN BANKS & INSURANCE COMPANIES
CENTRALIZING SMALL SAVINGS
IN PENSION FUNDS WHEN PENSIONS ARE
PRIVATIZED
CHANNELS OF ACCUMULATION =
HOLDING OF DOMESTIC PUBLIC DEBT
CREDIT AT HIGH INTEREST RATES
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DOMESTIC FINANCIAL INSTITUTIONS ARE
EARLY & STRONG ADVOCATES OF
LIBERALISATION IN FINANCE & FDI
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DEFENSORS AND INITIATORS OF PRIVATE
PENSION SCHEMES
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PARTNERS AND EVEN INITIATORS OF
TAKEOVERS OF NATIONAL FIRMS BY
FOREIGN ONES AND OF M&As BY « MIXED
CONSORTIUM »
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« DELIGHTS OF LIBERALISATION »
FDI LIBERALIZATION AGREEMENTS
SPELL THE END OF LISTIAN
POLICIES
FIRMS PLAY IN A « NEW LEAGUE »
WITH RISK OF UNDER-ESTIMATION
OF INTENSITY OF RIVALRY & SCALE
OF ENNEMY FINANCIAL STRICKING
POWER
MEANINGFUL DATA COLLECTION
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DATA NEEDED ON FORMS, SCALE &
EFFECT OF FOREIGN FINANCIAL
TARGETTING
DATA NEEDED ON FORMS & SCALE
OF ENDOGENEOUS FINANCIAL
ACCUMULATION
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DATA PROVIDED BY THE EXTERNAL
CAPITAL ACCOUNT.
CAPITAL INFLOWS: TOTAL AND
COMPOSITION:
FDI, INTERNATIONAL BANK LOANS
AND SHORT-TERM CAPITAL
IDEALLY TYPE OF INVESTMENT
(GOVERNMENT BONDS,
OPERATIONS IN THE HOST STOCK
MARKET, ETC.)
CAPITAL OUTFLOWS: IDEM
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DATA ON GOVERNMENT DEBT
(CENTRAL GOVERNMENT & STATE &
MUNICIPAL AUTHORITIES
SIZE OF DEBT (IN DOLLARS, % OF
GDP, % of EXPORTS, etc.)
IDENTITY OF CREDITORS (FOREIGN
OR NATIONAL)
IN THE LATTER CASE BREAKDOWN
(DOMESTIC BANKS, PENSION FUNDS,
etc.).
DATA ON INWARD AND OUTWARD
FDI, WITH BREAKDOWN BETWEEN
GREEN-FIELD AND M&As
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FOR INWARD FDI OF INVESTORS
(FIRMS OR FUNDS) & NATIONALITY
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FOR OUTWARD FDI COUNTRIES OF
DESTINATION AND NATURE OF
INVESTMENT (M&A or GREENFIELD)
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DATA ON M&As & POST-1990s
CHANGES IN OWNERSHIP OF:
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NATIONAL PRIVATELY OWNED
FIRMS: OWNERSHIP BY FAMILIES,
BANKS, DOMESTIC PENSION FUNDS,
etc.
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OF STATE OWNED ENTERPRISES
(PRIVATIZATION)
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ACQUISITIONS BY
FOREIGN CAPITAL: INDUSTRIAL
CORPORATIONS (MANUFACTURING,
MINING OR SERVICES), FINANCIAL
INVESTORS
DOMESTIC CAPITAL (idem)
CHANGES IN THE DEGREE OF
CONCENTRATION ACCOMPANYING
CHANGES IN OWNERSHIP
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DATA ON THE FINANCIAL SYSTEM
FINANCIAL DEPTH (FINANCIAL
ASSETS AS % OF GDP)
MAIN BREAKDOWN OF ASSETS (BANK
DEPOSITS, GOVERNMENT DEBT,
CORPORATE DEBT, EQUITY)
SIZE AND GROWTH OF THE
NATIONAL CORPORATE BOND
MARKET
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DATA ON THE DOMESTIC STOCK
EXCHANGE
CAPITALIZATION AND
PERFORMANCE (BACK TO 1995)
LISTED COMPANIES (SECTOR OF
ORIGIN, VALUE OF CAPITALIZATION)
REGULATORY REGIME FOR FOREIGN
INVESTORS.
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DATA ON THE NATURE OF SAVINGS
& THEIR CENTRALIZATION BY
BANKS AND OTHER INSTITUTIONS
SIZE OF HOUSEHOLD SAVINGS AND
THEIR COMPOSITION (BANK
DEPOSITS, FINANCIAL ASSETS, GOLD,
PHYSICAL ASSETS)
SIZE & GROWTH OF PENSION FUNDS
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DATA ON BANK CREDIT
DISTRIBUTION BY TYPE OF CREDIT
(FIRMS, LARGE, SMALL, MORTGAGE,
CONSUMER CREDIT, etc.)
COST (INTEREST RATES FOR TYPES
OF CREDIT)
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THE GEO-POLITICS OF FINANCE: A
FEW FEATURES
CHANGE IN « THIRD WORLD DEBT »
= LARGE TRADE SURPLUSES &
DOLLAR RESERVES BY SEVERAL
MAJOR COUNTRIES, NOTABLY BRICS
U.S. AS MAJOR DEBTOR COUNTRY
U.S.-ASIA AXIS AS MAIN GLOBAL
RELATIONSHIP STRUCTURING
WORLD MACRO-ECONOMICS
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The backbone of the current systemic
configuration of the global economy is the
US-Asia axis : China & Japan in different as
well as in similar capacities ; less crucially
Korea &Taiwan ; India in a particular position
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All other regions, including the EU,
subordinate to this power axis & dependent
on the demand pull created by both poles
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United States needs the :
“China effect” on wages & the price of
manufactures
profits and so the capacity to pay
dividends made by US TNC exploiting
in situ China’s cheap, disciplined labor
force
purchase of T-Bonds made by the
Central Bank of China
Other indirect positive effects for U.S.
* Support provided by China to Japan,
Taiwan & Korea
 it was unwilling/incapable to help Japan
out of the post 1990 recession
 it needs the purchase of T-Bonds also
made by Japan, Taiwan & Korea
* Indirect benefits from China’s demand for
raw materials to Latin America
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China needs the United States:
as its principal export market = “U.S.
consumer of last resort”
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as a source of productive capital but also of
managerial know-how and technology to be
assimilated and improved
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currently China pays the price in the form of
outward flows of profits, but already
candidate for the M&A of Western firms
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High vulnerability of these
relationships
Risk in a quite near future of transition
from “healthy” deflationary conditions
to outright deflation
Asia again the seat of strong latent
over-accumulation & excess capacity
In other parts of the world system play
of capital’s “classical” contradiction
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Goods must be bought by economic
agents with monetary income
Wages provide “demand”, but are
viewed by capitalists as “costs” and as
“levies” on their profits = inherent
pressure to reduce real wages
Large scale resorting to the “China
effect” = little leeway to offset a U.S.
recession
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U.S. mortgage & consumer credit
expansion has reached its limits
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U.S. external deficits put a ever greater
strain on the dollar: what the limit level
that holders of dollar reserves accept?
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A major global financial crisis with New
York as its heart
Did not materialize in 1998 or in 2001,
but it cannot be ruled out because of
the huge accumulation of assets (e.g.
fictitious capital) and the U.S. deficits
Much harder, possibly impossible for
the Fed to resort to new massive “anticyclical” credit creation as in the past
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Any financial incident can trigger off the
latent situation created by overcapacity &
endemic overproduction
Trade wars which WTO would not be able to
control
Monetary blocks, but great tension between
rivals for their leadership
Reminder that the global economy created
by liberalization is an unregulated one