The widening vortex of global finance
http://www.thehindu.com/todays-paper/tp-opinion/the-widening-vortex-of-global-finance/article7514000.ece
It is fairly well established that the past three decades have witnessed a worldwide growth in inequality. This phenomenon is often evoked in the same breath as the extraordinary salaries and bonuses that financiers pay themselves.
Clearly, financial institutions such as hedge funds and investment banks are able to generate huge profits, which is why they can afford humongous compensation packages. But what exactly is the source of financial profit? And what is the link between rising financial profits and growing inequality of wealth/income?
Before we can answer these questions, it is necessary to contextualise this phenomenon.
First, rising inequality and sky-rocketing financial profits have paralleled the rise of global finance, or “financialization”, which also denotes the growing penetration of real economic activity (to do with generating surplus value) by finance capital.
In his book, T he Everyday Life of Global Finance , the economic geographer, Paul Langley, explains how the common view of global finance as something “out there somewhere” — timeless, spaceless, identified with 24X7 global markets — is fallacious. It is simply not true that finance operates primarily in a rarefied realm of super-specialists far removed from the world of everyday economic activity such as earning, saving and borrowing.
On the contrary, Langley argues, global finance has fundamentally reengineered the ordinary ways we think about and manage money.
Where risk enjoys a good press
Till the generation of say up to the 1980s, the future was conceived as a realm of uncertainty, one that held possible harm, for which one provisioned through savings and insurance. Financialisation is born when uncertainty is quantified into risk. How we frame risk decides what we do with our money.
In Langley’s formulation, if risk is calculated and managed as a future harm that requires prudence in the present, it makes for an approach of thrift. But if it is framed as an opportunity that holds the possibility of immense rewards, it mandates an approach where the most rational form of saving becomes investment.
Therefore, at the ideological level, financialisation entails two manoeuvres: one, the transformation of nebulous uncertainty into quantifiable risk, which is then managed through an array of calculative technologies; two, a shift in the common-sense understanding of risk as something potentially harmful, to something potentially rewarding.
Given that risk is essentially a financial category, the current civilisational obsession with data is another testament to the growing supremacy of finance capital (in alliance with technology), which wants every piece of the world’s data on anything and everything in order to be able to manage risk optimally for maximum returns.
Your PF is not a saving anymore
We are all financial investors today — either directly or via mutual funds or through insurance or pension funds.
The recent move to allow the investment of Employees’ Provident Fund Organisation (EPFO) money in the stock market basically takes the matter out of the individual’s hands. So, it is not just the rich and the middle classes, but the poor too who must become investors, which is why it’s vital to substitute the provision of essential survival goods with cash transfers. It is the logic behind the neo-liberal state’s enthusiasm for so-called financial inclusion through schemes such as the Jan Dhan Yojana, whose bank accounts would presumably channel portions of personal income (wages/cash transfers) to financial markets via schemes such as the Pradhan Mantri Suraksha Bima Yojana and Atal Pension Yojana.
The objective of these so-called social insurance schemes is less to serve as savings to be drawn upon when needed, than as another source of liquidity for the financial markets. Why else would one want to cap premature withdrawals of PF — all too often the only savings for many — at 75 per cent? But it makes perfect sense in the context of the move to invest PF savings in the capital market.
The flipside of ensuring that one cannot save without investing is that one cannot spend without borrowing.
As one of the largest corpuses of workers’ savings, the EPFO is again a good case study: another government proposal — this time to use the future stream of EPFO contributions for housing loan interest payments — heralds the arrival of the already indebted Indian worker as a tradable “security” in the global financial market.
The engine of financialisation
Saving is not the same as investing. Savings are income that is not consumed. Investment is savings converted into capital with the objective of producing profit.
When the aam aadmi ’s saved income, say, in the EPFO, is invested in equity, or when your bank manager asks you to put your savings in a mutual fund rather than in a fixed deposit, or when you take a home loan not because you need shelter but as an investment, you are willy-nilly participating in the logic of global finance — profiting without producing, purely by managing risk.
In plain terms, what financialisation does is to transfer (or spread) the burden of risk from bearers of investment (therefore risky) capital such as banks, or the state, onto the individual worker or household. Even so, when big banks — whose job is risk assessment — mess up, prevailing wisdom mandates that they be bailed out. However, there is no such luck for the common man who will typically have to pay for the mistakes of private financial institutions through higher taxes and less of public amenities.
The extraction of financial profit
In his book, Profiting Without Producing: How Finance Exploits Us All , the Greek economist, Costas Lapavitsas, lists three defining features of a financialising economy: one, a growing distance between non-financial enterprises and banks; two, banks seeking revenue more from financial markets and lending to households than from lending to industry; and three, an increasing interpenetration between streams of personal income and networks of global finance.
All three are evident in India. The business journalist, Vivek Kaul, has written about how, even as overall lending by banks in India has slowed down, home loans have continued to grow at the same pace. Home loans formed 11 per cent of total bank loans given out during the period of one year ending May 2013. For the one-year period ending May 2015, this had jumped to 19.6 per cent of the overall portfolio.
This single phenomenon confirms all of Lapavitsas’s three criteria. An expanding home loan portfolio means banks in India are increasingly looking to future streams of personal income for profits. It also means companies are relying less on bank loans for raising capital, and preferring capital markets. In fact, in the April-June quarter of 2015, fund-raising from the markets by Indian companies stood at Rs.1.73 lakh crore — more than double the corresponding figure for last year. Finally, given that banks raise loanable capital from money markets, a growing inter-connection between financial profit and future earnings of individuals is inevitable.
Given that financialisation is not just an abstract economic phenomenon but has real social consequences, the next question is the one we began with: what is the source of financial profit?
We also know that the source of profit for productive capital is the surplus value created. The source of profit for banking capital is interest, based on the time value of money. But financial profit, such as the millions earned instantly by founders from an initial public offering, or capital gains earned from trading in securities, have nothing to do with value creation. So, where does the profit come from?
Lapavitsas’s answer is that financial profit is ultimately derived from two channels: expropriation of a portion of surplus value generated by productive capital, and expropriation of a portion of personal income earned by workers (as they turn investors/borrowers).
What does this mean for the aam aadmi ? To begin with, a future of rising indebtedness. Faced with an expropriation of profit by finance capital, productive capital can be choosy about investment. But labour does not have the option of desisting indefinitely from employment, which is why in a capitalist society, financial expropriation will ultimately be at the cost of the wage-earning classes, leading to indebtedness.
The debt could take the form of direct, household debt. Figures from the National Sample Survey Office (NSSO) reveal that during 2002-2012, household debt grew by seven times in urban India and by four times in rural India, the bulk of this debt being incurred for essentials such as housing and education.
The debt burden could also be indirect. Here, servicing sovereign debt will take precedence over public investment for development, as is happening with Greece. These debt payments will come from future streams of tax revenue extracted from the working population through a multitude of income-indifferent indirect taxes such as Value Added Tax and Goods and Service Tax.
So, is it at all possible for a lifelong wage-earner to secure, or feel secure about, her post-employment future in a financialised world where savings lose value unless they become finance capital? And, which in turn, holds the ever-present threat of losses on account of the risks inherent in investment? Perhaps not. This may explain why our age is often described as “the risk society”.
sampath.g@thehindu.co.in
The flipside of ensuring that one cannot save without investing is that one cannot spend without borrowing.
The recent move to allow the investment of provident fund money in the stock market basically takes the matter out of the individual’s hands. So, it is not just the rich and the middle classes, but the poor too who must become investors
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