The ills of finance capital could fill entire libraries – here are three books that look at different aspects of its failure…
Three books to start off the new year
WORKERS, JANUARY 2009 ISSUE
A city of workers
Doreen Massey, Professor of Geography at the Open University, has written a brilliant study of London, showing it to be a city of workers and still of manufacturing industry, claimed by a minority for finance capital.
London’s economy is still closely tied into Britain’s economy. 28.5 per cent of all London’s exports go to the rest of Britain while 12.3 per cent go abroad; 39.9 per cent of financial services go to the rest of Britain, 31.5 per cent abroad; and 32.9 per cent of business services go to the rest of Britain, just 12.1 per cent abroad.
Yet the City of London is a key base of class power, and “a new imperial order has taken hold”.
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| London: a city of workers and still a city of manufacturing. |
The Labour government embraced the Thatcher counter-revolution and spread it to the regions, trying to incorporate the whole of Britain into Thatcherism, by urging the regions to embrace finance, destroy industry and compete to attract capital and labour. So the Treasury blames regional inequality on regions’ “market failures”, not on the failure of the market model.
Finance capital demands the free movement of capital and labour. In 2004, the London Chamber of Commerce and Industry welcomed rising immigration into London from the new EU members. Massey notes immigration’s “depressive effect on wages at the lower end”.
She also points out that commitment to immigration conflicts with commitment to equality between nations, writing, “Unrestricted immigration can result in increased inequality between countries.” Immigrant workers, for instance nurses from Ghana, are subsidising London, ‘a perverse subsidy, flowing from poor to rich’.
London-as-global-city is hospitable both to immigration and to finance capital. But London as Britain’s capital city needs neither immigration nor finance capital; it needs to be first and foremost a city for Britain.
World City, by Doreen Massey, paperback, 262 pages, ISBN 978-0-7456-4060-0, Polity Press, 2007, £14.99.
The creed that failed
Erik Reinert, Professor at Tallinn University of Technology in Estonia, has written a most remarkable book. He has shown that the free trade creed – the free movement of capital, deregulation and privatisation – doesn’t work.
The American economist Paul Samuelson won a Nobel Prize for “proving” that under free trade prices paid to capital and labour tend to be the same across the world. But in the real world, free trade has led, not to the levelling up of world wages and the end of poverty, but to growing inequality and poverty. Half the world lives on less than $2 a day. In many countries real wages peaked 30 years ago.
Reinert proves that the mode of production determines social forms, and that the technology and mass production of industry are the key to economic growth, not capital, property rights and the rule of law. Industry also has good economic, social and political effects.
But how can countries build industry? They need to protect and subsidise their infant industries. Countries need to have an industrial policy that provides work for their educated people. Otherwise developed countries will take them away.
For example, 82 per cent of Jamaica’s doctors practise abroad and 70 per cent of university-educated Guyanans work abroad. Their remittances fund consumption and dependence, not investment and industry,
It is better to have an inefficient industry than no industry at all. Reinert points out that the Soviet countries were better off before the 1990s counter-revolutions that deindustrialised and then depopulated them.
The old empires all banned manufacturing industry in their colonies. Now the World Bank and the IMF ban industrial policy. They lie to third world countries – open up to imports of goods and capital, be competitive, make your labour markets flexible and you’ll grow. The European Central Bank tells EU members the same story.
Welfare colonialism, with $2.3 trillion in aid since 1950, has failed. The Millennium Development Goals will fail too. Aid is a means of control, not of growth, keeping the third world dependent. Palliative economics, which is supposed to ease poverty’s symptoms while ignoring its causes, does neither.
Reinert writes, in 2007, “a major financial crisis is increasingly likely.”
How Rich Countries Got Rich…And Why Poor Countries Stay Poor, by Erik S. Reinert, hardback, 365 pages, ISBN 978-1-84529-326-0, Constable, 2007, £25.
Pass the parcel
Alex Brummer, the Daily Mail’s City Editor, has explored the origins of the banking crisis, showing how finance capitalists played pass-the-parcel with bundles of bad debts – a form of mutually assured destruction.
Financial firms scrambled to sell mortgages, advising those least able to pay to take them out at the highest interest rates. The banks then fraudulently sold on debts that they knew to be rotten or overvalued.
Northern Rock’s “Together” mortgage allowed customers to borrow 125 per cent of their home’s value plus up to six times their annual income. The Rock borrowed three-quarters of its money from other banks.
In July 2007, the Financial Services Authority approved the Rock’s paying a special dividend of £59 million to shareholders, just when the company was imploding. The FSA, the Bank of England and the government all failed in their duties of supervision.
On 17 February the government nationalised the Rock, privatising the gains and nationalising its losses. Goldman Sachs lawyers and PR people got £41 million in fees. The Rock’s new CEO will get £950,000 a year, while 2,000 workers get the sack.
The Office of National Statistics – an increasing embarrassment for this government – estimates that the Rock debacle has cost taxpayers £100 billion. Another £30 billion of the Rock’s loans fall due in 2009, so there will be many more repossessions – and already, under government control, the Rock is repossessing homes twice as fast as other banks.
Globalisation means that a banking crisis cannot be contained in any one market. But the more a country relies on finance, the worse it suffers.
The Crunch: the scandal of Northern Rock and the escalating credit crisis, by Alex Brummer, paperback, 244 pages, ISBN 978-1-8479-4008-7, Random House Business Books, 2008, £11.99.