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Finance, Financialisation and the Crisis. Sam Ashman [presented @ ATN12, Accra, August’09] Corporate Strategy and Industrial Development Research Programme University of the Witwatersrand. Overview of Presentation. Crisis: re-cap on some of the themes covered yesterday

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finance financialisation and the crisis

Finance, Financialisation and the Crisis

Sam Ashman

[presented @ ATN12, Accra, August’09]

Corporate Strategy and Industrial Development Research Programme

University of the Witwatersrand

overview of presentation
Overview of Presentation
  • Crisis: re-cap on some of the themes covered yesterday
  • Financialisation and the relationship between neoliberalism and financialisation
  • Experience of South Africa
  • Financialisation needs to be set in context of a particular structure of production
  • Financialisation in SA helped to produce jobless growth and widening inequality
  • Conclusions and alternatives
deep structural crisis
Deep Structural Crisis
  • Triggered in the financial sector
  • Sub-prime crisis→fear of toxic debt→ credit crunch→slashing of output, redundancies, collapse in demand
  • Spread to real economy, deepest crisis since the 1930s
  • Bailouts, discussion of return to New Deal
  • Ideological crisis in developed economies
  • Debate over the role of the State
financialisation and neo liberalism
Financialisation and Neo-liberalism
  • Volatility of short term financial flows increase vulnerability to crisis
  • Part of bigger picture of de-regulation as neoliberalism seeks to increase profitability, attack labour
  • Entails capital restructuring nationally and internationally
  • Developed States act as agents not victims of corporate globalisation
  • Inflation targeting; freedom for finance
financialisation and neo liberalism1
Financialisation and Neo-liberalism
  • Autonomy of finance
  • Proliferation of financial actors and markets
  • Penetration of finance into greater areas of economic and social reproduction – health, education, energy, telecommunications, transport, pensions, housing
  • Corporations funding investment from retained earnings and private markets, less dependent on banks
  • Banks seek alternative sources of profits
  • Qualification: companies act as financial actors in their own right
south african context
South African context
  • Effect of financialisation needs to be set in the context of particular structure of production
  • ‘Minerals Energy Complex’ (Fine and Rustomjee 1996)
  • Dominance of mining and cluster of industries around it
  • Developed financial sector
  • Lack of diversification into other sectors
  • High dependence on mineral exports
effect of financialisation outflows
Effect of financialisation - outflows
  • Post 1994 orthodox programme of ‘liberalisation from within’
  • Progressive reduction of financial and trade regulation
  • Managed programme of capital flight – in return for concessions on BEE?
  • Rose from 5.4% of GDP 1980-1993 to 9.2% of GDP 1994 to 2000
  • Major companies re-listed on London stock exchange
  • Loss of political-economic power post apartheid
  • Opportunities to be gained internationally
effect of financialisation inflows
Effect of financialisation -inflows
  • Increase in short term inflows
  • Growth of speculation and consumer debt
  • Similarities with the US model of debt driven consumption
  • Second Houses – property bubble
  • 2nd/3rd cars – imported, boosts GDP growth
  • Growth in Credit Card Debt
  • Jobless growth
  • Growth in financial services – security guards
effect of the crisis
Effect of the Crisis
  • Job losses and short time in mining and mineral products as consequence of falling global demand
  • Manufacturing output fallen by 25% in the last year
  • Tighter global and domestic credit markets
  • SA banks reduced debt post sub-prime crash
  • 6,000 car repossessions a month, house foreclosures and business bankruptcies
conclusions alternatives
Conclusions - Alternatives
  • Renew debate about state intervention and state’s role in development
  • Capital controls – reduce capital flight; affect structure of bank liabilities and therefore lending
  • Stronger role for state directed development finance and Development Finance Institutions
  • Co-ordination of policy - Industrial Policy, Trade Policy
  • Finance for investment in what is socially useful