IPE II Lecture 7

1
IPE II Lecture 7

• Financialisation

2
Analytical Context

• Orthodoxy - Finance as a veil over the real
  economy
• Old World Charles Maier The Politics of
  Productivity
• New World US1.9 trillion per day in foreign
  exchange markets, US600 trillion in derivatives
  markets today, Global GDP US60 trillion per
  annum, US GDP US10 trillion per annum

3
Themes

• What is financialisation?
• Why does it matter?

4
Financial Assets Vs Global GDP

• Financial Assets Global GDP
• 1980 US 12 trillion US 10.1 trillion
• 1990 US 43 trillion US 21.5 trillion
• 1995 US 66 trillion US 29.4 trillion
• 2000 US 94 trillion US 31.7 trillion
• 2002 US 96 trillion US 32.8 trillion
• 2004 US 134 trillion US 41.6 trillion
• 2006 US 167 trillion US 48.3 trillion
• (Source Mckinsey Global Institute 2008)
• Financial assets shares, government and
  corporate bonds, bank deposits.

5
Definitions of Finanancialisation

• Narrow/Precise
• 'pattern of accumulation in which profit making
  occurs increasingly through financial channels
  rather than through trade and commodity
  production'
• (Krippner 2004 14).
• Broader Financialization refers to the
  increasing importance of financial markets,
  financial motives, financial institutions, and
  financial elites in the operation of the economy
  and its governing institutions, both at the
  national and international level.
• (Epstein 2001 1)

6
Shift in Profit-making

• Krippner 2005
• 1950 US manufacturing 32.5 of US GDP, 49 of
  total corporate profits
• FIRE (Finance, insurance and real estate) 12
  US GDP, 11 US corporate profits
• 1974 US manufacturing 26 GDP, 31 corporate
  profits
• FIRE 16 GDP, 22 corporate profits
• 2000 Us manufacturing 17 GDP, 105 corporate
  profits.
• FIRE 25.2 GDP, 45 corporate profits

7
OECD Rentier Income 1960-2000

• Borrowing the term from Keynes (1936) rentier
  income is defined as the profits realized by
  firms engaged primarily in financial market
  activities plus interest income realized by all
  non-financial, non-government resident
  institutional units, i.e. the rest of the private
  economy, plus capital gains on financial assets
  realized by all non-financial non-government
  resident institutional units (Epstein and Power
  2002 2).
• Denmark, France, UK and the U.S. increases were
  almost 100 or more
• Australia, Belgium, Germany, Luxembourg and
  Norway greater than 50.
• only four cases, Iceland, Korea, Spain and
  Sweden, did the rentier share fall, on average

8
Annual per capita income growth rates, 1960 2004

• Country Annual growth rates ()
• 60-79 79-04 79-89 89-00
  2000-04
• U.S. 2.2 1.9 2.1 1.9 1.3
• Japan 6.6 2.0 3.1 1.5 0.8
• Germany 3.3 1.7 1.8 2.0 0.6
• France 3.4 1.6 1.9 1.7 1.0
• Italy 5.0 1.7 2.3 1.5 0.7
• U.K. 1.7 2.1 2.2 2.0 2.1
• Canada 3.0 1.6 1.7 1.6 1.4
• (Source Palley 2008)

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Neo-liberal Stagnation

• Decline in Annual Growth Rates
• 1950-73 4.9
• 1973-79 3.4
• 1979-90 3.3
• 1990-99 - 2.3
• Rise in OECD Unemployment Rates
• 1960-73 - 3.2.
• 1973-79 5
• 1979-90 7.2
• 1990-00 7.1

10
The Qualitative Content of Financialisation

• 1/ At the level of policy choices
• 2/ At the level of the Firm
• 3/ At the level of you