Finance, Financialisation and the Crisis Sam Ashman 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 Crisis: re-cap on some of the themes covered yesterday Financialisation and the relationship between neoliberalism and financialisation Financialisation and the relationship between neoliberalism and financialisation Experience of South Africa Experience of South Africa Financialisation needs to be set in context of a particular structure of production Financialisation needs to be set in context of a particular structure of production Financialisation in SA helped to produce jobless growth and widening inequality Financialisation in SA helped to produce jobless growth and widening inequality Conclusions and alternatives Conclusions and alternatives

Deep Structural Crisis Triggered in the financial sector Triggered in the financial sector Sub-prime crisis → fear of toxic debt → credit crunch → slashing of output, redundancies, collapse in demand 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 Spread to real economy, deepest crisis since the 1930s Bailouts, discussion of return to New Deal Bailouts, discussion of return to New Deal Ideological crisis in developed economies Ideological crisis in developed economies Debate over the role of the State Debate over the role of the State

Financialisation and Neo-liberalism Volatility of short term financial flows increase vulnerability to crisis 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 Part of bigger picture of de-regulation as neoliberalism seeks to increase profitability, attack labour Entails capital restructuring nationally and internationally Entails capital restructuring nationally and internationally Developed States act as agents not victims of corporate globalisation Developed States act as agents not victims of corporate globalisation Inflation targeting; freedom for finance Inflation targeting; freedom for finance

Financialisation and Neo-liberalism Autonomy of finance Autonomy of finance Proliferation of financial actors and markets Proliferation of financial actors and markets Penetration of finance into greater areas of economic and social reproduction – health, education, energy, telecommunications, transport, pensions, housing 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 Corporations funding investment from retained earnings and private markets, less dependent on banks Banks seek alternative sources of profits Banks seek alternative sources of profits Qualification: companies act as financial actors in their own right Qualification: companies act as financial actors in their own right

South African context Effect of financialisation needs to be set in the context of particular structure of production Effect of financialisation needs to be set in the context of particular structure of production ‘Minerals Energy Complex’ (Fine and Rustomjee 1996) ‘Minerals Energy Complex’ (Fine and Rustomjee 1996) Dominance of mining and cluster of industries around it Dominance of mining and cluster of industries around it Developed financial sector Developed financial sector Lack of diversification into other sectors Lack of diversification into other sectors High dependence on mineral exports High dependence on mineral exports

Effect of financialisation - outflows Post 1994 orthodox programme of ‘liberalisation from within’ Post 1994 orthodox programme of ‘liberalisation from within’ Progressive reduction of financial and trade regulation Progressive reduction of financial and trade regulation Managed programme of capital flight – in return for concessions on BEE? Managed programme of capital flight – in return for concessions on BEE? Rose from 5.4% of GDP to 9.2% of GDP 1994 to 2000 Rose from 5.4% of GDP to 9.2% of GDP 1994 to 2000 Major companies re-listed on London stock exchange Major companies re-listed on London stock exchange Loss of political-economic power post apartheid Loss of political-economic power post apartheid Opportunities to be gained internationally Opportunities to be gained internationally

Effect of financialisation -inflows Increase in short term inflows Increase in short term inflows Growth of speculation and consumer debt Growth of speculation and consumer debt Similarities with the US model of debt driven consumption Similarities with the US model of debt driven consumption Second Houses – property bubble Second Houses – property bubble 2 nd /3 rd cars – imported, boosts GDP growth 2 nd /3 rd cars – imported, boosts GDP growth Growth in Credit Card Debt Growth in Credit Card Debt Jobless growth Jobless growth Growth in financial services – security guards Growth in financial services – security guards

The 10 sectors receiving most investment in 2008 Source: SASSID 2009

Change in capital stock across economic sectors Source: SASSID 2009

Credit Extension and Investment as Percentages of GDP Source: SARB 2008

Private Sector Credit Extension by all Monetary Institutions

Main sources and uses of capital in business enterprises Source: SARB 2008

Effect of the Crisis Job losses and short time in mining and mineral products as consequence of falling global demand 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 Manufacturing output fallen by 25% in the last year Tighter global and domestic credit markets Tighter global and domestic credit markets SA banks reduced debt post sub-prime crash SA banks reduced debt post sub-prime crash 6,000 car repossessions a month, house foreclosures and business bankruptcies 6,000 car repossessions a month, house foreclosures and business bankruptcies

Conclusions - Alternatives Renew debate about state intervention and state’s role in development Renew debate about state intervention and state’s role in development Capital controls – reduce capital flight; affect structure of bank liabilities and therefore lending Capital controls – reduce capital flight; affect structure of bank liabilities and therefore lending Stronger role for state directed development finance and Development Finance Institutions Stronger role for state directed development finance and Development Finance Institutions Co-ordination of policy - Industrial Policy, Trade Policy Co-ordination of policy - Industrial Policy, Trade Policy Finance for investment in what is socially useful Finance for investment in what is socially useful