Finance, Financialisation and the Crisis Sam Ashman [presented @ ATN12, Accra, August’09] Corporate Strategy and Industrial Development Research Programme University of the Witwatersrand.
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Transcript Finance, Financialisation and the Crisis Sam Ashman [presented @ ATN12, Accra, August’09] Corporate Strategy and Industrial Development Research Programme University of the Witwatersrand.
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
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
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
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-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
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
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
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
The 10 sectors receiving most
investment in 2008
Source: SASSID 2009
2008 Top 10 Sectors by Investment (as a % of the total investment)
Agriculture, forestry
and fishing
3%
Electricity, gas and
steam
9%
Other mining
8%
Coal mining
3%
General government
services
20%
Wholesale and retail
trade
10%
Transport and
storage
10%
Communication
10%
Business services
14%
Finance and
insurance
13%
-20000
-40000
General government services
Business services
Finance and insurance
Other mining
Transport and storage
Communication
Wholesale and retail trade
Electricity, gas and steam
Basic chemicals
Non-metallic minerals
Medical, dental and veterinary services
Motor vehicles, parts and accessories
Building construction
Other manufacturing
Paper and paper products
Water supply
Excluding medical, dental and veterinary
Civil engineering and other construction
Other chemicals and man-made fibers
Catering and accommodation services
Wood and wood products
Food
Machinery and equipment
Printing, publishing and recorded media
Glass and glass products
Coal mining
Other producers
Metal products excluding machinery
Agriculture, forestry and fishing
Professional and scientific equipment
Plastic products
Television, radio and communication
Leather and leather products
Tobacco
Rubber products
Furniture
Footwear
Other transport equipment
Wearing apparel
Textiles
Beverages
Basic non-ferrous metals
Coke and refined petroleum products
Basic iron and steel
Gold and uranium ore mining
Real 2000 prices
Change in capital stock across
economic sectors 2000-2008
Source: SASSID 2009
Change in capital stock from 2000 to 2008 for all economics sectors
100000
80000
60000
40000
20000
0
Credit Extension and Investment as
Percentages of GDP 1990-2008
Source: SARB 2008
Credit extension and investment as percentages of GDP
100%
90%
70%
60%
50%
40%
30%
20%
10%
Total fixed capital formation
Private business enterprises: Fixed capital formation
Total domestic credit extension
Total credit extended to domestic private sector
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0%
1990
percentage of GDP
80%
Private Sector Credit Extension by
all Monetary Institutions 1990-2008
Private Sector Credit Extension by all Monetary Institutions
100%
Other loans
and advances
80%
Other loans and advances
Mortgage
advances
70%
60%
Leasing
finance
50%
40%
Mortgage advances
Installmentsale credit
30%
Bills
discounted
Leasing finance
20%
Installment-sale credit
10%
Bills discounted
Investments
2008
2007
2006
2005
2004
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
2003
Investments
0%
1990
% of Total credit extended to the private sector
90%
Main sources and uses of capital in
business enterprises 1992-2007
Source: SARB 2008
Sources and uses of capital in coporate business enterprises
350000
300000
Net savings
250000
Gross capital
formation
200000
Net acquisition
of financial
assets
150000
100000
Net capital
formation (gross
capital formation
- deprecaiation)
50000
-50000
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
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
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