Finance, Financialisation and the Crisis Sam Ashman [presented @ ATN12, Accra, August’09] Corporate Strategy and Industrial Development Research Programme University of the Witwatersrand.
Download ReportTranscript 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