Commentary on Political Economy

Monday 24 October 2011

Comment on Latest Martin Wolf's Exchange in FT

Martin Wolf raises two interesting points about the "evolution" of capitalism at least since the beginning of "the Great Moderation" (discussed on this site here, please use apposite search facility) and the manner in which they illustrate our approach to the analysis of what we call "social capital". Here is the Wolf article:

And here are the points made successively by Wolf with admirable concision:

A significant weakness is the inability to impose losses on creditors during a crisis. At the limit, therefore, the liabilities of banks become off-balance-sheet government debts. Mr Haldane argues that “For UK banks, . . . the implicit subsidy amounts to at least tens of billions of pounds per year, often stretching to three figures. For the global banks, it is at least worth hundreds of billions of dollars per year, on occasion four figures.” The economic result, meanwhile, is an enormous increase in leverage in the economy.

Yet the subsidy does not benefit most creditors, since they merely receive a lower return. Even long-term shareholders appear not to gain: the purchaser of a portfolio of global banking stocks 20 years ago is sitting on real losses today. The beneficiaries of the subsidy are short-term shareholders skilled at trading volatility and, of course, managers with remuneration linked to returns on equity or share options. Mr Haldane describes the resulting emphasis on short-term returns as the “myopia loop”.

With regard to the first paragraph, the all-important consideration is that the "public/private" distinction regarding "debt" becomes increasingly "fictitious" in the sense that the "assumption" by the collective capitalist, the State, of "private debts" of banks that were incurred in the expectation that profits would flow from the underlying assets - this assumption of "the liabilities of banks  [that]become off-balance-sheet government debts" only serves to undermine further the loss of legitimacy in "governments" that inevitably turn into "mere conduits" for the "transfer payments" from capitalistically "productive" (that is, profitable) sectors of industry to the "rentier" and indebted - indeed, even insolvent! - banking sector. The Indignados are saying no more than this - and they are perfectly right. The implications for the survival of "the society of capital" seem obvious: quite simply, this cannot last!

The second paragraph illustrates a further "aggravation" of the capitalist crisis that this time does not concern the "transfer" of the revenue from profitable investments from productive to "unproductive" industry between the "Private" and Public" sectors of capital - with their different "political legitimacies and responsibilities" (Wolf insists on taliking about "taxpayers" - as if that term made any sense any longer precisely as a result of these "transfers"!). Here (in the second paragraph) the dynamic changes or trans-formations of capitalist extraction of value, of the relative exploitation of living labour, concern the institutional asset of inter-capitalist relations within the "private" sector and then again between the "owners" of monopoly capital (the giant corporations) and their "shareholders". This is a "divide" that was made famous long ago by Berle and Means ('The Modern Corporation') and then again by Baran and Sweezy ('Monopoly Capital'). It concerns the manner in which the only "investors" to benefit from stock-market activity are the professional investors or hedge funds (to whom the very rich entrust their "savings") at the obvious expense of far less "nimble" investors such as pension and money funds into which the "superannuation benefits" of the vast majority of workers are channeled!!

The result is the obvious and unconscionable expropriation of millions of Western workers (the situation is much worse in Asia where there is outright fraud) to the benefit and enrichment of capitalist "managers" whose interest is not the share price but the "emoluments" they receive for directing ever-larger enterprises - and the "professional investors" who exploit the "volatility" that Wolf denounces.

For further "approfondimenti" of the analysis we seek humble permission to refer to
We proffer our fervid thanks to Martin Wolf without whose "Exchange" initiative barely 18 months ago, all the "studies" contained in our "forum" may never have come about!
*Just on this topic, an article on life-insurance in Les Echos today:
** This one again today on covered bonds and banks:

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