Profiting Without Producing, How Finance Exploits Us All, by Costas Lapavitsas, Verso, £20/$29
Where were the Marxists in 2008, when the demise of Lehman Brothers almost brought about the collapse of capitalism? They were writing long academic texts, which only five years later would put the crisis in an appropriate theoretical and historical context.
The global economic near-disasters that started in the US subprime mortgage sector and almost broke up the eurozone deserve withering scrutiny from a leftwing perspective. The resulting financial turmoil and global economic slump cast doubt on the ability of free markets to provide sustainable growth and employment in advanced economies.
Rather than spreading and lowering risks, complex banking systems intensified and hid the dangers. Modern capitalism was revealed as a different beast from that of the 19th century, where many of the origins of classical economics lie. Economies are increasingly “financialised” – dominated by market-based trading that creates profits without producing anything. Excessive short-term bonuses have distorted incentives.
As Costas Lapavitsas, an economics professor at London’s School of Oriental and African Studies, writes, it would have been unthinkable two centuries ago for such global disruption “to materialise because of debts incurred by workers, including the poorest. But this is precisely what has happened under conditions of financialised capitalism.”
At 400 pages, the book is not exactly punchy – even for readers with a background in economics, it is hard going – but it contains sufficient material for a pithier Marxist critique.
The thrust of the argument is that “financialisation” is corrosive. Its ascent since the collapse of the Bretton Woods system of exchange rate controls in 1973 has not only created new layers of society. It also explains the increasingly lacklustre underlying performance of economies in the advanced world – and threatens that of their emerging counterparts. It has forced the retreat of labour and exacerbated income inequality. Finance, he warns, could even become “predatory and destructive” towards the rest of the economy.
The world’s central banks, in their extraordinary actions to prevent catastrophe, have become defenders of financial sector interests, argues Lapavitsas. Regulators have perpetuated financialisation. The conditions for its rise were created by “neo-liberal” market economics. Therefore, “financialisation cannot be confronted without re-establishing the ideological primacy of the collective over the individual and of the public over the private”.
Lapavitsas’s agenda for a suitable policy response is radical: the full nationalisation of the banking system to establish politicians’ control over domestic and international capital.
Despite Lapavitsas’s extensive research, the reader is left wondering whether he writes with any greater authority – or understanding of politics and human behaviour – than the liberal economists he criticises. Financialisation was not forced on populations. It was the result of democracies striving for a better standard of living, to escape the dead hand of state control. When it works, finance disciplines governments and companies. It has allowed generations to plan for a comfortable retirement, home ownership and, arguably, a broadening of further education. It funds investment in infrastructure and enables creativity and entrepreneurship.
Lapavitsas’s agenda would throw economies back to less prosperous times. His analysis of the eurozone crisis is a case in point. For him, the euro was “designed to serve the interests of large financial, industrial and commercial capital in Europe as well as the most powerful states within the European monetary union”. Even though the intensity of the crisis has abated, he argues the internal contractions of Europe’s monetary union are still tearing it apart.
But his account is odds with the history of Europe’s quest for economic integration after the cataclysmic wars of the first half of the 20th century. For Helmut Kohl, the German chancellor who led the drive for monetary union, the euro was meant as a check on German political dominance, a means of increasing affluence across the continent and the foundation of an economic bloc to rival the US.
Whether it has yet succeeded in those aims is debatable, and Lapavitsas rightly observes that the European Central Bank’s actions to prevent the collapse of the eurozone have largely served the interests of the continent’s financial system. But in an era where technology is integrating the world at a breathtaking pace, he fails to argue convincingly that turning back the clock, reversing globalisation and hindering human adventure would produce better outcomes for the ordinary worker.
The writer is capital markets editor of the Financial Times