End of financial hegemony?



The industrial policy implemented until recently by neoliberalism is being modified in the central countries, but neoliberalism itself is not being discarded

Well, that's the title, translated into Portuguese, of an article by Cédric Durand published in issue 138 (Nov./Dec. 2022) in New Left Review. Why copy it without any dissimulation? Now, in order to start a challenge to the regulationist accent thesis that it conveys – based, therefore, on a theory born in the mid-1970s and which was built in a critical perspective both neoclassical and Keynesian theories and Louis Althusser's Marxism – but making use of the latter two. Here, in this way, it tries to think about the current macroeconomic conjuncture in the countries of the center of the capitalist system – still globalized, but fractured from now on by an imperialist conflict.

For this, firstly, it is necessary to briefly present their arguments, which intend to support this momentous prediction which, incidentally, is not taken for granted, but as possible and even very likely. According to this author “there are unmistakable signs that a new macroeconomic regime is taking shape”. But what actually signals the dominant economic policy that it has to change?

Here is what he says about the situation: “We are entering [that is, capitalism in rich countries] at a high-risk moment in which it has become important to identify the logic of current tectonic movements. Crawling geopolitical, ecological and financial crises, exacerbated by the novel coronavirus pandemic and the Ukraine war, are fueling the present instability.”

Thus, according to him, a background situation is created in which the return of inflation, which has its own logic – as it comes from interruptions in supply chains, emerging class struggles and the overaccumulation of fictitious capital – acts to reinstate this instability. But why does this uncertain situation threaten the hegemony of finance?

Now, to answer this question, according to him, it is necessary to examine the cause of the historical advent of this supremacy, which occurred after 1971, when the US government opted for the end of the Breton Woods agreement and, thus, for the fluctuation of interest rates. exchange rate and the deregulation of the financial system. For Cédric Durand, the liberation of finance took place in that decade to boost a capitalism in which the hegemony of commodity production, until then uncontested, faced an impasse: “The foundations for the rise of the financial sector (...) was the exhaustion of the productive dynamics in advanced economies and the reorientation of capital away from domestic productive investment and towards greater returns through financial profits, as well as in globalized production chains, through the exploitation of cheaper labor from the periphery [especially Asia] . Leveraged credit provided a reprieve to sluggish economies, thereby boosting consumption beyond what stagnant real wages could buy”.

In arguing in this way, it is quite evident that Cédric Durand understands financial capital as secondary to industrial capital. And, for that very reason, he should not speak of the hegemony of finance or, alternatively, he should have emphasized right from the start that this hegemony is apparent.

See how he completes the previous argument confirming this understanding: “But finance is only relatively autonomous; behold, they cannot free themselves entirely from the underlying economic reality; they advance through shocks and bursts that require ever-increasing public intervention. Since the dot-com crash of 2001, they have enjoyed continued government support. With the partial exception of the digital sector, hypertrophied finance ceased to be a dynamic factor in accumulation and became a dead weight in social reproduction as a whole”.

That is, financial capital has the function of serving industrial capital and, thus, the effective accumulation of capital through the creation of surplus value. If he, after gaining enough autonomy, becomes dysfunctional and no longer fulfills this task, he necessarily needs to be dethroned by the government based on the instruments that the State provides him. As a result, a “new regime of accumulation” has to be created by economic policy. Postgraduate Course .

For the theory of regulation, which supports this argument, the State is the subject – and not capital as such (an automatic subject, according to Marx) – of the capitalist process of accumulation. As is well known, regulation theory is a development – ​​albeit a critical one – of the application of French structuralism to political economy. It lacked an autonomous source of decision and this seemed necessary to explain changes in capitalism. It assigns this role to the State since it always responds, through economic policy, to the challenges posed by the evolution of the economic system itself – an objective social structure that is characterized by its own dynamism and that is subject to periodic crises and cycles of expansion and contraction.

As is well known, the dialectic of capital exposed by Marx mainly in The capital is in fact abandoned. It is exchange for a theory that contemplates both a structure and an agency.

Through a moralistic language, Cédric Durand condemns fictitious capital. In his aim, he states, then, that “finance is a master blackmailer”, that it creates a capital appreciation regime “completely out of reality”, that the unbridled course of this process generates financial crises, which require, a strong State intervention, through the function of lender of last resort, which is exercised by the central bank: in the face of the imminent collapse of the system, it starts to make massive purchases of private and public assets, which were in the hands of financial sector agents , with the aim of guaranteeing liquidity, thus avoiding a chain break that would even affect the goods-producing sector.

After this type of analysis, the French economist on the rise in the constellation of the left reaches the following conclusion: “However, in the new inflationary context, this monetary guarantee is finally reaching the limit of its effectiveness. If central banks continued to insist on tightening credit, a full-blown financial crisis would ensue. A more likely outcome, therefore, is an actual devaluation of financial assets through a “rallentando”, a slow-motion crisis, in the form of permanent mid-level inflation. The pace of change may be relatively moderate, but the structural implications are inevitable. If the hegemony of finance is in decline, who will ascend to the vacant throne?

But what is the role, according to Marx, of the financial sector in the capitalist economy? To answer this question without resorting to the Keynesian tradition, it is necessary to return to the dialectical exposition of The capital. For this author, in the first place, the credit system generates, produces and makes effective the movement of equalization of the rate of profit “upon which all capitalist production rests”. To this end, it exercises constant supervision over industrial capital by providing credits to profitable capital and refusing them to “incompetent” capital. In this sense, even if surplus value is generated exclusively within the sphere of industrial capital, it is an intrinsic role of the financial sector to exercise, yes, a kind of permanent control of investments made in the sphere of the former.

Marx also mentions (in Chapter 27 of Book III) that credit reduces circulation costs, also accelerating the different phases of the circulation of goods – something that has no relevance to the argument developed here. It is really important to note now that the credit system is responsible for the birth and prosperity of joint-stock companies, which creates “social enterprises as opposed to private enterprises”.

Now, this form of property consists of “the suppression of capital as private property within the limits of the capitalist mode of production itself”, a necessary phase for the “reconversion of capital into the property of producers, no longer as the private property of isolated producers, but as property of associated producers, as directly social property”. This is what Marx wrote, even if he reduced here (erroneously, thinks this disseminator) – but not elsewhere – socialism to a mere industrialism commanded by workers' representatives.

Therefore, what is called, in a typically superficial view, financialization (another name for the supposed hegemony of financial capital) does not simply consist of a response of the mode of production itself to falling profit rates and stagflation, phenomena that punctuated the progress of of the decade in the 70s of the last century. And which also marked the replacement, necessary for the involvement of the system based on the capital ratio, of Keynesianism by neoliberalism in Western capitalist economies – and to a certain extent as a whole.

But the explanation needs to go further in order to incorporate the movement towards centralization and concentration of capital in the long run, that is, beyond conjunctural and even cyclical oscillations. As is well known, the forms of capitalist social capital, as predicted by Marx, expanded mainly from the last quarter of the XNUMXth century. And they have grown even more in the period from the end of World War II to the present. During this period, the number and economic power of corporations indirectly subordinated to share capital certainly increased.

It is this trend – and not simply an excess of fictitious blackmailing capital – that explains the development in recent decades of collective forms of ownership of capital such as mutual investment funds, closed or open, and pension funds. It is this tendency inherent to the capitalist mode of production that also explains the expansion of insurance systems that distribute investment risks. All this should not be seen as a mere consequence of “rentier vampirism”, supposedly an obscene attribute of finance capital that sucks the blood of industrial capital, but rather as a manifestation of the advanced process of socialization of capital in contemporary times.

As is known, the solution to the crisis of overaccumulation of capital, which prospers both in the sphere of industrial capital and in the sphere of capital that lives on interest, requires the annihilation of an important part of both the one and the other, whether through devaluation or through disposal. However, this solution which, in preparing the tree, dynamized capitalism for centuries, now given the enormous diffusion of social capital in late XNUMXth and early XNUMXst century capitalism, it has become economically and politically unsustainable.

That is why central banks are currently preventing such annihilation from taking place, either abruptly or in the form of a “rallentando” that will last for decades. This progress, by the way, will sound like an “affrettando” to the anxious ears of the owners of the financial “paperwork”.

The supervision of industrial capital by finance capital, reinforced in recent decades by the maturation of the socialization of capitalist property, is not going to end. It will accompany the evolution of the climate and ecological crisis, the spasms of contradictory globalization, the misadventures of the State overload in the face of the growing demands for action, in multiple dimensions, to save the system. Capitalism entered its sunset, but it still survives the bumps. And, therefore, it continues to undergo transformations. The one that is effectively underway now has manifested itself as a geopolitical phenomenon.

What is new in western capitalism now appears under the name of "new Washington consensus”, a rearrangement of Western economic policy brought about mainly by the rise of China as a new economic power that globally rivals those at the center of the imperialist system, formed and led by the United States, but composed of Europe, Japan, Canada, etc. This rearrangement, which does not significantly affect the “supremacy” of finance, now also arises because of the crisis of neoliberal policies in generating growth and distributive tensions within these nations.

At the heart of this reorientation is what has been called neo-industrialism. “The new Washington consensus” – summed up Michael Roberts in a article on your blog – “aims to sustain the hegemony of US capital and its smaller allies through a new approach”, that is, a new industrial policy that aims to guarantee mainly for the main imperialist power (but also for the smaller and associated ones) the maintenance of hegemony in the production of new technologies and the market products derived from them, as well as in obtaining the inputs that are required to produce them.

Gray Anderson, in a recent article posted Site the earth is round mentioned that a “strategic logic feeds this national investment campaign in the US” and its allies; behold, it seeks to “reposition the production of certain goods on the American continent”, as well as seeking to guarantee abroad “access to lithium mines” and other important materials that enable the production of microchips, “in a militarized attempt to overcome China” . It is evident that the current war in Ukraine, managed and forced by the United States, but initiated by Russia, is part of this strategy.

Finally, it is necessary to say that the industrial policy implemented until recently by neoliberalism is being modified in the central countries, but neoliberalism itself is not being discarded. As a rationality that aims to foster an asocial sociability (that is, individualistic, narcissistic and focused on entrepreneurship), it will not cease to exist and prosper. As Alejandro Péres Polo stated in very current article, this sociability, as well as the rise of the extreme right resulting from it, is an expression of the decline of the West.

* Eleutério FS Prado is a full and senior professor at the Department of Economics at USP. Author, among other books, of From the logic of the critique of political economy (anti-capital fights).

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