Financialisation, though nebulous, emerging and highly contested, is a concept that contemporary political economists can ill afford to ignore. Staff and research students in the University of Sydney’s Past & Present reading group chose the latest book by Costas Lapavitsas as a basis for engaging with the topic. The book’s primary argument is that ‘financialisation represents a transformation of mature capitalism resting on the altered conduct of non-financial enterprises, banks and households’. Lapavitsas argues that financialisation is the term that best describes the changes in the global economy in recent decades, as opposed to alternatives like globalisation.
Underlying his thesis is Lapavitsas’ assertion of a new type of profit, which he calls financial profit and which is the driving force behind this transformed mature capitalism. The concept of financial profit gives rise to the book’s title: Profiting Without Producing. Lapavitsas argues that a distinguishing feature of financialisation is that profit is generated during the process of circulation as well as production. He contrasts this with normal capitalist profit, which is derived from production. Sources of financial profit, according to Lapavitsas, include zero-sum transactions between the capitalist class, extractions from workers to the capitalist class, and increasing surplus value through financial mechanisms.
The issue of financial profit is an important one for Marxists who typically regard the source of profit as surplus value, which is extracted from workers through production. Financial enterprises cannot be a source of new surplus value, according to this approach, but can only re-distribute that which has already been created. Although Lapavitsas does not argue that financial practices create surplus value in and of themselves, his interpretation of the relationship between financial and real profit is not made clear.
Lapavitsas relies on Marx’s concept of ‘profit upon alienation’, and what he calls ‘financial expropriation’ from the working class, in explaining the emergence of financial profit. Financial expropriation relies partly upon power, organisation and information asymmetries. It is not clear how this form of expropriation is materially different from practices such as usury, arbitrage and other financial activities throughout history. Indeed, Lapavitsas makes extensive reference to Aristotle and other historical figures in his discussion of the bases for financial profit. This apparent historical continuity undermines the argument that financialisation, understood in Lapavitsas’ terms, is as significant a transformation of capitalism as he claims.
In addition to financial profit, Lapavitsas introduces other interesting concepts and debates, particularly for those who are newer to the political economy of finance. The first six chapters, comprising more than half of the book’s total length, provide its theoretical foundations. For example, he gives a summary of Rudolf Hilferding’s seminal Finance Capital in Chapter Three, as well as a literature review of financialisation debates in Chapter Two.
However, there is a limited relationship between the conceptual work early in the book and the empirical data that comes later. In this sense, it is not a compelling use of Marxist methodology. Many of the issues introduced in the first few chapters are absent in the later chapters. The first chapter, for example, discusses the context for the book—the rise of finance—with three main themes: the financial crisis precipitated by household debt; deregulation of financial markets; and the rise of derivative trading. Although this chapter appears to be laying out the basis for how we should understand the context, only the issue of financial market deregulation is comprehensively addressed in the subsequent chapters. Derivatives are barely discussed after chapter one, and the discussion of the financial crisis engages in a limited way with its underlying economic causes.
There is little discussion of how labour markets change after deregulation, changes to real wage levels and working conditions despite Lapavitsas’ insistence that the household is a key feature of his analysis and understanding of financialisation. Equally with respect to the role of the household in the context of financialisation, there is little discussion of changes to social provisioning and the role of the state in contributing to an explosion of household debt. Again, from a Marxist perspective, one would expect a greater engagement with concrete reality and the conditions of class struggle. Despite this, Lapavitsas’ account of how the crisis unfolded once it started is illuminating and comprehensive.
A further theoretical tension is that Lapavitsas takes an inconsistent position with respect to the distinction between the real or productive economy and the financial economy. He asserts that finance should not be seen as a ‘surface phenomena sitting atop the “real” economic activities of production and exchange’. But he also argues the separateness of finance and ‘the rest of economic activity’ and that finance can become destructive or predatory towards it.
Lapavitsas also asserts that contemporary, financialised, capitalism is more volatile than in the past:
the proneness of financialised capitalism towards crisis is deeply embedded … the rise of finance and the penetration of economic life by financial practices have exacerbated the inherent propensity of capitalist accumulation toward instability and crisis.
Though perhaps a widely held view, this is an assertion that merits further investigation and perhaps cuts back into the question of whether the real and financial sectors of the economy are distinguishable.
Lapavitsas does not adequately establish that financialised capitalism is more crisis-prone than other incarnations of capitalism. In discussing the subprime crisis in the United States, for example, he points out that mortgage defaults were the trigger. He does not address many other political, social and economic factors at play such as workers’ wages and conditions, the politics of interest rates, and levels of available housing market stock.
To the extent that both business and labour are exposed to greater risks in the contemporary economy, this is likely due to a range of political and economic shifts. For example, risks with respect to health, education, retirement security and financial markets are no longer socialised as they were in the first few post-war decades. Lapavitsas’ work arguably abstracts a little too far from extant social, political and economic conditions and how these interact with finance.
Despite these issues, Lapavitsas provides a useful introduction to financialisation and some of the historical and contemporary debates. This provided us with material for a lively debate about some of the most pressing political and economic issues of our time, and a basis from which to continue to explore these important theoretical and empirical questions.