On Feb 20, 2009, at 3:07 PM, Yann Morvan wrote:
> According to Matthew Nichter, Gerard Dumenil (mentioned earlier)
> doesn't
> agree with you:
>
> 'One of the authors’ most provocative findings regarding
> "financialization" is that the expansion of financial activity has
> retarded capital accumulation (the growth rate of the fixed
> capital stock). In both the U.S. and Europe, non-financial
> corporations’
> investment in plant and equipment continues to be funded
> overwhelmingly
> through profits generated by their own non-financial production
> activities. Very little capital invested in the financial sector is
> ultimately routed to the non-financial sector, and non-financial
> firms’
> own financial operations contribute virtually nothing to their
> productive
> capacity. In this respect, finance functions as a parasitic drain on
> the
> “real” economy.'
>
> (from M.N.'s review of _Capital Resurgent_
> http://jwsr.ucr.edu/archive/vol14/Nichter-vol14n1.pdf )
Well I'll be damned. I devoted a lot of pages in Wall Street to this sort of analysis, and I demand more credit!
The whole argument about capitalists shifting investments out of production and into finance is usually short on institutional detail. It's anthropomorphized and homogenized. Capital is a perfect shapeshifter that pretty much allocates itself. As anyone who's spent time with the flow of funds accounts knows, corps have been shoveling money into shareholders' pockets for the last 25-30 years. But this didn't just happen - Wall Street organized to press corps to invest only in the most profitable projects and otherwise to "return" the money to the owners. They did that not only through dividends, but also through takeovers and stock buybacks. Until around 1982, nonfinancial corps were net issuers of equity; since then, they've retired stock in the aggregate - $3.7 trillion of it since 1982. Yes there are the proceeds of IPOs, but a lot of those go poof, and they're not all that important in quantitative terms to investment.
So that's a mechanism by which capital has been shifted out of production and into the markets. It happened because Wall Street, with people like Michael Jensen to think for them, pressed CEOs to maximize profits and pass along as much as possible to shareholders. Part of their argument was that managers invested too much - and from the shareholders' point of view, they were right. This intra-class pressure did massively increase the profitability of capital between 1982 and 1997 or 2006. At first there was a battle between Wall Street and CEOs, but under pressure of takeover and tempted with large personal stock profits, the CEOs came around. But it's not clear where this sort of thing goes politically. The temptation is to see finance as some sort of neoplasm, but it's really a class formation mechanism, a means by which owners assert their power.
Doug