Neo-Liberalism. the Crime and the Beneficiary

8/10/2019 Neo-Liberalism. the Crime and the Beneficiary

1/9

Research oundation of SUNY

Neoliberalism: The Crime and the BeneficiaryAuthor(s): Grard Dumnil and Dominique Lvy

Source:Review (Fernand Braudel Center),

Vol. 25, No. 4 (2002), pp. 393-400Published by: Research Foundation of SUNYfor and on behalf of the Fernand Braudel CenterStable URL: http://www.jstor.org/stable/40241744.

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2/9

Neolberalism

The

Crime

nd

the

Beneficiary

Grard umnl

Dominique evy

FINANCE

N

POWER:

A

HISTORICAL

PERSPECTIVE

Whatever

terminology

s

used,

heview hat

ontemporary

eo-

liberal

olicies

re

the

xpression

f

he

ower

f finance"s

now

widelyccepted

n the eft.

espite

he

omplexity

f

events,

sometraits

may

e

clearly

dentified:

he

rise f nterest

ates,

he

fightgainst

nflation,

he

prominentosition

f

monetary

nd

fi-

nancial

markets,

orporate

overnance,

xplicit

rofitability

argets,

contempt

or he

poor.1

Our

nterpretation

f hese

henomena

s not

riginal.

ut nce

this irsttephas beenaccomplished,hy houldwe balkat the

second?

ointing

o the

power

f

finance,

e are

drivennto

dis-

cussion f

classes nd relations

f

production,

nd

their istorical

evolution.

f

we

furtherroaden he

cope

f he

nalysis

o

ncorpo-

rate he

view hat

arge

ransformations

f

capitalism,

uch

s the

transitionrom

Keynesianism

o

neoliberalism,

re

governed

y

major

tructural

riseswhich hake

p previous

lliancesnd

power

relationships

mong

lasses,

eareback oa

very

ld

frameworkf

analysis:

hat laborated

y

Marx n

themiddle f

thenineteenth

century.echnically,yassertinghat hese tructuralrises re

linked o the

historical

rends fthe

profit

ate,

we are

definitively

placed

withinhis

ramework.

The

structuralrisis f

the

ate

nineteenth

entury

rovoked

profound

utationf

apitalism:

he

eparation

etween

wnership

and

management,

ombinedwith he

diminished

utonomy

f

1

The

analysis

n this

rticle s

part

of

a

broader research

roject.

ee

[http://www.

cepremap.ens.fr/levy].

review, xv, , 2002,

93-400

393

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3/9

394

Grard

umnil&

Dominique

vy

workers ithin

he

workshop.

wo

expressions

re

used

in the

United tates o

designate

hese

ransformations.

he

"corporaterevolution"eferso the

egal

framework

the

orporation

ndthe

shareholders)

fthe

wnership

fthe

means

f

production,

nd

ts

relationship

o finance.

he

"managerial

evolution"

efers

o

the

expansion

f

the

business taff

managerial

nd clerical

ersonnel)

and the

new

Taylorist

r

Fordist)

rganization

f

production.

Particularly

elevant

o our

analysis

s the

fact

hat

arge

modern

financial tructures

riented

o

private

nterprise

perations

emerged

rom his

risis,

s

opposed

o the

traditional

tructures

primarily

inked o

the

financing

f

tates.

ramatic

rowth

f

the

monetaryndfinancialnstitutionsf apitalismapidlyollowedhe

separation

f

ownership

nd

management.

uring

he

wo

irst e-

cades

ofthe wentieth

entury,

he tocks

f reditnd

money

rew

to

extraordinary

evels,

nd the

tock

market

as

established

n

ts

modern

etting.

rom

he

utset,

he

lass

f

managerial

ersonnel

(managers

nd

engineers)

as

pitted

gainst

hat

fthe

harehold-

ers,

notwithout

ome

emotion

mong

apitalists.

ow would

he

maximization

f he

rofit

ate,

he

undamental

rinciple

f

apital-

ism,

e maintained?

espite

he

rise

f

managerial

ersonnel

nd

thestrugglefworkers,hesefirst ecadesweremarked ythe

dominant

osition

f

finance.

n

particular,

he ontrol

f redit

nd

financial echanisms

n

general

emained

he

unchallenged

riv-

ilege

f

finance,

arge

anks

cting

n

the

United tates

s

genuine

private

entral

anks,

oncerned

ith

he

tability

f

the

financial

system,

nd

of

prices.

As is well

known,

t

s theGreat

Depression

f

the

1930's,

nd

thefailure f

finance o

cope

with

he

risis,

hich

nsettled

his

framework,

pening

new

ra.

The

expression

he

eynesian

ompro-

mise s often sedto refero thisnew ocial onfiguration.ome

limitations

n finance ere

ut

n

place,

ut

n

general

his

ompro-

misedid not

affecthe

roleof

financial

nstitutions

ith

egard

o

the

enterprises.

hey

continued

o

issue

securities,

rchestrate

mergers,

nd

allot redits.

owever,

hey

ost ontrol

f

the

verall

stability

fthe

ystem

nd the

bility

o

determine

he

general

evel

of

ctivity.

nternational

ovements

f

capital

were

lso

regulated.

The

state, .e.,

a new

group

f

government

fficials,

as

now

n

charge

f the entralized

xercise

f

control

nd

regulation.

fter

the econdWorld

War,

espite

he

xtreme

xperiences

f

he

irst

NewDeal, henew rameworkasdeemed olerabley inance,ut



4/9

neoliberalism: crime

nd

beneficiary

395

it

represented

real etback-

financial

epression,"

twascalled-

which asneverrulycceptedy he inancialnstitutions.hisnew

power onfiguration

as inkedo

compromise

etweenhe

uling

classes

nd salaried

workers

n

general:

ising

eal

wages,

ocial

welfare

enefits,

he

ight

o

work,

nd trade-union

ights.

he

way

these

onquests

ere ealized

as often

een

described,

s

well

s

differences

n

various

ettings.

n

Europe,

he tate

ained

direct

control

f

arge

egments

fthe

conomy,

ncludinglanning

nd

subsidies,

r other orms

f

privileged

inancing.

The crisiswhich

egan

n

the1970's

undid he

Keynesian

om-

promise.

he restoration

fthe

power

f

finance- hich

ad been

prepared ordecades, n particularn the field finternational

finance-

asmade

possible

y

he

arge

nflationfthe1970's.

ts

climax,

imultaneously

eal nd

symbolic,

as the

great

hange

n

monetaryolicy

n

1979,

which

argeted

olicy

o

price

tability,

regardless

f

ts ost

n

unemployment.

his

volution as

onsider-

ably

einforced

y

he

ontinuing

nternationalization

f

production

within

ultinational

orporations.

Thedetailed

nalysis

f he

tages

nd

formsf hese ransforma-

tions

s lessrelevant

o

our

present

nalysis

han

he

discussionf

their ignificancend nature. ne fractionftheruling lasses,

finance,

hedirect

ncarnation

f

capitalist

wnership,

asrestored

its ontrol

ver he

ystem,

mposing

ts

ules ndnorms.tmust

e

clear,

however,

hat

inance id

not reverse heevolution f the

relations

f

production,

n

particular

he

eparation

f

ownership

and

management.

t is

power

which

s at issue

here,

n

corporate

governance

activity

o achieve

rofitability

nd thereturn

or he

shareholder),

s

well s

nthe ontrolf

he

macroeconomypolicies

concerningrice

tability).

What idfinancechieve?Muchharm oothers ndadvantage

for

tself,

s

may

e

expected

rom

ruling

lassnot

dedicated

oal-

truism.

his swhatwe

hall emonstrate

y

using

few

igures.

e

focus

n the

consequences

f the

change

n

monetary

olicy

ni-

tiated

n

theUnited

tates

n

1979.

The debt fThird

World

oun-

tries

rovides

major xample

f he

ppallingonsequences

f his

new

policy

utside he

United tates.

A

specific

urpose

f what

follows

s,

however,

ouse

the

xample

f heU. S.

economy

o doc-

ument

he

onsequences

f he ise f

nterest

ates,

ven

na coun-

try

here

irms

raditionally

idnot se

borrowing

s a

major

ource

of

financing.



5/9


6/9

NEOLIBERALISM:

CRIME

AND

BENEFICIARY

397

It s

well

nown

hat he

negative

onsequences

f

hese ransfers

of ncome o enders erenot imitedoenterprises.llborrowers

were ffected.hecost f he

ublic

ebt,

whose

inancing

adtobe

renewed

t the

new

ates,

ecame

apidly

nbearable,

ccelerating

the

pressure

n

public

xpenses

while

he lows f

revenuelowed

down

s a result fdiminished

rowth

ates).

f

notfor heburden

of

nterest,

ublic

xpenses

ould

ave

enerally

emainedalanced

in most fthe

major apitalist

ountries

This ise

n

nterest

ates

harply

ffectedhirdWorld

ountries

carryinglarge

xternal ebt. his

fact asoften een

denounced,

but t s

important

o

measure he

mplitude

f the

phenomenon.The

apparent

ealrate f nterest2or ll

developing

ountries,

y

thedefinition

f the

World

Bank,

oaredfrom he

negative

ates

(which

ad made

possible

herise

of the

debt)

o

largely

ositive

rates

n the

1980's.

igure

shows

he hare f nterest

n

the

GNP

ofthese

ountries,

evealing

heir udden

ise,

imultaneouso the

change

n

monetary

olicy

hich aused

t.3

Whenmeasured

n

dol-

lars

corrected

or hevariation

f

prices

n the

United

tates),

he

collapse

f theGNP of

developing

ountries

ppears

ramatic.

y

1996,

thad

hardly

ecoveredhe evel

f1979.Not llof his an

be

blamed nthe ost fthedebt, utmost f tcan.

Figure

2

The Share

f

nterestn

theDebt

n

theGNP:

Developing

ountries

2

The ratio of

nterest

aid

to the stockof

debt,

corrected or

the

rate

of

variation

ofprices n theUnited States.

3

The data are from he World Bank.

The series

s

not

available fter 996.



7/9

398

Grard

umnil&

Dominique

vy

These

xamples

f he

major

hocks

aused

y

he

olicy

f

high

interest

ates nd ow

nflation ust

e understood

n

the

ontext

f

a more

general

ransformation.he

ability

f hareholderso con-

trol

management

as estored.ublic

xpenses,

n

particular

elfare

programs,

ere onstrained.he

newneoliberal

uleswere

radu-

ally

ut

n

force

hroughout

he

world,

sing

he

mergency

itua-

tions reated

y

hedebt risis r

offinancialrises

n

general.

ro-

longing

he

risis,

inance

erpetuated

ll

of ts

ffects,

n

particular

the

pressure

laced

n

abor osts.

One

possible

bjection

s that

ll

categories

f

agents

uffered

from

he

risis,

ncluding

enders,

nd that

obody

eally

enefits

from nfavorableircumstances.hat ollowshows hat recisely

the

pposite

s true.

uring

he

1970's,

share f he

urden

f

he

crisis ad

been

placed

n

enders,

ut

henew ourse

f

monetary

policy

eversedhe ituation

o their

dvantage.

n the arlier

ec-

ades,

henet

flow f

monetary

nterest

hat

hefinancial

ector

e-

ceived

its

main ource

f

profits)

epresented

bout

3 or

4%

of

GNP.

At

he

eginning

f he

980's,

his

ercentage

ose

gradually,

reaching

or

6%

during

he 990's.

A similar

icture

s observed

or

the ractionfhouseholds

olding

ecurities,

oans,

nd

hares,

.e.,

thewealthiestractionfthepopulation.nthe1970's, he lowsf

interestnd dividendshat

hey

eceived

mounted

o

12%

of

the

total ncome

f

households;

his

ate

reached

8%

n the

1990's.

Following

he

979

hange

n

monetaryolicy,

he

atio

etween

he

profit

ate ffinancial

orporations

nd

nonfinancial

orporations

was nverted.his s shown

n

figure

.4

Before he

ate

1980's,

he

profitability

fthefinancialector

was

ignificantly

nferior

o that

of henonfinancial

ector,

hen

trose

uddenly,

ell

bove

he

ro-

fit ates

chieved

n thenonfinancial

ector.

Asalreadyrgued yboth he lassicalconomistsndMarx,n-

vestmentsre influenced

y

profit

ate

differentials

mong

n-

dustries. s

expected,

nvestors

ushed

nto the

financial

ector,

attracted

y

he

arge

rofit

ate.

his s shown

n

figure

,

which

is-

plays

he

ratio f

thenetworth

f

financial

orporations

o

the

net

worth fall

corporations.

hisratio

rovides

measure

fthe

rel-

ative izeofthe

inancialectors

excluding

unds)

n the

conomy,

in

terms

f

capital

nvested.

n about

en

years

his

atio

rew

rom

4

The

figures

orthe

financial ector xclude

funds.



8/9

NEOLIBERALISM: CRIME

AND

BENEFICIARY 399

about

13%

to

23%,

true

explosion."

s s

well

known,

he

growth

ofmutual ndpension unds asbeendramatic.

Figure

Profit

ate

%):

U.S.,

Nonfmcial

-

)

and

Financial

orporations

)

Figure

Ratio fthe

NetWorth

f

Financial

orporations

to that f

Nonfinancial

orporations

%):

U.S.



9/9

400

Grard umnil&

Dominique

vy

IS

AN

OVERALL

ASSESSMENT TILL

PREMATURE?

This

rapid

alance f the osts nd benefitsfneoliberalisms

unequivocal-

osts

or ne fractionf

the

population

nd benefits

for nother.

nd

he

nderlying

ariable

s that

f ocial lasses

nd

levels f

development

mong

ountries.

o

doubt

nuances

hould

be addedto

this

eneral

ssessment.

inance

s nvolved

n the or-

mation fthenew tructures

f the

production

ector

fthe

con-

omy

which re

presentlymerging.

hese

tructures

robably

lay

a role

n

thenewfeatures

f technical

hange

which

re

presently

emerging

the

rise fthe

utput/

apital

atio).

The main eficiencyfthis valuations thatt gnoreshe ssue

of financial

nstability.

ndeed,

he

recent

inancial

rises

n

Asia,

Latin

America,

nd Russia

re a

major

omponent

f the

osts

f

neoliberalism.

n

addition,

hedramatic

rowth

f

he

inancial

ec-

tor

escribed

n

figure

,

n

combination

ith he

ise nd

fall

f he

stock

market,

ose

a serious hreat

n

the

stability

f the

world

economy.

ne shouldnot

forget

ere he

Great

epression

fthe

1930's,

which ollowed

he

previous

egemony

f

finance,

lso

n

a

period

f

emerging

ew

rends

f

technology.

he

points

hetwo

periods ave n common revery trong.

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Neo-Liberalism. the Crime and the Beneficiary

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