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Economics Finance capital is a parasite on our economy

The dominance of finance capital has huge implications for the future in terms of jobs, living standards and the very fabric of society itself, says LAURENCE PLATT

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FINANCE capital is on the rampage throughout the British economy. Its tentacles have spread through what were formerly parts of the public sector, primary manufacturing such as the steel industry to aviation and more. 

It even shares a bed with current Prime Minister Theresa May, whose husband manages a hedge fund. Those with a strong stomach can imagine the pillow talk.

Early December 2017 brought the bleak news that Tata steelworkers at Port Talbot are on the receiving end of a massive pension rip-off.  
As part of Tata’s restructuring before the proposed joint venture with Thyssenkrupp, the liabilities in the British Steel Pension Scheme were effectively dumped, with the permission of the government. 

This has the effect of transferring a final salary to a defined benefit scheme that will pay out significantly less on retirement.

From press reports it appears that workers in Port Talbot have been deluged by a swarm of “financial advisers,” with many having been persuaded to transfer their savings out of the defined benefit scheme into all manner of investments, most, if not all, of which will pay out even less if they don’t disappear altogether.

The Financial Conduct Authority (FCA) has investigated three of these advisers who have subsequently given up giving financial advice and is considering looking into three more.

This might appear to some as if the system is working properly until it is realised that that the FCA has the power to stop some of these outfits trading but has no power to enforce the return of the money lost through mis-selling of the financial products. 

This situation is reminiscent of what happened to many miners in the early 1990s. Then the pit closures were sold on the basis of redundancy payments that seemed to be large sums of money. 

The handing over of the cheques to the miners was followed by a knock on the door and a “salesman” promoting investments promising the Earth if the cheque was signed over. Having done the deal the “salesman” and the cheque disappeared into the night never to be seen or heard of again.

Those who preyed on the miners were criminals and, if caught, would have been been hauled before the courts. 

Their latter-day counterparts who have battened on to the steelworkers in South Wales have in all probability broken no law at all.

This kind of parasitism is the natural consequence of finance capital having taken over from manufacturing as the leading force for the accumulation of wealth. 

Karl Marx in the third volume of Capital briefly touched on the nature of finance capital and how it brings forth “a new variety of parasite in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion and stock speculation.” 

He further points out that the credit system, “which has had its focus in the so-called national banks and the big money lenders and usurers surrounding them, constitutes enormous centralisation and gives to this class of parasites the fabulous power not only to periodically despoil industrial capitalists but also the power to interfere in actual production in a most dangerous manner and this gang knows nothing about production and has nothing to do with it.”

Marx was not making a prophetic statement when he wrote this but was analysing a developing trend within capitalism at a time when manufacturing capital was the dominant mode of accumulation. 

Just as the present contains within it the embryonic future, it is not an exaggeration to say that finance capital has ousted manufacturing, just as in the 19th century manufacturing capital ousted mercantile capital as the dominant mode of production. 

This to a greater or lesser extent is the situation across the economies of the “developed” world.

It is a moot point as to whether governments, particularly here in Britain, have promoted this development in capital or whether it has merely acted as facilitator. This is a matter that will be much argued over by economists and historians. 

Arguably, the trend for finance capital to replace manufacturing was given a massive boost when Denis Healey negotiated a loan from the IMF in 1975. 

The terms of the loan included an agreement to reduce public expenditure. This can be seen as the starting point for what over the last 40 years has been an ever-decreasing proportion of GDP spent on the NHS, education, social services and the attendant demolition of publicly owned industries, as in mining, or their hiving off into the private sector, as with the utilities, the railways, the Post Office and large sections of care provision.

Successive governments over the 1980s, ’90s and into the present century have aided and abetted this transformation of the British economy under the ideological banner of “private is best.” 

This has been carried out to the accompaniment of increasingly draconian anti-trade union laws, which has opened the door to finance capital in ways that would hitherto have been unimaginable.

As already mentioned, the existence of finance capital is not a new phenomenon, but its current dominant position is  and the implications for the future are widespread in terms of its impact on jobs, living standards and indeed the very fabric of society itself. 

Miners and now steelworkers find themselves robbed of their redundancy money or pensions by outfits that are either operating illegally or just this side of what is currently within the law. 

In the same week that the news broke of the pension robbery at Port Talbot, one of Britain’s largest care homes, Four Seasons, announced that it had managed to agree time to restructure the business to avoid closure due to being unable to service its debt. Four Seasons currently has 17,000 elderly and vulnerable people in its care.

It was due to make an interest payment of £26 million on its debt of £540m by Friday December 15. 

Four Seasons was bought in 2012 by the private equity firm Terra Firma for £825m. Most of this was made up of bond debt which carries with it regular interest payments. H/2 Capital Partners bought the debt and is the creditor demanding the interest repayment. 

The position that Four Seasons has found itself in has been blamed on government cuts, but, while there is massive justification for this, the root problem is the form of ownership by finance capital.

The parasitic nature of this can be seen in the fact that vast profits are racked up without anything being made by an outfit that has no interest in the business — in this case, the care of the elderly and vulnerable — beyond the profit that can be extracted from it, even if doing so ultimately kills the host.

If the pension robbery is the almost criminal aspect of finance capital and what is happening at Four Seasons illustrates its operation at a macro level, then what about the micro level? 

My local pub when I first started frequenting it was owned by the local brewery. With the break-up of the estate as a result of the liberalisation of the market in the 1980s, it became owned by one of the pub chains — Admiral Taverns, which, it turns out, was owned until the last couple of months by US hedge fund Cerberus.

Apart from its destructive nature, the basic issue with this development of capitalism is that it produces nothing. Existing manufacturers that fall into its grasp are retained only as long as an easy return can be made. 

Once this becomes impossible they are either sold on, complete with debt, or closed down and cash is raised for the owner by the sale of the land on which it stands. 

Little or nothing is actually produced. No new wealth is created, as happens with the manufacture of a car, a pair of boots, a shirt, a bicycle or an aeroplane. 

Essentially, existing wealth is being recycled and ultimately loses any value whatsoever. Eventually the parasite kills its host, its host being the British economy.

 

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