The financial capitalism is the third phase of the process of evolution of world capitalism, which originated in the middle of the twentieth century and has been extended to today. This stage was preceded by industrial and commercial capitalism, and began right in the 1970s.
It is also known by the name of monopoly capitalism, the most important consequence of which has been the accelerated growth of the economy through a process of centralization of capital. With the growth of financial capitalism, large corporate conglomerates, banking, industrial, commercial, etc., quickly emerged.
This process of centralization and fusion of capital gave rise to the birth of monopolistic transnational companies at the end of the 20th century and the beginning of the 21st century.
Financial capitalism is also characterized by the strong economic and political domination that financial institutions exercise over all other sectors of the economy.
In recent years this dominance has resulted in the growth of speculative financial capital, instead of the growth of productive activities.
The financial crises of the last four decades in the world have been a direct consequence of this form of capitalism based on profit and speculation.
characteristics
Financial capitalism differs from other forms of capitalism for several reasons, noted below:
- In economic activity, the financial sector is decisive for the growth of the Gross Domestic Product (GDP).
- There is an exponential increase in financial transactions without a productive purpose, but rather a speculative one.
- There are chains of financial intermediation (banks, investment firms, etc.) that often become concerns for the system.
- Centrifuges and bubbles are produced with the use of capital. On the one hand, deposit banking tries to attract savings to lend money; on the other, there is investment banking, which obtains its funds from the interbank market to re-lend and reinvest it. Likewise, investment firms sell shares on the stock market.
- It generates periodic crises due to the fact that the overload of debts grows faster than the production and capacity of the «real» economy to support these debts.
- Financial capitalism seeks to obtain and maximize its capital gains fundamentally through high prices of land, commodities and profitable real estate assets, contrary to industrial capitalism, according to which the achievement of profits was subject to the increasing increase in sales.
- In the real estate sector, the redepreciation and overdepreciation of real estate together with the payment of mortgage interest leaves little taxable income. Something similar happens in the hydrocarbon business (oil and gas), as in mining, insurance and banking. In this way, you try to avoid paying income tax.
- In today's modern financial capitalism, substantial profits are not made by exploiting salaried labor as indicated by Karl Marx, but by mobilizing and using pension funds, social security and other forms of savings invested in shares of the stock market, the bonds and real estate.
Consequences
- Accelerated and disorderly growth of the economy through a process of exponential increase in the financial system at the international level, without effective policy coordination, nor a correct financial architecture, and even less a correct international regulation of new financial products.
- The "overheating" of the economy is another consequence of financial capitalism. This occurs when there is a massive influx of capital, causing an expansion of aggregate demand so excessive that it generates macroeconomic imbalances.
- The influence of the international financial system has not been limited to mere intermediation in the activity of the modern capitalist economy, but has also permeated the political system and influences the objectives of the economic policy of a country.
- There have been various financial crises with dire consequences for the economy. The two most emblematic cases in recent years were Black Monday (October 19, 1987), which caused the New York Stock Exchange to crash; and the 2008 financial crisis in the United States and Europe.
- These recurring crises have been a direct consequence of the nature of banking operations and the bubbles caused by international finance capitalism. Due to its characteristics and recurrence, this process has been called the systemic crisis of financial capitalism.
- After the financial debacle caused by the housing bubble and the “toxic bonds” in the United States and Europe, financial aid was needed on a large scale. During this process, numerous banks and other bankrupt financial companies were nationalized to refloat them.
- The so-called financial Big Bank also involved the disbursement of hundreds of billions of dollars by central banks. The goal was to pay customers of the affected banks and avoid further economic havoc. More monetary liquidity was created and interest rates were lowered, among other mechanisms.
- Financial capitalism has generated an economy based on speculation and fictitious values. For example, in the 2008 housing crisis, mortgages owned by US banks were resold to other financial intermediaries for mutual funds.
They were also sold to pension funds and hedge funds, which were “collateralized” (backed) by the same mortgage payments or with the real estate pledged.
- Speculation and the search for maximum profit has harmed the true economic actors (businessmen, industrialists, workers and consumers).
Most important financial crises in recent years
The systemic crisis has caused in the last 48 years the collapse of the global stock market and the massive failure of banks. The recovery of the financial system has entailed the intervention of the central banks of the affected countries.
- Crash of the New York stock market on October 19, 1987. With this, the stock markets of Europe and Japan also fell. The Dow Jones index fell 508 points that day.
- The Mexican peso crisis (1994), the Asian crisis (1997) and the ruble crisis (1998).
- The great recession in the United States between 2007 and 2010.
- European debt crisis and the real estate bubble 2008 - 2010.
- The currency war and global financial imbalances in 2010.
References
- Finance capitalism. Retrieved May 4, 2018 from socialsciences.mcmaster.ca
- Financial Capitalism v. Industrial Capitalism. Consulted from michael-hudson.com
- Capitalism: what it is, causes and evolution as a basic concept. Consulted of capitalibre.com
- Rise and dominance of financial capitalism: causes and implications. Consulted of politicaexterior.com
- Revolution in the age of financial capitalism. Consulted from financeandsociety.ed.ac.uk
- Large Capital Flows: Causes, Consequences, and Policy Options. Consulted from imf.org
- The systemic crisis of financial capitalism and the uncertainty of change. Consulted of scielo.br
- Chronology of the financial crises of the last century. Consulted of libertaddigital.com
- Financial capitalism. Consulted of wikipedia.org