Political economy of finance-capital

 Reproduction

Political economy of finance-capital

June 26, 2020, 5:56 pm

by Kumar David

The hypothesis of this essay is that the current global recession, and the depression which will follow in the middle of the 2020s, arise from the nature of actually existing capitalism in the US and the West; COVID-19 was merely a catalyst. This capitalism, called hegemonic global finance-capital, is not the textbook capitalism of Smith, Ricardo, John Stuart Mill or the amended versions of Keynes and 20th Century economists. All that is called classical economics. Marx’s critique in Kapital-I also relates to the classical version. In the writings of all great economic thinkers and particularly Marx you will find signposts pointing to finance-capital but not a full-blown theory.

The difference is simple and visible all around. One way to illustrate it is to name institutional actors, another is to say "Look at the variance between what the Chinese economy does and what America does". The mega actors in the US economy are banks, investment houses, institutions which buy and sell assets (stocks, bonds, mutual funds, financiers of commodity trade in oil, food and metals), real estate dealers, currency traders and dealers in funny things called hedges and derivatives. These are the giants; their universal tool the dollar. Ford, General Motors, manufacturers, Standard Oil and Mobil, they are not champs any more. The big shift in power is from production to finance. Power resides in Wall Street, not Detroit or the Appalachian coal fields.

The other way of making the point is to consider the differences between the economic activities of the US and China. The latter is all about production of goods – commodities as they were once called. Its banks and financial institutions are primitive compared to their American counterparts. China still cannot collate, finance and place a mega-billion-dollar transaction in global markets. The biggest investments were negotiated and signed-off, till recently, in Hong Kong (Shanghai and Shenzhen are getting a small slice now). But China is the supreme workshop of the world.

All this is empirical, not a definition of structure. Classical production-led capitalism is well understood. A few keywords will do: Borrow when necessary > invest in plant > procure materials > employ wage labour > MAKE > sell > appropriate a surplus (profit) > compete > do it all again (reproduction). In a healthy economy the cycle grows ever bigger, profits, plants and the economy expand and population swells. England was the great progenitor; then China in four recent decades drew 400 million people from the countryside into an industrial economy - in the process it all but banished poverty. The nitty-gritty of financing, banking, facilitating distribution, transport, insurance and marketing needs an activity structure. Classical capitalism is the totality of the interacting parts of this activity structure; it keeps the production and distribution processes alive.

Of course, from the beginning those who dealt in money only, had a place. Borrow money when necessary I said! But from whom? Investors would be syndicated by banks which managed and underwrote deals. Deposit the profit, accumulate and reinvest, I implied. Financial conglomerates and banks to the fore. Insure, issue letters of credit and so on. Well the East India Company started life as a body of investors did you know?

Finance-capital came into its own when the money part of the economy become dominant; when handlers of money grew more powerful than manufacturers, when bankers conquered industrialists. The theory goes back to Rudolf Hilferding’s Finance Capital published in Vienna in 1910 - he had been propagating it from earlier. The key concepts: a) A huge aggregation of capital had taken place over the decades and capitalism’s structure was no longer the same, b) capital had become monopolist and was no longer competitive, and (c) movements of capital to colonies was opening new vistas (tea plantations say). This last aspect attracted the word imperialism. I am not sure how valid Hilferding’s second point about monopoly is today (Apple vs. Samsung vs. Huawei vs. Sony?). And today the word imperialism is more about military than investment hegemony. His focus on amassed capital and its functioning as the force dominating the economy, however, remain central and cardinal.

The structure and complexity of modern finance-capital is deeper than any analyst before WW2 had foreseen. The nature of recent crisis, particularly the 2008-9 Great Recession and 2020 recession are unlike previous crises which were linked to overproduction, supply-demand imbalance and the ups and downs of the business-cycle. Nor are they similar to the supply-side shock and stagflation conundrum that followed oil price hikes. Instead, recent crises are located in the domain of finance and arise from instabilities in that system itself. In 2009 it started with mortgages, subprime loans and the unravelling of financial derivatives which in turn threatened the very existence of some of the biggest banks in the US and Europe. The world of finance, the structure of financial systems, started coming apart. This was the first ever major collapse of a financial system per se.

If a financial crisis does not originate in supply-demand imbalance, overproduction, loss of markets due to defeat in war, or supply-chain disruption, then what dynamic causes it? It arises from malfunctions of the financial sector itself. Say banks are overstretched by pursuit of excessive lending since as financial institutions they make money only by expanding their balance sheets (recall subprime mortgages); say hedge and investment funds are overstretched as creatures that live in a world of financial speculation and risk taking; say government runs deficit upon deficit and borrows into trillion-dollar indebtedness; say student and credit card debtors are defaulting; say inequity of wealth and income are so large that living standards of most people is falling. Then what?

Hyman Minsky’s answer was this. There will be a god-almighty psychological collapse (the Minsky Moment) because the very inmates of the financial universe will panic and lose confidence due to accumulation of risk. They will dump what they can making things worse. The central bank will panic and burn the midnight oil running its printing presses (they call it Quantitative Easing QE). It doesn’t get better after a few ups and downs; eventually recession turns into depression. The Great Depression of the 1930s devastated manufacturing, agriculture and mining but it too, psychologically, was sparked off by events in the financial sector – a wrong turn on interest rates in that case.

Nissan Motor Co may close down in USA; the biggest car rental Hertz has filed for bankruptcy - it also owns Thrifty and Dollar. The biggest Trucking company Comcar which has 4,000 trucks has filed for bankruptcy so has America’s oldest retailer JC Penny. The Biggest investor in the world Warren Buffet lost $50 billion in the last two months and the biggest investment company in the world Blackrock which manages $7 trillion is signalling disaster. The biggest mall, Mall of America, has stopped making mortgage payments. Emirates is laying off 30% of its workforce.

It is estimated by website https://www.zerohedge.com/markets/retailers-reel-commercial-landlords-issue-thousands-default-notices which I cannot vouch for that 12,000 to 15,000 businesses will close. These well-known retailers have announced closure: J. Crew, Gap, Victoria’s Secret, Bath & Body Works, Forever-21, Walgreens, Sears (can’t be!), Nordstrom, Macy’s (what!), Bose, Kmart and more. I find all this hard to believe but that’s what the web says. And to rub salt into these wounds, massive mortgage loan defaults, credit card defaults and auto loan defaults are expected. Unemployment claims reached an all-time high of 40 million out of a 160 million working population. When people are broke consumer demand falls and the economy goes into a conventional production-cycle type recession, then a depression. GDP will decline by 5.2% world-wide in 2020; US GDP will fall by over 6%. I don’t see much sign of an upturn in early 2021. There will be a see-saw in 2021-Q3/Q4, maybe into 2022/23, but the die is cast. There is no logic or reason why a money printing, money speculating system of finance-capital can recover health or hegemony.

The economic universes of the 1930s and the 2020s are vastly different from each other; their trajectories will diverge but I am reproducing graphs of 1930s economy in America to make a few points. The huge rise in unemployment and the collapse of the stock market (DOW) first in 1930-32 and then in 1937 is what is called the two W-shaped recessions which straddled the Great Depression. Unemployment in the US right now is not much below 20% and this is not far from the worst in late 1933. However, while in the 1930s stock prices were depressed right now all stock indices are going through the roof reaching record highs – asset price inflation. How different! This is a specific feature of how the Fed is responding differently to crises in the era of finance-capital; it is ‘going monetary’ like crazy. Collapse in the era of finance-capital invokes mad money printing and zero interest rates since central banks have no other tools to respond with.

However, the crucial difference between the Great Depression and the current crises of finance-capital is not economic contraction but debt. Yes, the economy contracted -8% (1930), -6% (1931) and a whopping -14% in 1932. The expected contraction in 2020 will be -6% to 6.5% and most likely 2021 will also be a bad year but the really significant difference is that from as early as 1932 debt declined from as high at 260% of GDP to below half this ratio by 1940. Conversely debt (US and global) is going through the roof now. Capitalism knows how to address crises in the era of finance-capital only by gigantic financializaton. In rough numbers US National (government) debt will stand at $24 trillion at the end of 2020 and the corresponding figures for Household (personal) debt is $16 trillion. Corporate debt is hard to pin down as it depends on what you include; it could be anything between $35 trillion and $70 trillion. Using $50 trillion as a compromise for Corporate debt, the total indebtedness of all sectors combined in the US is about 400% of GDP!

It is reasonable to keep an open mind about how the global economic pendulum will swing; inflation or deflation, inflationary or deflationary stagflation, and international spread or containment thanks, hopefully, to China’s economy holding firm. We are in uncharted waters and the responses of central banks is unpredictable and utterly unconventional because bank overlords themselves are muddled and jinxed. We also need to bear in mind that the world economy in this century is intricately interconnected – globalisation, global supply chains and finance. The worst of the Great Depression was confined to the Americas and Europe, the rest of the world was sheltered. Not so this time; it will hit the poor with the force of a Richter Scale 9.9 earthquake.

The 20-25 year itch in electoral politics

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The 20-25 year itch in electoral politics

June 26, 2020, 4:33 pm

by Rajan Philips

Finally, after such a long wait, Sri Lanka will have its 16th parliamentary election on Wednesday, August 5, 2020. This would be the fourth August election after parliamentary elections began in 1947, which was also the first August election and voting in that election went on for a month from 25 August to 20 September. The sinister purpose of extended voting was to give the outgoing Board of Ministers, who had jumped on to the new political wagon (the UNP) created on the fly by DS Senanayake, sufficient time to deploy state resources for political campaign from one part of the island to another. Multi-day elections continued in 1952 and 1956, and one-day only polls began in 1960 March. There have been two August elections since, all of them after 1977 and under the current constitution and the presidential system.

The first of them was on 16 August 1994, when Chandrika Kumaratunga spectacularly led the Peoples’ Alliance to throw out the UNP after being continuously in power for 17 years. The next one and the most recent of them was on 17 August 2015 when the common opposition forces led this time by the UNP brought down the SLFP parliamentary majority after 21 years. Is August the turnover month after long years of one-party dominance in the name of political stability? Is there anything special about the August moon?

Never mind, here we are still 37 days from the next August election, and 103 days after nominations closed on 18 March for what was to be a 25 April election. The coronavirus had other plans, and even though it has spared Sri Lanka to get away without serious symptoms, it scared the hell out of everyone to put the country under lockdown and have the elections postponed from 25 April, to 20 June, to finally 5 August.

The election timing as well as its eventual conducting are highly unusual. That unusualness is not going to change what political parties are going to try to get out of this election, and what the ultimate outcome or outcomes may turn out to be. However, the objectives of the current political leaders and their alliances and the constraints they have to deal with, are quite different from what had characterized earlier parliamentary elections under the presidential system. The outcomes are also going to be different. These differences have nothing to do with the coronavirus, but they will have a bearing on how equipped the country would be to deal with the challenges created by the coronavirus after the elections are over.

Elections Past

So far, there have been seven parliamentary elections under the presidential system. Three of them were during President Chandrika Kumaratunga’s second term, in October 2000, December 2001, and April 2004. She is the only Sri Lankan political leader to convincingly win a parliamentary election, in August 1994, and equally convincingly translate it into a presidential election victory, which she did within three months, in November 1994. JR Jayewardene too became president after winning a parliamentary election in 1977, but that was through a constitutional amendment which transubstantiated him from Prime Minister to President.

In a foretelling of the future, which no one saw through at that time, President Jayewardene governed the country for eleven years without holding a parliamentary election. But there was a parliament, unlike now, the one that was elected in 1977, and was kept going till 1988 through the contraption of a referendum in 1982. JRJ also used his massive and captive parliamentary majority to suspend the civic rights of his chief political opponent and former Prime Minister, Mrs. Sirimavo Bandaranaike.

The first parliamentary election under the presidential system eventually came in February 1988, President Jayewardene’s last year as President. The UNP won the election but against a far more competitive SLFP and ULF. Then Prime Minister Premadasa was the UNP candidate in the second presidential election in November 1988, which he won against a very competitive Mrs. Bandaranaike who by then had her civic rights restored. Premadasa succeeded JR Jayewardene in January 1989

President Premadasa, who was assassinated by the LTTE on May Day 1993, the first and the only Sri Lankan head of government to be assassinated after SWRD Bandaranaike in 1959, is also the only President who did not conduct either a presidential election or a parliamentary election while in office. His stopgap successor, President DB Wijetunga, managed to conduct both the parliamentary election and the presidential election in 1994. The UNP lost both and Mr. Wijetunga was not a candidate in the presidential election.

Like Mr. Premadasa in 1988-89, Mahinda Rajapaksa succeeded incumbent President Chandrika Kumaratunga in November 2005, after narrowly winning the presidential election as the SLFP candidate. Unlike President Premadasa, however, President Rajapaksa defeated the LTTE, and used the aura of the war winner to win the presidential and parliamentary elections, one after the other in 2010 January and April. His political fortunes abandoned him in January 2015 when he extra-constitutionally tried to win a third term in office, and lost the election to the common opposition dark horse, Maithripala Sirisena. Sirisena promised to be a one term president and end the executive presidency after him. He did nothing to end the presidency, but the country was too tired of him and ended his presidency after a single term.

Somewhat like DB Wijetunga, but not at all "Doing Bloody Well", Sirisena managed to hold a parliamentary election in August 2015 and a presidential election in November 2019. In between Sirisena and Ranil Wickremesinghe jointly presided over the disastrous yahapalanaya misadventure that created a clear path for Gotabaya Rajapaksa to abandon his US citizenship and become President of Sri Lanka in one meteoric rise, in the course of one year. This rather long recount, for a short article, of past elections hopefully provides a reflective backdrop to the upcoming 5 August election and the unfolding presidency of Gotabaya Rajapaksa.

Own Goals Election

The most important difference from the past is that for the first time since 1947, the country will go through a parliamentary election without either the UNP or the SLFP being the principal contender for power. Between 1952 and 2015, the two parties were the dominant political parties in every election, parliamentary and presidential, as they alternated between government and opposition. In the heady days of Maoism, N. Sanmugathasan the leader of the Communist Party (Peking), called this alternation the musical chair game of Sri Lankan politics. It really was until 1977 when the music stopped. Four decades on, the old parties are also disappearing. There was no SLFP in the 2019 Presidential election. And it is not going to be there in any substantial way in August parliamentary election.

For its part, the UNP is now going through what the SLFP has been going through for the last five years. In fact, it is worse for the UNP. In the August 2015 parliamentary election, the SLFP contested as a single party but under a split head (Rajapaksa and Sirisena). The UNP, on the other hand, is split through the torso and will be contesting the next election as two separate entities. The smaller legal UNP under Ranil Wickremesinghe, and the larger breakaway SJB (Samagi Jana Balawegaya) under Sajith Premadasa. They will be fighting each other to get more seats and to brag about it after the election.

The more consequential difference from the past is the emergence of the SLPP, that has never contested a parliamentary election before, as the most likely winner in the upcoming August election. The SLPP is not a new party representing any fundamental realignment of sociopolitical forces. It is not even a formal breakaway from the SLFP. Rather, it is the outcome of some clever hijacking of the SLFP base by Basil Rajapaksa facilitated by specific developments after January 2015: nationalist disillusionment with Ranil Wickremesinghe among the Sinhalese; disaffection with Maithripala Sirisena among the SLFPers; Mahinda Rajapaksa’s political charm that was constantly boosted by yahapalanaya blunders; and the fascination with Gotabaya Rajapaksa as a no-nonsense President among Sinhalese professional and new business classes.

It is easy to see that none of the factors that have shaped and catalysed the success of the SLPP are available to Sajith Premadasa’s SJB. Nor is there any evidence to suggest that Sajith Premadasa has it in him to build up a new political organization from the grassroots of the UNP. The prospects for the leftover UNP leadership are even worse. In any event, neither side can do much before the August elections. How they fare in the August polls will indicate how they will perform after the election – whether either of them will be able to re-mobilize the abandoned UNP base, or a new political force might emerge to carry out that task.

Where does all this leave the SLPP and President Gotabaya Rajapaksa? It is taken for granted that the SLPP will win the election, at least win the largest number of seats. The pedestrian question is whether it will get the constitutionally coveted two-thirds majority. A different and somewhat historical question is whether the SLPP today is at the same point as the UNP was in 1977, and the SLFP in 1994, when they began their long tenures in power.

History may not be on the SLPP’s side going by what has been called the "20-25 year itch" in Sri Lanka’s electoral politics. That is to say that unlike the more recurrent governmental changes at shorter intervals, a massive ‘tsunami-like’ wave sweeps up the electorate every 20 or 25 years, upending long-governing parties and replacing them with new ones. 1956, 1977, 1994 were tsunami elections. Although the SLPP is new and President Gotabaya Rajapaksa is newer, the Rajapaksa association with power is now fifteen years old, leaving aside the yahapalanaya interregnum (like the UNP interregnum of 1965-70). By that measure, the Rajapaksas are well past the midway point in the itchy time span, and not at the beginning of one.

More than historical cycles, the challenges facing the SLPP and President Rajapaksa are both current as well as unprecedented. The coronavirus threat is not abating anywhere with epicentres of caseloads and deaths inexorably shifting to the southern states in the US, South America, and South Asia, where Sri Lanka is still, by effort or good fortune, only minimally impacted. The government cannot expect the return of the pre-covid normalcy any time soon. The government’s weak spot and its biggest challenge are the economy. So far, its responses have been rightly criticized as being clueless and as panicking. More will be said after the election when the government runs out of excuses.

And more criticisms are likely to come from outside the parliament than from within. None of the contending opposition parties are able to capture the public’s attention either with their criticisms of the government, or with any alternative suggestions that they might have on offer. The election itself will be an election of political parties hitting more own goals, than scoring against one another. At the centre of it will be Rajapaksa v. Rajapaksa, sounding like Kramer v. Kramer of old, but in reality a proxy battle between the followers of the President and those of the Prime Minister. It would be interesting to see what the President and the Prime Minister, and their followers, will do if the SLPP were to win a two-thirds majority and they can proceed with constitutional changes. Whose powers will be increased, and whose will be trimmed? They both cannot both have their powers increased. What they have now is a fine balance. The alternatives are for the Prime Minister to become "a name board", or the President to follow the model of William Gopallawa.

My Mysteries

  My Mysteries

1. Origin of Zero

 

2. Origin of Dogs from the Wild

 

3. Sex differentiation in cells

 

4. Matter and antimatter

 

5. Levo-rotation of molecules

 

6. Superconductivity at absolute zero temperature

 

7. Left and right orientation of brain

 

8. Origin of language

 

9. Proton spin

 

10 Viral flu

Emancipation or Enlightenment or Purulent Dogma?

Reproduction little bit Edited.

Emancipation or Enlightenment or Purulent Dogma?

This piece is the result of a good night sleep without mosquito menace and optimum blood sugar level (hypoglycemia) in between.

Adequately compensated with feel good factors (hormones) from chocolates made of only chocolate butter (free of milk and extra sugar).

No tea or coffee for almost 24 hours.

Warning here, nobody with diabetes or low thyroxine with high TSH levels should try any of the schemes mentioned.

No rice for eleven years on the trot (except string hoppers and hoppers) was my single health discovery (worse grain on this planet).

With Coronavirus Lock-Down,Block-Down (Shutdown) not even hoppers and string hoppers.

No alcohol for little over three years.

I was a guinea pig on alcohol as a student experiment (talks eloquently after the correct amount and win billiards or snooker game by the smallest of a margin) and I did my own experiment on sleep deprivation.

Did not sleep for 48 hours to overcome a bet and slept three days afterward.

Worse experiment unlike the alcohol experiment.

I pity the astronauts in space.

Sleep deprivation is bad enough but overcoming one atmospheric pressure is a strain on every organ and the skeletal system.

Never think of becoming an astronaut for fun.

It is no fun at all, bordering one’s stupidity and pure subject of brain washing.

Regarding sleep, never drive on coffee after an overnight sleep deprivation.

Sure recipe for accidents.

If you are feeling sleepy, pull the car to a side and have a deserving snooze.

Alcohol affects your snooze and the need for it at the correct time.

One need 8 hours of sleep, in my case bit more than that, now.

Not necessarily in one go but ideally in two breaks.

The preamble has no relevance the what I am going to say.

I watched a few Youtube presentations (religion, rational thinking, science and cosmos) and come to few conclusions.

I admire a few (not many) but hate many who propagate illogical dogmas.

They use the Nazi Gobble method.

Repeat the same thing over and over again, thousand times with some variation.

Only a few of these predators focus on reasoning and logic.

Rest are all rigid dogmas, be that it may be, religion, agnosticism or communism or socialism or any political or social validity of those dogmas except perhaps moral validity (depending on the cultural set up).

This is why I say come out of the dogmatism.

It leads to emancipation of some sort.

But there is a trap in it.

One tries to fill the void with one’s own dogma.

That is a dangerous expression of freedom to think and express (terrorism and anti-terrorism polarity) ones own innate desires.

The way to handle is to keep the void as it is.

This is what the meditation teachers teach you but very difficult to practise.

Emancipation and renunciation are OK for me but what about the enlightenment?

That is a dicey question.

Nobody knows anything about it.

Perhaps self hallucination (drugs and alcohol are known to get one there) and I do not want that ill defined entity entrapping my mind.

I stop at healthy emancipation.

Both Revelation and Enlightenment are two "High Five" Biblical words without any meaning.

There is nothing revealed that we already know.

There is nobody who is really enlightened to know the real human predicament with the existing tensions in the world.
Is it Donald Trump, Putin, Rusputin, Ayatulla or Kim Jon un’s North Korea?

Perhaps I may go for “thinking to think freely” and “the beautiful mind (Somanassa state in Buddhist psychology)” of Professor De Bono strategy.

A closing remark on science.

We are one atmosphere, three dimensional thinkers in the material world of less than 5%.

The rest of the 95% or more is dark energy and dark matter we know nothing about except its accelerating expansion and we are heading for, in eons for nullity or void.

What we see in the sky is yesterday and never today due to speed of light's limitation.

Until we find a method faster than speed of light we will never see the event horizon, except dark bodies or dark matter.

What we have is "now, now” of the present limited to our own sphere of activity.

So make best of what is now.

 

Unfortunately Ceylonese politics and its headlong strategy for Totalitarian Mantra is the worse antidote to real emancipation in this world!

 

One has to kick the bucket to achieve it in another “World System” without Global Warming and Coronavirus!