BY Paul Thompson There’s been times when only the Left would talk about capitalism. Now everyone’s at it. The Financial Times has recently run a while series on Capitalism in Crisis. David Cameron and his Tory allies have railed against ‘crony capitali …

Andrew

BY Paul Thompson

There’s been times when only the Left would talk about capitalism. Now everyone’s at it. The Financial Times has recently run a while series on Capitalism in Crisis. David Cameron and his Tory allies have railed against ‘crony capitalism’ and, of course, there was Ed Miliband’s attack on ‘predatory capitalism’.

Inevitably the new discourse has generated a certain amount of scepticism on the Left. Stuart Hall has argued that ‘It is impossible to distinguish productive from predatory capitalism’. I know what he means, but I think this view is mistaken.  Just as not all employers are the same, so it is with capitalisms.  Whilst certain characteristics are common in any context, capitalism takes different forms in different periods and countries. From the point of view of labour, some are certainly preferable to others – easier to exert influence, greater possibilities to collectively bargain, more likely to achieve egalitarian outcomes.

To take an example, in some countries it would have been a lot more difficult if not impossible for predatory firms such as Kraft to take over Cadbury, then break its promises not to shut plants. Indeed, part of the reason why some capitalisms are better than others is because labour has used its power to shape the political choices that constrain and compel employers to behave differently.

That is not to say that such a task is easy. There are two main problems. The first is misdiagnosis – to try and tame the beast you have to understand its nature.  Crony capitalism has a nice ring to it. But the fact that top executives give each other huge and undeserved bonuses, or that the now disgraced Fred Goodwin was a close adviser of Gordon Brown, are symptoms rather than causes.

In the last 20 years many progressive people, including those in the labour movement, already thought that we had a better capitalism. They called it the ‘knowledge economy’. If the claims – skills and knowledge were the primary source of competitive advantage, ‘people are our most important asset’ – then it should have been a land of milk and honey for labour and its organisations. But they weren’t and it wasn’t.

Since the great financial crash you don’t hear much from politicians and policy makers about the knowledge economy.  What we discovered through and after those events was something that a minority of us had been warning against for some time – that a new and highly destructive form of financialized capitalism had become dominant in the global economy. In this version of capitalism, finance had move from being the intermediary in raising capital for investment by companies and governments to the driver and arbiter of economic performance.

Financialization is, of course, a wide ranging phenomenon. Just as capital markets set profitability targets for companies, so credit rating agencies have life or death powers over governments.  As we know, housing was a key component of the debt crisis as banks and other financial agencies sought to use the household as new frontier of capital accumulation.

However, the workplace does matter in the new era. Under managerial forms of capitalism, shareholders made money through successful competition in product markets and investment in the expansion of the enterprise. Although there were inevitably conflicts of interest between capital and labour, there was also scope for productivity bargains at a local or company level.  In financialized capitalism, shareholder value is largely realized through the buying and selling of assets, perpetual restructuring via downsizing and mergers and acquisitions, and the manipulation of chare prices.

As the firm itself is a disposable asset and cost reductions a key driver of share price, the consequences for labour are declining rewards, increased work intensity and rising job insecurity.  Meanwhile, the loyalty of senior management is secured through payment of stock options. Neither they nor new forms of owners such as private equity companies have a vested interest in corporate continuity.

Not only is all this bad news for workers, it makes life harder for unions too. Productivity bargains are more difficult to make and sustain, given that even if labour delivers increased effort and high performance, workplaces may be shut or downsized anyway. Even when local managers genuinely believe in collaboration and mutual gains, they are seldom pulling the levers that deliver the stable conditions to make them work.

Where do we go from here?

Given that so much of what happens with respect to financialization is determined far from local, workplace level, there really isn’t any substitute for political action.  We have to be clear that certain widely touted solutions are at best partial.  For example, in a number of, especially Anglo-Saxon countries, there has been talk of re-balancing the economy.  While we’d all like to see a bigger and more successful manufacturing base, there is no escape from the fact that the big companies  are themselves heavily financialized, taking a larger share of their revenue from trading in assets, property and buying back their own shares.

The tentacles of financialization have spread so widely that there is no simple solution. (Re)regulation, particularly at international level, will help constrain some of the behavioural excesses of institutions and individuals, whilst also mitigating systemic risks. But alongside constraint, there must be incentives for long term investment and value creation. All this emphasises the need for stronger, smarter state action – a challenge to the still dominant, if shaken, neo-liberal orthodoxy.

However, as Thomas Palley[1] observes, whilst repairing regulatory failure and restoring microeconomic incentives are useful, we also need a different growth model – one that restores the link between wages and productivity growth that underpinned previous periods of economic expansion. Strengthened unions, higher minimum wages and greater employee protections are an important part of an alternative to financialization in which markets and corporations are persuaded or compelled to work to promote more inclusive economic well-being.

A focus on broader political action does not mean that local labour is irrelevant. Much of the sharp end of conflicts will still be felt at workplace level. Labour movement activists need to be better informed and better armed.

Bargaining strategies and campaigns around potential closures will be more effective with a clearer sense of who the new financial actors (such as private equity) are, how they can be stopped or influenced, what kind of leverage is available, and what other groups of workers have achieved elsewhere. Developing these understandings is clearly the purpose of this website. But academics and researchers have also been developing forums to discuss financialization, such as:

Financialisation Working Group – http://www.iippe.org/wiki/Financialisation_Working_Group

Centre for Research on Socio-Cultural Change http://www.cresc.ac.uk/our-research/remaking-capitalism

Australian Working group on Financialization http://awgf.econ.usyd.edu.au/about.html#

Paul Thompson is Professor of Organisational Analysis at the University of Strathclyde Business School. He is Convenor of the Steering Group of the International Labour Process Conference and from 1993-2007 was Editor of Renewal: A Journal of Labour Politics.


[1] Thomas Palley, America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession, New America Foundation 2009. http://newamerica.net/files/Thomas_Palley_America’s_Exhausted_Paradigm.pdf


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