The labour movement should aim for public ownership of high finance, and for it to be run as a public banking, insurance, and pensions service, under democratic and workers’ control.
Bankers and their apologists make a pretence and a virtue of vigorous swashbuckling individualism, but least of all is finance a sector where swashbuckling makes any social sense.
Eliot Spitzer, former New York attorney-general who sought fame through campaigns against Wall Street misdeeds, puts it aptly: “Banking should be boring. When banking isn’t boring, you’re asking for trouble long-term”.
So long as we use money in economic life — and we will for a long while even under a workers’ government — banks, insurance companies, and pension funds should store our cash carefully, lend it out on sober principles of social need, and reimburse it reliably. We no more want finance managed with swashbuckling than we want phone directories or library catalogues to be edited with imaginative fiction-making zest.
The bulk of “financial innovation” is not like technological innovation, generally a social boon although perverted by capitalist power. It is a sneaky codeword for frantic efforts by financiers to rip off the general public, each other, and non-financial capitalists.
The conservative Financial Times columnist Martin Wolf writes: “Banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff [meaning their top bosses, not the routine clerical staff]. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with”.
Yet banks have immense public power. That is why in 2008 the British government put out £1100 billion in cash, loans, and guarantees to stop Britain’s big banks going bust. Under the present system, the gains of financial “swashbuckling” are privatised, and the losses are socialised.
We want workers’ control in finance to guard against diversions and swindles, and to see that the work is organised in the way least oppressive for the workers. We want democratic social control so that credit is allocated to social need, not to what may bring the biggest gains to a few.
The rise of financiers to be “masters of the universe” has come most decisively over the last 30 years. In the 1970s, the system set up among the richer capitalist countries since World War Two, of fixed currency exchange rates and strict government control over currency exchange transactions, broke down. In the 1980s, a new regime emerged, of free and rapid financial flows across the globe, and floating exchange rates.
The new regime compelled multinational corporations — which increasingly dominated industry and trade — into more financial manoeuvres. If a corporation is borrowing in dollars, getting revenue in euros, and paying expenses in pesos, then it wants to guard itself against shifts in relative values. If holding its reserves in, say, Spanish government bonds will mean big losses compared to holding them in US equities, then it will work at juggling its portfolios.
On the other side of the financial trades made by those corporations as “insurance” must be banks and other financial firms “betting” the opposite way. Their speculations acquire their own momentum. Speculation builds on speculation. A world is generated where vast fortunes move rapidly every day, where a financier who can find a way to take a fraction of a percent off each transaction can become rich, and where those who can tweak the system even slightly can become even richer.
The ratio of financial assets to yearly output of goods and services rose globally from 109% in 1980 to 316% in 2005 (and 405% in the USA).
As of March 2012, the global total outstanding of financial futures (deals to buy financial assets at a certain rate at a future date) had risen from US $394 billion in 1986 to $23,512 billion. The global total outstanding of financial options (deals to have the option of buying or not buying, at a certain rate at a future date) had risen from $223 billion to $40,479 billion.
That is $9000 of global-finance trading outstanding for every child, woman, and man on the planet. And the figures are only for deals traded on public exchanges: an unknown large further amount of trading is done privately, bank-to-bank.
Increasingly, most of the wealth of the wealthy is not physical assets (houses, yachts, planes, etc., though they have plenty of those), but bits of paper giving them claims over future profit flows.
In 2009 the “net capital stock” of the UK was estimated at £3.2 trillion. £1.2 trillion was household assets (almost all houses). The fixed assets of corporations and government (central and local) totalled £2 trillion — £1.2 trillion buildings and structures, £0.1 trillion transport equipment, and £0.5 trillion machinery and equipment.
But total personal wealth (including private pension wealth) in Great Britain in 2006/08 was much higher: £9.0 trillion.
Taking banks into public ownership and under democratic and workers’ control would shift the balance of power in economic life hugely. But the action would have to be extended to public ownership and democratic and workers’ control of the big industrial enterprises too, or fail.
Capital is not divided into two compartments, financial (bad) and industrial (good). The pretence that the evils of capitalism come only from financiers has often been used by right-wing demagogues, even fascists. Since some well-known bankers have been Jews, the pretence nourishes anti-semitism.
The financiers rip off each other, and the general public, and they exploit their bank clerks and other workers; but the main work of exploitation, of squeezing workers to produce the surplus-value which forms the pool from which all top incomes draw, is done by industrial rather than financial capitalists.
In some industries swashbuckling, flair, and risky venture may well produce social benefit. But the people with the industrial flair — the scientists, the inventors, and the designers and technicians — do not draw the profits. In Britain now 51% of the top bosses of the top 100 companies come from a background in finance, and few from one of any deep knowledge of what the company produces and how. The big industrial corporations are also big financial operators.
Top bosses of the top 100 companies pocket an average of £4.2 million each per year, while incomes for experienced and senior production managers in big companies are estimated at between £40,000 and £65,000.
Industrial capitalists are as much leeches on the working class as financial capitalists are.
