The financialisation of everyday life must be confronted

Unless we can reverse this financialisation and create a healthier basis for growth, the prospects for working people look grim.

The debate about growth and economic restructuring in Britain ought to depart from the fundamental transformation of UK capitalism during the last four decades. Britain’s economy is now beholden to big finance. Or to put it more accurately, the UK has become financialised, as has the USA but also Japan and Germany. Financialisation is a deep underlying change, and no set of radical or socialist economic policies would make sense unless that was recognised.

The previous decade has cast light on the transformation:

Finance grew extraordinarily in terms of prices, profits, and volume of transactions, but also in terms of influence and arrogance. By the middle of the decade a vast bubble had been inflated in the USA and the UK, the bursting of which was likely to be devastating.

The expansion of finance represented much more than financial excess. Finance had become pivotal to economic activity and to determining economic policy, but also to organising everyday life. Mature capitalism had become financialised. 

In August 2007 the US money market had a heart attack, and in August-September 2008 the global financial system had a near-death experience. Deep recession followed across the world, and then in 2009-2012 the crisis took a further nasty turn. States had become perilously exposed to debt because recession had reduced tax revenues, while rescuing finance had imposed fresh costs on the exchequer. Austerity followed, causing loss of income for working people, unemployment and destruction of welfare. Things became bad enough in the UK, but the impact of austerity in the Eurozone has been catastrophic.

As I argue in my book, Profiting without Producing, published by Verso this November, the crisis has revealed three fundamental trends of financialisation:

First, industrial and commercial enterprises have become increasingly involved in financial operations, often undertaking financial transactions to earn profits. Big business, in particular, relies less on banks, while changing its organisation and investment practices. The ideology of ‘shareholder value’ has become prevalent among large enterprises.

Second, banks have turned toward open financial markets to make profits through financial trading rather than through outright borrowing and lending. They have further turned toward households as a source of profit, often combining trading in open markets with lending to households, or collecting household savings.

Third, households increasingly rely on the private financial system to facilitate access to vital goods and services, including housing, education and health, as well as to hold savings. Everyday life has become financialised.

Financialised capitalism is an economic system of weak and precarious growth, low wages, profound inequality, and deep instability. The ascendancy of finance has resulted in regular financial bubbles, which cause devastation when they burst. Finance first earns enormous profits, and then calls upon society to carry the costs of crisis. Events since 2008, including the imposition of austerity, reflect the enormous influence of financial interests over policy-making, and indicate that financialisation will persist.

On Saturday 2 November I will be speaking at the first conference for the Centre for Labour and Social Studies, where I will be discussing ways working people could oppose and reverse financialisation. This is a vital process but it is far from easy. For one thing, it would be necessary to introduce regulation that could prevent financial institutions from engaging in speculative activities. Such regulation must include direct controls on interest rates and on the lending practices of financial institutions, if it is to have an impact. Time is short as yet another bubble is gradually developing, not least in the UK.

But regulation alone would never be enough. Public property over financial institutions must also be introduced as private banks have failed repeatedly, thus causing enormous pain. The UK needs public banks with a fresh spirit of public service that would support investment as well as meeting the financial needs of working people.

More broadly, financialisation of everyday life must also be confronted by reversing the involvement of private financial institutions in housing, education, health and elsewhere. Imaginative, flexible and creative public provision across a range of goods and services would be vital to reversing financialisation.

If financialisation began to be reversed, a healthier basis could be created for pro-growth macroeconomic policies but also for required restructuring of the UK economy to provide secure income and employment. Otherwise, the prospects for working people look far from optimistic. 

Class Conference 2013 will take place on Saturday 2 November at TUC Congress House. Tickets can be purchased here

Britain’s economy is now beholden to big finance. Photo: Getty
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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit