Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.

×

The financial enclosure of the commons

Finance capital is seeking to extend the privatisation of natural resources we hold in common, writes Antonio Tricarico

September 1, 2012
9 min read

We live in an age of finance capitalism, when trading money, risk and associated products is more profitable than trading goods and services. That, in short, is what people often refer to as the ‘financialisation’ of the economy. This has huge implications for where capital is invested and the everyday exposure of people to capital markets, as more and more aspects of everyday life – from home ownership to pensions and schooling – are mediated through finance.

Financialisation is now penetrating all commodity markets and expanding from areas such as social reproduction (pensions, health, education, housing) into natural resources management. Just as the privatisation of public assets and services served as a building block for the financialisation of the economy, so the commodification of the natural commons is the basis for the financialisation of nature.

Financialisation, however, should be regarded as more than just a further stage in the commodification or privatisation of the commons. It represents a systemic transformation in the very structure of capitalism.

System change and crisis

The crisis of 2007-09 resulted from a financial bubble marked by weak production, expanding bank assets and growing household indebtedness. For these reasons it casts light on the financialisation of capitalist economies.

The literature on financialisation generally links weak production with booming finance. According to some, causation runs from weak production to booming finance, while for others it runs in the opposite direction. This dichotomy is becoming more and more misleading. Rather, as pointed out by Costas Lapavitsas and others, financialisation represents a systemic transformation of both capitalist production and finance, which ultimately accounts for the crisis of 2007-09.

This transformation represents a response to the ongoing crisis of accumulation that began during the 1960s. By that time the overproduction of the US economy in relation to existing markets, coupled with diminishing returns on new investments, triggered the globalisation process. This involved the creation of much larger global markets through extensive liberalisation and privatisation as well as deflationary policies against labour to reduce costs of production – in short, neoliberalism.

This generated new problems at the end of the 1980s (such as the 1987 financial crisis), when aggregated demand was still low, following the reduction of labour income, and financial elites turned instead towards the new global capital market in pursuit of the biggest profits. This was in fact the first global market to be built after the break-up of the Bretton Woods monetary system and the related removal of controls on movements of capital in the 1970s. Still today the global capital market is much deeper and larger than any other global market of goods and services.

When the same crisis of accumulation manifested itself again, given the still-dominant neoliberal ideology banning direct state intervention in the economy to support global demand, a new solution was developed. This involved an unprecedented ‘private Keynesian’ response aimed at boosting aggregate demand through the indebtedness of corporations, banks and households, all made dependent on the functioning of capital markets for their financing. This triggered financialisation in the form we know it today, affecting all major actors in the spheres of production and finance.

Financialisation’s new frontier

Since the beginning of the past decade, after the ‘dotcom bubble’, financial capital has been seeking new asset classes in which to invest huge and growing private wealth. New key areas have thus emerged in which financialisation has started unfolding. These include natural resources (soft commodities such as coffee, corn, soya and fruit, and new commodities such as ‘carbon’) and public finance.

Concerning the latter, the financialisation approach is leading to a third wave of privatisation, with the first being the privatisation of public assets at a discounted value and the second the creation of public-private partnership (PPP) vehicles to help privatised companies finance new investments in infrastructure development. After the blatant failure of the PPP approach in many sectors, the third wave of privatisation is being conceived as the creation of a new financial system suited to capital markets.

Since the financialisation of the global oil market in the 1980s and 1990s through the establishment of oil future markets, financial speculation on other hard and soft commodities has significantly increased. This has been mainly driven by deregulation of derivative markets, the increasing involvement of investment banks, hedge funds and other institutional investors in commodity speculation, and the emergence of new instruments such as index funds and exchange-traded funds and products. While new financial actors such as hedge funds have attracted wealthy individuals and institutional investors, new financial products, such as exchange-traded funds, have opened the commodities world to retail investors as well.

Financial deregulation in particular has transformed soft commodities into financial assets. Holding (for example) a tonne of corn had never, until as recently as the beginning of the past decade, been able to produce a revenue stream or rent. This is now possible through financial engineering. This is not just paper money or speculation on virtual markets. Financial markets are penetrating deeper and deeper into the real economy as a response to the financial crisis, so that speculative capital is being structurally intertwined with productive capital, in this case commodities and natural resources.

The 2007-09 crash of the financial markets and global economy, coupled with the need to diversify investments beyond traditional financial markets – including equity, bonds and real estate – has made it necessary to further develop and even create new financial market risk. This is to enable the absorption of the massive liquidity that exists globally and is in search of high returns, including to cover heavy losses some institutional investors experienced during the crisis.

While turbulent markets have usually driven investors towards government bonds, the 2010 sovereign debt crisis, during which the bonds of southern European governments first took a dive, pushed investors towards alternative assets. The current figures on exchange-traded funds and hedge funds highlight the huge amount of money flooding into commodities trading, which has exacerbated food and fuel prices across the globe and created conditions for the kind of social unrest the world experienced two years ago.

Trading nature

New financial assets are today being created from existing commodities, and where markets do not yet exist natural resources will have to be traded so that new commodities and markets can emerge. Such is the case with carbon markets, where the new commodity ‘carbon’ is a derivative in itself – a prediction of emissions being avoided in a certain period against a baseline.

This is also why financial engineers are devoting much more attention to ecosystem services, including natural habitat, biodiversity and species trading. As recently discussed at the Rio+20 summit on sustainable development, new initiatives have been launched to give a monetary value to services provided by the earth’s different ecosystems. In this way, payments for these services will be possible all over the world. Experts say that we are talking of a £20 trillion market every year.

Private actors, and not just state agencies, will also be charged with managing some protected areas. As a next step, financial assets built on ecosystem services could be traded in global markets to be constructed through mechanisms for biodiversity conservation, permit trading and offsetting, such as those established in carbon markets.

Financialisation is just one of several possible answers to the crisis of accumulation affecting the current capitalist cycle. It still has a long way to go with the natural commons, as well as many difficulties to overcome. Fabricating new commodities, financialised from scratch, building global markets for these and inducing scarcity so that financial engineering can perform an extra extraction of value is not easy, as the experience of carbon markets over the past ten years demonstrates. Many of these attempts will lead to new financial bubbles and crashes, even though in the meantime key financial actors will make huge profits at the expense of affected communities and the environment.

Accelerated expropriation

The commodification of nature is nothing new, and the resistance of the commoners against this privatisation, or accumulation by dispossession, as David Harvey would put it, has been a leitmotif of human history. The financialisation of nature will, however, bring an acceleration in the expropriation of land for offset projects and new extractive schemes.

New financial assets require more natural resources to be extracted and traded, so that the financialisation of nature will inevitably lead to a renewed emphasis on mining and other extractive industries, as well as the implementation of massive and unnecessary infrastructure projects. This could be part of the proposed way out from the economic crisis, particularly in Europe, with severe implications for local populations and their territories and environment.

So the financialisation of nature risks locking us into an extractivist and privatising pattern despite the limits imposed on us by the ecological and social crises. And as in the case of carbon markets, financialisation is instrumental in pushing us towards the continued extraction of fossil fuels instead of keeping them in the ground to tackle the climate change challenge.

The role of government in the financialisation of natural commons will be key. This includes fabricating new commodities by law through schemes for monetising and trading natural resources, creating the financial infrastructure of their global markets and exchanges, and inducing scarcity in these markets to make them work.

Contrary to what is sometimes suggested, neoliberalism and financialisation do not aim to destroy the state. Actually they require a strong state to create markets, including financial markets, and new asset classes. This is something that the private sector can’t do alone. At a time of crisis a strong state is also needed to control dissent. So challenging and reversing the financialisation of nature inevitably means questioning the role of both markets and states and putting forward a comprehensive alternative political project centred on reclaiming the commons.

Antonio Tricarico is an analyst at Re:Common, an Italian organisation working for the defence and expansion of the global commons

Red Pepper is an independent, non-profit magazine that puts left politics and culture at the heart of its stories. We think publications should embrace the values of a movement that is unafraid to take a stand, radical yet not dogmatic, and focus on amplifying the voices of the people and activists that make up our movement. If you think so too, please support Red Pepper in continuing our work by becoming a subscriber today.
Why not try our new pay as you feel subscription? You decide how much to pay.
Share this article  
  share on facebook     share on twitter  

#MeToo is necessary – but I’m sick of having to prove my humanity
Women are expected to reveal personal trauma to be taken seriously, writes Eleanor Penny

Universal credit isn’t about saving money – it’s about disciplining unemployed people
The scheme has cost a fortune and done nothing but cause suffering. So why does it exist at all? Tom Walker digs into universal credit’s origins in Tory ideology

Meet the digital feminists
We're building new online tools to create a new feminist community and tackle sexism wherever we find it, writes Franziska Grobke

The Marikana women’s fight for justice, five years on
Marienna Pope-Weidemann meets Sikhala Sonke, a grassroots social justice group led by the women of Marikana

Forget ‘Columbus Day’ – this is the Day of Indigenous Resistance
By Leyli Horna, Marcela Terán and Sebastián Ordonez for Wretched of the Earth

Uber and the corporate capture of e-petitions
Steve Andrews looks at a profit-making petition platform's questionable relationship with the cab company

You might be a centrist if…
What does 'centrist' mean? Tom Walker identifies the key markers to help you spot centrism in the wild

Black Journalism Fund Open Editorial Meeting in Leeds
Friday 13th October, 5pm to 7pm, meeting inside the Laidlaw Library, Leeds University

This leadership contest can transform Scottish Labour
Martyn Cook argues that with a new left-wing leader the Scottish Labour Party can make a comeback

Review: No Is Not Enough
Samir Dathi reviews No Is Not Enough: Defeating the New Shock Politics, by Naomi Klein

Building Corbyn’s Labour from the ground up: How ‘the left’ won in Hackney South
Heather Mendick has gone from phone-banker at Corbyn for Leader to Hackney Momentum organiser to secretary of her local party. Here, she shares her top tips on transforming Labour from the bottom up

Five things to know about the independence movement in Catalonia
James O'Nions looks at the underlying dynamics of the Catalan independence movement

‘This building will be a library!’ From referendum to general strike in Catalonia
Ignasi Bernat and David Whyte report from the Catalan general strike, as the movements prepare to build a new republic

Chlorine chickens are just the start: Liam Fox’s Brexit trade free-for-all
A hard-right free marketer is now in charge of our trade policy. We urgently need to develop an alternative vision, writes Nick Dearden

There is no ‘cult of Corbyn’ – this is a movement preparing for power
The pundits still don’t understand that Labour’s new energy is about ‘we’ not ‘me’, writes Hilary Wainwright

Debt relief for the hurricane-hit islands is the least we should do
As the devastation from recent hurricanes in the Caribbean becomes clearer, the calls for debt relief for affected countries grow stronger, writes Tim Jones

‘Your credit score is not sufficient to enter this location’: the risks of the ‘smart city’
Jathan Sadowski explains techno-political trends of exclusion and enforcement in our cities, and how to overcome this new type of digital oppression

Why I’m standing with pregnant women and resisting NHS passport checks
Dr Joanna Dobbin says the government is making migrant women afraid to seek healthcare, increasing their chances of complications or even death

‘Committees in Defence of the Referendum’: update from Catalonia
Ignasi Bernat and David Whyte on developments as the Catalan people resist the Spanish state's crackdown on their independence referendum

The rights and safety of LGBTQ+ people are not guaranteed – we must continue to fight for them
Kennedy Walker looks at the growth in hate attacks at a time when the Tory government is being propped up by homophobes

Naomi Klein: the Corbyn movement is part of a global phenomenon
What radical writer Naomi Klein said in her guest speech to Labour Party conference

Waiting for the future to begin: refugees’ everyday lives in Greece
Solidarity volunteer Karolina Partyga on what she has learned from refugees in Thessaloniki

Don’t let Uber take you for a ride
Uber is no friend of passengers or workers, writes Lewis Norton – the firm has put riders at risk and exploited its drivers

Acid Corbynism’s next steps: building a socialist dance culture
Matt Phull and Will Stronge share more thoughts about the postcapitalist potential of the Acid Corbynist project

Flooding the cradle of civilisation: A 12,000 year old town in Kurdistan battles for survival
It’s one of the oldest continually inhabited places on earth, but a new dam has put Hasankeyf under threat, write Eliza Egret and Tom Anderson

New model activism: Putting Labour in office and the people in power
Hilary Wainwright examines how the ‘new politics’ needs to be about both winning electoral power and building transformative power

What is ‘free movement plus’?
A new report proposes an approach that can push back against the tide of anti-immigrant sentiment. Luke Cooper explains

The World Transformed: Red Pepper’s pick of the festival
Red Pepper is proud to be part of organising The World Transformed, in Brighton from 23-26 September. Here are our highlights from the programme

Working class theatre: Save Our Steel takes the stage
A new play inspired by Port Talbot’s ‘Save Our Steel’ campaign asks questions about the working class leaders of today. Adam Johannes talks to co-director Rhiannon White about the project, the people and the politics behind it

The dawn of commons politics
As supporters of the new 'commons politics' win office in a variety of European cities, Stacco Troncoso and Ann Marie Utratel chart where this movement came from – and where it may be going


113