Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.
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.
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.
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.
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.
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
The Democratic Republic of Congo (DRC) continues to witness devastating political violence, but the world refuses to act. Ishiaba Kasonga and Serge Egola Angbakodolo ask why?
When fire safety has become a privilege for the rich, it’s time to stop austerity and fund emergency mass works to raise standards immediately, writes Jane Shallice
The election result has irreversibly changed political discourse in the UK, writes James Fox
In commemoration of the 30th anniversary of Bernie Grant's election to parliament, Ayo Wallace explores the life and legacy of his radical representation of Tottenham's black communities.
Across Britain, hundreds of thousands of people have now taken part in mass rallies for Corbyn's Labour. Eli Regan soaks up the atmosphere in Warrington
The under-30s could be decisive in the general election. Frances Grahl meets young people hit by Tory austerity and looks at what's driving their support for Labour
“To them it’s just another number, someone else being sent back. But when you’ve got three children being left without their dad … it’s quite major,” writes Rebecca Omonira-Okeykanmi.
Hundreds of people surrounded the fences this weekend. Hera Lorandos spoke to women who have suffered inside.
Grassroots posters giving an alternative take on the general election
Laying out the case for Labour's leadership of a Progressive Alliance, Jeremy Gilbert argues that far from posing a threat to the Left, the Progressive Alliance offers a golden opportunity to end Tory rule and build a 21st century government committed to social justice
Brexit, Corbyn and beyond
Clarity of analysis can help the left avoid practical traps, argues Paul O'Connell
Paul Mason vs Progress: ‘Decide whether you want to be part of this party’ – full report
Broadcaster and Corbyn supporter Paul Mason tells the Blairites' annual conference some home truths
Contagion: how the crisis spread
Following on from his essay, How Empire Struck Back, Walden Bello speaks to TNI's Nick Buxton about how the financial crisis spread from the USA to Europe
How empire struck back
Walden Bello dissects the failure of Barack Obama's 'technocratic Keynesianism' and explains why this led to Donald Trump winning the US presidency
Empire en vogue
Nadine El-Enany examines the imperial pretensions of Britain's post-Brexit foreign affairs and trade strategy
Grenfell Tower residents evicted from hotel with just hours’ notice
An urgent call for support from the Radical Housing Network
Jeremy Corbyn is no longer the leader of the opposition – he has become the People’s Prime Minister
While Theresa May hides away, Corbyn stands with the people in our hours of need, writes Tom Walker
In the aftermath of this disaster, we must fight to restore respect and democracy for council tenants
Glyn Robbins says it's time to put residents, not private firms, back at the centre of decision-making over their housing
After Grenfell: ending the murderous war on our protections
Under cover of 'cutting red tape', the government has been slashing safety standards. It's time for it to stop, writes Christine Berry
Why the Grenfell Tower fire means everything must change
The fire was a man-made atrocity, says Faiza Shaheen – we must redesign our economic system so it can never happen again
Forcing MPs to take an oath of allegiance to the monarchy undermines democracy
As long as being an MP means pledging loyalty to an unelected head of state, our parliamentary system will remain undemocratic, writes Kate Flood
7 reasons why Labour can win the next election
From the rise of Grime for Corbyn to the reduced power of the tabloids, Will Murray looks at the reasons to be optimistic for Labour's chances next time
Red Pepper’s race section: open editorial meeting 25 June
On June 25th, the fourth of Red Pepper Race Section's Open Editorial Meetings will celebrate the launch of our new black writers' issue - Empire Will Eat Itself.
After two years of attacks on Corbyn supporters, where are the apologies?
In the aftermath of this spectacular election result, some issues in the Labour Party need addressing, argues Seema Chandwani
If Corbyn’s Labour wins, it will be Attlee v Churchill all over again
Jack Witek argues that a Labour victory is no longer unthinkable – and it would mean the biggest shake-up since 1945
On the life of Robin Murray, visionary economist
Hilary Wainwright pays tribute to the life and legacy of Robin Murray, one of the key figures of the New Left whose vision of a modern socialism lies at the heart of the Labour manifesto.
Letter from the US: Dear rest of the world, I’m just as confused as you are
Kate Harveston apologises for the rise of Trump, but promises to make it up to us somehow
The myth of ‘stability’ with Theresa May
Settit Beyene looks at the truth behind the prime minister's favourite soundbite
Civic strike paralyses Colombia’s principle pacific port
An alliance of community organisations are fighting ’to live with dignity’ in the face of military repression. Patrick Kane and Seb Ordoñez report.
Greece’s heavy load
While the UK left is divided over how to respond to Brexit, the people of Greece continue to groan under the burden of EU-backed austerity. Jane Shallice reports
On the narcissism of small differences
In an interview with the TNI's Nick Buxton, social scientist and activist Susan George reflects on the French Presidential Elections.
Why Corbyn’s ‘unpopularity’ is exaggerated: Polls show he’s more popular than most other parties’ leaders – and on the up
Headlines about Jeremy Corbyn’s poor approval ratings in polls don’t tell the whole story, writes Alex Nunns
Job vacancy: Red Pepper is looking for a political organiser
Closing date for applications: postponed, see below
The media wants to demoralise Corbyn’s supporters – don’t let them succeed
Michael Calderbank looks at the results of yesterday's local elections
In light of Dunkirk: What have we learned from the (lack of) response in Calais?
Amy Corcoran and Sam Walton ask who helps refugees when it matters – and who stands on the sidelines
Osborne’s first day at work – activists to pulp Evening Standards for renewable energy
This isn’t just a stunt. A new worker’s cooperative is set to employ people on a real living wage in a recycling scheme that is heavily trolling George Osborne. Jenny Nelson writes
Red Pepper’s race section: open editorial meeting 24 May
On May 24th, we’ll be holding the third of Red Pepper’s Race Section Open Editorial Meetings.
Our activism will be intersectional, or it will be bullshit…
Reflecting on a year in the environmental and anti-racist movements, Plane Stupid activist, Ali Tamlit, calls for a renewed focus on the dangers of power and privilege and the means to overcome them.
West Yorkshire calls for devolution of politics
When communities feel that power is exercised by a remote elite, anger and alienation will grow. But genuine regional democracy offers a positive alternative, argue the Same Skies Collective
How to resist the exploitation of digital gig workers
For the first time in history, we have a mass migration of labour without an actual migration of workers. Mark Graham and Alex Wood explore the consequences