Searching for an alternative economic model

Responses to the IPPR Commission on Economic Justic

Sabotage in the financial system: Lessons from Veblen

The global financial crisis that started in the summer of 2007 has generated a wide-ranging discussion about the causes of the meltdown and the role of banking and bankers in today's economy. However, the ongoing debate rarely addresses questions of business tactics in the financial industry. Indeed, while 'incentives,' 'vested interests,' power, and-increasingly-social utility are often factored into analyses of financial regulation, the strategies and tactics of financial institutions are rarely discussed in a systematic way in academic and policy debate. Nonetheless, we believe that these two elements are key to understanding the financial system, not as a mere sector of the wider economy but as a business enterprise driven by its own logic and shaped by a variety of business tactics of its key agents. In our vision of finance as business, we draw on the concept of industrial sabotage as a business tactic (originally developed by Thorstein Veblen) to explore the roots of the financial sector's contemporary architecture. Our key premise is that the central motive driving the process often described as 'financialization' or financial innovation is the sabotage instinct of finance operating as business. Whereas Veblen originally understood sabotage as "conscientious withdrawal of efficiency," today, we argue, the workings of the banking and financial sector augment the very notion of efficiency by relying on concepts, techniques, and institutions of financial innovation that are shrouded in complexity. In this article, we explore conceptual, institutional, and selected policy dimensions of this phenomenon

Racial Exclusion and the Political Economy of the Subprime Crisis

Abstract Th is paper develops a political economic explanation of the 2007-9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgagemarkets. Until the early 1990s, racial minorities were systematically excluded from mortgagefi nance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were off ered to non-minority borrowers. Th is paper shows that the emergence of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Th us, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the fi nancial expropriation of the working class by fi nancial capital. Th e crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis -that is, when housing-loans became not just extortionary but speculative

United in debt: towards a crisis of debt-driven finance?

Over the past two decades, the collapse of the financial systems in many developing nations, the bankruptcies in the Anglo-Saxon corporate sectors and a threat of more sovereign defaults on behalf of emerging markets suggest that the current wave of global financial fragility and recession rivals that of the Great Depression of the 1930s. Among elements that account for the crisis-prone nature of global capitalism are the political discipline of neoliberalism; debt-driven expansion of the privatized financial markets; and the profound disarticulation of the financial and real economies. Contrary to mainstream readings of financial crises, today's financial upheavals are rooted in the debtladen regime of neoliberal finance. Today's debt-driven capitalism is both unstable and limited in its developmental possibilities. Nevertheless, a paradigmatic shift in the transnational political consensus can prevent a global repetition of the 1930s

Asian tigers, Russia bear and international vets? An excursion in the 1997-98 financial crises

The article sets out a controversial task of looking at the Russian and East Asian episodes of the 1997-98 international financial upheaval. It argues that despite the palpable differences in the economic structures of the two regions, the similarity in the circumstances and aftermaths of the crashes requires a re-conceptualisation of the role of financial capital in framing dependent development patterns in global capitalism. The paper looks at the following issues. First, it discusses the role of domestic monetary policies, external financial openness and export-oriented development strategies in contributing to the crises. Second, the analysis discloses the nature and role of financial indebtedness in the two cases, pointing to the fundamental problem of the finance-real economy disjuncture that had been at the centre of the two crises. Third, the paper reveals the importance and similarity of national politico-economic structures, their links to the world ruling elites in shaping the countries' models of dependent capitalism. The article argues that through a complex multi-level fusion, these factors render current plans to eliminate world inequality and restore world financial stability, largely futile

Fragile finance: debt, speculation and crisis in the age of global credit

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Russia and Belarus: the quest for the union; or who will pay for Belarus' path to recovery?

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The logic of neoliberal finance and global financial fragility: towards another great depression?

The article provides a comparative critique of the financial underpinnings of the Great Depression of the 1930s and the recent wave of financial crises. The collapse of the financial systems in many developing nations, the bankruptcies in the Anglo-Saxon corporate sectors and a threat of more sovereign defaults on behalf of emerging markets suggest that the current wave of global financial fragility and recession rivals that of the Great Depression of the 1930s. The paper examines key elements that account for the crisis-prone nature of global capitalism: the political discipline of neo-liberalism, debt-driven expansion of the privatised financial markets, and the profound disarticulation of the financial and real economies. These factors suggests that the risk of a global depression is by no means hypothetical, and unless effective and collaborative efforts are made to tame the inherently unstable regime of global finance, even major world economies are faced with a prolonged period of financial turbulence and economic stagnation. The paper concludes by pondering the possibility of a paradigmatic shift in the transnational political consensus that can prevent a global repetition of the 1930s. While the increased awareness of financial instability and crisis may indeed prompt some ad hoc adjustments in national and foreign economic policies of major capitalist powers, in the long run these measures will be insufficient to prevent a major financial and economic disaster

Coping in global financial system? The political economy of nonpayment in Russia

The phenomenal spread of unconventional means of payments has been one of the most controversial features of Russia's post-socialist economic development. Orthodox analyses tend to trace the causes of the non-monetary economy to the inconsistency of political reforms, to the legacy of the past, and to endemic corruption. This article challenges such accounts. From the perspective of international political economy, the proliferation of nonpayments, severe liquidity squeeze and the structural disjuncture between Russia's financial and productive circuits are the outcomes of the country's pursuit of the paradigm of the Washington Consensus. In this light, barter and nonpayments in Russia are neither the‘inevitable’features of the market restructuring, nor simply the residue of the command system. The non-monetary economy in Russia is a peculiar reaction to the politico-economic imperatives brought onto the country by the deregulated financial markets and by the neoliberal political ideology that underpins their global expansion

A friend in need or a friend in need? Russia and the Belarussian economy

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