1. Finance, Financialisation and the Crisis
Sam Ashman
ATN12, Accra, August’09]
Corporate Strategy and Industrial Development Research Programme
University of the Witwatersrand

2. Overview of Presentation
Crisis: re-cap on some of the themes covered yesterday
Financialisation and the relationship between neoliberalism and financialisation
Experience of South Africa
Financialisation needs to be set in context of a particular structure of production
Financialisation in SA helped to produce jobless growth and widening inequality
Conclusions and alternatives

3. Deep Structural Crisis
Triggered in the financial sector
Sub-prime crisis→fear of toxic debt→ credit crunch→slashing of output, redundancies, collapse in demand
Spread to real economy, deepest crisis since the 1930s
Bailouts, discussion of return to New Deal
Ideological crisis in developed economies
Debate over the role of the State

4. Financialisation and Neo-liberalism
Volatility of short term financial flows increase vulnerability to crisis
Part of bigger picture of de-regulation as neoliberalism seeks to increase profitability, attack labour
Entails capital restructuring nationally and internationally
Developed States act as agents not victims of corporate globalisation
Inflation targeting; freedom for finance

5. Financialisation and Neo-liberalism
Autonomy of finance
Proliferation of financial actors and markets
Penetration of finance into greater areas of economic and social reproduction – health, education, energy, telecommunications, transport, pensions, housing
Corporations funding investment from retained earnings and private markets, less dependent on banks
Banks seek alternative sources of profits
Qualification: companies act as financial actors in their own right

6. South African context
Effect of financialisation needs to be set in the context of particular structure of production
‘Minerals Energy Complex’ (Fine and Rustomjee 1996)
Dominance of mining and cluster of industries around it
Developed financial sector
Lack of diversification into other sectors
High dependence on mineral exports

7. Effect of financialisation - outflows
Post 1994 orthodox programme of ‘liberalisation from within’
Progressive reduction of financial and trade regulation
Managed programme of capital flight – in return for concessions on BEE?
Rose from 5.4% of GDP to 9.2% of GDP 1994 to 2000
Major companies re-listed on London stock exchange
Loss of political-economic power post apartheid
Opportunities to be gained internationally

8. Effect of financialisation -inflows
Increase in short term inflows
Growth of speculation and consumer debt
Similarities with the US model of debt driven consumption
Second Houses – property bubble
2nd/3rd cars – imported, boosts GDP growth
Growth in Credit Card Debt
Jobless growth
Growth in financial services – security guards

9. The 10 sectors receiving most investment in 2008 Source: SASSID 2009

10. Change in capital stock across economic sectors 2000-2008 Source: SASSID 2009

11. Credit Extension and Investment as Percentages of GDP 1990-2008 Source: SARB 2008

12. Private Sector Credit Extension by all Monetary Institutions 1990-2008

13. Main sources and uses of capital in business enterprises 1992-2007 Source: SARB 2008

14. Effect of the Crisis
Job losses and short time in mining and mineral products as consequence of falling global demand
Manufacturing output fallen by 25% in the last year
Tighter global and domestic credit markets
SA banks reduced debt post sub-prime crash
6,000 car repossessions a month, house foreclosures and business bankruptcies

15. Conclusions - Alternatives
Renew debate about state intervention and state’s role in development
Capital controls – reduce capital flight; affect structure of bank liabilities and therefore lending
Stronger role for state directed development finance and Development Finance Institutions
Co-ordination of policy - Industrial Policy, Trade Policy
Finance for investment in what is socially useful