The Rise of Finance and its Impact on Industry: Debunking the Narrative
Challenging the prevailing view on the relationship between finance and industry
The rise of finance and its perceived dominance over industry has been a topic of intense debate among scholars, economists, and politicians. Many argue that finance has come at the expense of industrial development, signaling a late stage of capitalism and a decline in the system’s functionality. However, a new perspective challenges this narrative, suggesting that finance and industry are not separate entities but deeply intertwined. This article aims to explore the complex relationship between finance and industry, debunking common misconceptions and shedding light on the role of finance in contemporary capitalism.
The 2008 Crisis and the Rise of the Asset Managers
The 2008 financial crisis was a turning point that led to significant state intervention in the economy. Contrary to popular belief, this intervention was not the result of financial institutions plundering the state’s coffers, but rather a response by a relatively autonomous state seeking to resolve a systemic economic crisis. The implementation of quantitative easing (QE) by the Federal Reserve played a crucial role in this intervention, leading to the historic shift in the structure of corporate capitalism. QE aimed to provide cash to financial institutions and support the market-based credit system. This, in turn, bolstered the rise of asset managers, such as BlackRock, State Street, and Vanguard, who became the dominant players in the financial landscape. The concentration of ownership in these firms has reshaped the relationship between finance and industry, blurring the lines between the two.
Finance Capital, Industrial Capital, and Globalization
Contrary to the notion that finance has undermined industrial development, the rise of finance has actually strengthened industrial capital. Financialization has facilitated the creation of flexible, global networks of production and investment, intensifying competition and driving industrial corporations to maximize surplus value extraction and reduce costs. The fusion of financial and industrial capital, known as finance capital, has become a defining feature of contemporary capitalism. This integration has been further reinforced by the consensus among the capitalist class around globalization. Asset managers, as universal owners, have a vested interest in maximizing the competitiveness of individual portfolio firms, which is closely tied to free capital mobility. Therefore, the interests of finance and industry are intertwined, challenging the notion of a separate and antagonistic relationship.
The Fallacy of Financial Hegemony’s Decline
The idea that financial hegemony is coming to an end is unfounded. The dominance of asset managers, particularly the Big Three, is not solely reliant on quantitative easing. These firms have continued to grow and remain competitive, even in the face of market volatility and quantitative tightening. The concentration of ownership and centralization of power within these asset management companies have only strengthened their position. The metrics typically used to assess financial power, such as balance of profits and asset values, fail to account for the unprecedented concentration of ownership in industrial capital. This oversight leads to a misunderstanding of the true nature and resilience of finance capital.
Conclusion:
The relationship between finance and industry is far more complex than commonly believed. The rise of finance has not come at the expense of industry but has, in fact, strengthened it. Financialization and globalization have facilitated the construction of global networks of production and investment, intensifying competition and driving industrial corporations to maximize profitability. The concentration of ownership in asset management firms has further blurred the lines between finance and industry, challenging the notion of separate entities. Rather than viewing finance as a separate and corrosive force, a more comprehensive understanding of the intertwined nature of finance and industry is necessary. This understanding should inform our approach to addressing the challenges of contemporary capitalism, with a focus on transforming the state and developing democratic economic planning to gain control of investment and shape a more sustainable future.