Friday, April 26, 2024

Review: A Political Economy of Contemporary Capitalism and its Crisis by Sotiropoulos, Milios, and Lapatsioras

One incorrect view of the world is that capitalism was going swimmingly until finance came in and distorted everything. As the authors trace in this book, financialization was present centuries ago (there is an amusing story about 18th century Genevan bankers speculating by identifying young women of good life expectancies and purchasing lifetime annuities for them from the French state). More importantly, the different classes of capitalists cannot be so neatly separated from each other: debt and futures and other financial tools are crucial for the smooth functioning of a firm, and industrial capitalists invest their gains in financial instruments as part of a balanced portfolio. In place of this notion, the authors present a better way of understanding the role of finance in neoliberal capitalism: one of risk commodification and the leveraging of risk to organize capitalists and states to the benefit of capitalists.

The book is a challenging read: the intended audience is unclear, the argument is poorly organized, and its main points are often stated more than proven or fiercely defended. It spends an inordinate amount of time explaining the genealogy of “finance as parasite” ideas, coyly pointing out how each is wrong without fully laying out their argument. When it finally comes time to put forth the thesis of the book (by Chapter 7-8!), it lands with more of a whimper than a bang. Still, I thought it highlighted some useful ideas (many taken from Marx and other writers), which I will attempt to summarize below.

  • Finance is inherent to capitalism, and is necessary for the efficiency we see today. It turns every last bit of savings (personal, state, or other source) into profit-generating capital, and more rapidly punishes failing capitalist enterprises and rewards successful capitalist enterprises. 
  • Finance is fetishistic: capital is the reification of social relationships, and commands the behavior of everyone in the economy.
  • Finance is rational: individual actors make rational decisions based on incomplete information. Finance plays a role in gathering information (on company fundamentals, etc), but also in creating information (demand, response to demand, etc). The value of financial instruments is not based on the whims or delusions or “animal spirit” of the market, but on a consensus (and ideologically-rooted) understanding of risk and future returns.
  • Finance commodifies risk: via derivatives, without which financialization would be “incomplete”, separate components of risk are split apart and rebundled and traded. 
  • Risk, rather than being understood as a quantification of the probable range of expected returns, should be understood as playing a normative role: firms (or states) that deviate from the behavior seen as correct under capitalist (or neoliberal) ideology will be priced as risky. This in turn makes it more difficult for these firms (states) to raise the funds needed. As a result, states and firms are disciplined into behaving according to neoliberal norms (austerity, union-busting, etc). Society is thus efficiently organized into a structure that most effectively exploits labour to accumulate capital.

Or, summarizing it in the authors’ own words:

The big secret of finance is that the valuation process does not have to do only with some competitive determination of the security price, but primarily plays an active part in the reproduction of capitalist power relations.

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