The widen­ing vor­tex of global fi­nance

The Pak Banker - - OPINION - G. Sam­path

The re­cent move to al­low the in­vest­ment of prov­i­dent fund money in the stock mar­ket ba­si­cally takes the mat­ter out of the in­di­vid­ual's hands. So, it is not just the rich and the mid­dle classes, but the poor too who must be­come in­vestors It is fairly well es­tab­lished that the past three decades have wit­nessed a world­wide growth in in­equal­ity. This phe­nom­e­non is of­ten evoked in the same breath as the ex­tra­or­di­nary salaries and bonuses that fi­nanciers - in­vest­ment bankers and fund man­agers - pay them­selves.

Clearly, fi­nan­cial in­sti­tu­tions such as hedge funds and in­vest­ment banks are able to gen­er­ate huge prof­its, which is why they can af­ford hu­mon­gous com­pen­sa­tion pack­ages. But what ex­actly is the source of fi­nan­cial profit? And, what is the link be­tween ris­ing fi­nan­cial prof­its and grow­ing in­equal­ity of wealth/in­come? Be­fore we can an­swer these ques­tions, it is nec­es­sary to con­tex­tu­alise this phe­nom­e­non.

First, ris­ing in­equal­ity and sky-rock­et­ing fi­nan­cial prof­its have par­al­leled the rise of neo-lib­er­al­ism - a term used to re­fer to a clus­ter of eco­nomic poli­cies that in­cludes pri­vati­sa­tion, cuts in wel­fare spend­ing, loos­en­ing of labour laws, and dereg­u­la­tion of fi­nance. If there is one com­mon fac­tor that un­der­girds all these eco­nomic poli­cies - it is the rise of global fi­nance, or "fi­nan­cial­iza- tion", which also denotes the grow­ing pen­e­tra­tion of real eco­nomic ac­tiv­ity (to do with gen­er­at­ing sur­plus value) by fi­nance cap­i­tal.

In his book, The Ev­ery­day Life of Global Fi­nance, the eco­nomic ge­og­ra­pher, Paul Langley, ex­plains how the com­mon view of global fi­nance as some­thing "out there some­where" - time­less, space­less, iden­ti­fied with 24X7 global mar­kets - is fal­la­cious. It is sim­ply not true that fi­nance op­er­ates pri­mar­ily in a rar­efied realm of su­per- spe­cial­ists far re­moved from the world of ev­ery­day eco­nomic ac­tiv­ity such as earn­ing, sav­ing and bor­row­ing. On the con­trary, Langley ar­gues, global fi­nance has fun­da­men­tally reengi­neered the or­di­nary ways we think about and man­age money.

Till the gen­er­a­tion say right up to the 1980s, the fu­ture was con­ceived as a realm of un­cer­tainty, one that held pos­si­ble harm, for which one pro­vi­sioned through thrift - specif­i­cally, sav­ings and in­sur­ance. Fi­nan­cial­i­sa­tion is born when un­cer­tainty is quan­ti­fied into risk. How we frame risk, cal­cu­late it, and man­age it, de­cides what we do with our money.

In Langley's for­mu­la­tion, if risk is cal­cu­lated and man­aged as a fu­ture harm that re­quires pru­dence in the present, it makes for an ap­proach of thrift and sav­ings. But if it is framed as an op­por­tu­nity that holds the pos­si­bil­ity of im­mense re­wards, it man­dates an ap­proach where the most ra­tio­nal form of sav­ing be­comes in­vest­ment. There­fore, at the ide­o­log­i­cal level, fi­nan­cial­i­sa­tion en­tails two ba­sic ma­noeu­vres: one, the trans­for­ma­tion of neb­u­lous un­cer­tainty into quan­tifi­able risk, which is then man­aged through an ar­ray of cal­cu­la­tive tech­nolo­gies; two, a shift in the com­mon sense un­der­stand­ing of risk as some­thing po­ten­tially harm­ful, to some­thing po­ten­tially re­ward­ing.

Given that risk is es­sen­tially a fi­nan­cial cat­e­gory, the cur­rent civil­i­sa­tional ob­ses­sion with data is another tes­ta­ment to the grow­ing supremacy of fi­nance cap­i­tal (in al­liance with tech­nol­ogy), which wants ev­ery piece of the world's data on any­thing and ev­ery­thing in or­der to be able to man­age risk op­ti­mally for max­i­mum re­turns.

To be sure, you won't find the av­er­age salary-earner por­ing over price-to-earn­ings ra­tios on a daily ba­sis. Yet, we are all fi­nan­cial in­vestors to­day - ei­ther di­rectly or via mu­tual funds or through in­sur­ance or pen­sion funds that have ex­po­sure to cap­i­tal mar­kets.

The re­cent gov­ern­ment move to al­low the in­vest­ment of Em­ploy­ees Prov­i­dent Fund Or­gan­i­sa­tion (EPFO) money in the stock mar­ket ba­si­cally takes the mat­ter out of the in­di­vid­ual's hands. So, it is not just the rich and the mid­dle classes, but the poor too who must be­come in­vestors, which is why it has be­come vi­tal to sub­sti­tute the pro­vi­sion of es­sen­tial sur­vival goods with cash trans­fers.

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