Adam Smith, the 18th century economist, in his pioneering book The Wealth of Nations propagated the importance of markets in goods and services to help increase consumption and growth: few now remember that he was sceptical of financial innovations like limited liability companies. (Equally forgotten is his other major work The Theory of Moral Sentiments, which stressed the importance of ethical behaviour.) Arguably, the power of finance capital was unleashed by the Reagan-Thatcher ideology, of the "big bang" in financial deregulation in the UK three decades back, and more gradually in the US. The result has been a significant reduction in the contribution of manufacturing to their economies, even as profits in the financial sector as a proportion of all listed companies have soared. For a more correct appreciation of how much money finance capital makes, one would need to add the profits of hedge funds, of bonuses to bank traders, etc. One fallout has been a sharp rise in income inequalities in these countries, as compared to Germany and Japan. As Joseph Stiglitz wrote in his book Globalisation and its Discontents, "the Washington Consensus has all too often been to benefit the few at the expense of the many". Has the currently fashionable neoliberal agenda produced a powerful "neorentier" class, a new "dominant minority" in the sense used by Arnold Toynbee in his monumental book Study of History? To be sure, they work hard but the money they make is altogether disproportionate to their - often negative - contribution to growth and employment. (One is reminded of the question Michael Lewis asked in Liar's Poker about his experiences with Salomon Brothers: what socially useful work am I doing to deserve so much money?) The amazing thing is the finance capital's power does not seem to have diminished even after its excesses led to the crisis of 2008, and the largest fall in global output since the 1930s.
To give one example, the post-crisis banking regulation agenda was supposed to reduce "proprietary trading" by banks, limiting banks' operations to "market-making". The extremely powerful lobbyists commonly employed by global banks seem to have successfully diluted the impact of the Volcker rule: the latest triennial survey of the interbank financial markets published earlier this month by the Bank for International Settlements, based on market activity in April 2016, evidences that the daily currency market turnover is still $ 5.1 trillion - a little lower than three years back, but the reduction is because of the fall of the yen. (In constant USD:JPY terms, the turnover has gone up.) Basel III seems to have reduced bank lending to businesses, the one useful service finance capital provides to the real economy, but not trading/speculation.
Perhaps no wonder. To the famous revolving door between Wall Street and Washington policymakers has now been added another with London and Brussels. To quote a few recent examples, Mervyn King, former governor of the Bank of England, has joined Citibank; Jose Manuel Barroso, the former president of the European Commission, has joined Goldman Sachs, a move described by the President of France as being "morally unacceptable"; and pre-referendum UK Chancellor of the Exchequer George Osborne interceded with US authorities to help HSBC avoid criminal charges for money laundering. The Venezuelan economy is in the doldrums thanks to both political and economic factors, particularly the sharp fall in oil prices. There is no food in shops, or medicines in hospitals, according to a Financial Times report last Monday, but Venezuela continues to honour foreign bond payments. Should one admire the "responsible" behaviour of the Venezuelan authorities towards foreign creditors - or the power of finance capital, in this case represented by the so-called "vulture funds", who specialise in speculating in bonds of companies/countries in difficulties, and use the US justice system to enforce their obligations?