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Lapavitsas situates financialisation as a transformation of capitalism on a par with the emergence of monopolistic joint stock enterprise at the end of the 19th century. This had produced a long boom that lasted until the 1970s.
After the 1970s there were ‘profound changes in production methods deriving from information and telecommunications technologies.� TNCs became dominant over production and trade. Global productive capacity shifted from the west to the east.
“Meanwhile the institutional framework of capitalist activity has been altered as deregulation has prevailed in important markets, above all for labour and finance.� For all this accumulation has lack dynamism, inequality increased, and crises have been sharper and more frequent.
The sluggishness in the basic driver of growth meant that an ‘asymmetry� emerged between the spheres of production and the ballooning sphere of circulation. This has happened because of the changing behaviour of non-financial enterprises � banks and households. � This had led to the rise of profits accruing from financialisation � including a possible new form of profit not related to surplus value.
Lapavitsas points to the apparent paradox of making the role of banks decisive in accounting for financialisation. The more obvious cause seems to be the expanding and changing role of financial markets. But much of this emanates from innovations by banks. The most fundamental is the growth of derivative markets in recent years. He explains that they lie at the heart of the derivatives markets which have been such a prominent feature of financialisation. They play the role of price-making skills and contribute their general organisational capabilities of banks. The dark side to all this is that their domination of derivatives markets means that they are even capable of manipulating the key market rate on the basis of which derivative prices are formed. To summarise his position, “The vast growth of derivative markets reflects in part the turn of banks towards trading in open financial markets which is one of the fundamental tendencies of financialisation. In sum, at the root of financialisation lie the vast banks of mature and other mature economies.�
Even deeper roots for these developments are to be found in the changes that money has gone through since the 1970s, with the severance of the link with gold when the Bretton Woods agreement was terminated, the rise of fiat money, and the emergence of the US dollar as de factor world money. Money in these latter forms are seen as having made its mark on the social outlook of financialised capitalism. “Communal and associative bonds have shrunk; public provision has generally retreated and money has been re-strengthened as the pivot of a broad range of social interactions.�
But despite this financial capitalism is inherently chaotic:
“The term ‘global financial system� is in practice a misnomer: global finance amounts to a jumble of financial flows, often undertaken by institutions that have global reach. There is ultimately no sense of ordered and regular interaction among the many global agents.�
For Lapavitis the components of finance do not in themselves produce monetary value but merely intervene in its advance and payment. For finance to emerge as a system the prerequisite is that social relations exist in such ways that “the deployment, expansion and accrual of monetary value across the economy could be taken for granted by participants in financial transactions.�
The retreat of labour, evidenced by the growth of unemployment and the decline of the share of GDP being distributed in wages, deregulation and the growth of inequality were part and parcel of the neoliberal ideology that permitted the turn towards financialisation. Despite the claims made for an economic miracle, productivity remained flat across the period since the 1970s and growth was typically weak. As Lapavitis argues:
“The flows of loanable capital and the financial revenue relative to GDP point to a cumulatively greater weight of finance in the economy. Above all, financial profits have become a larger part of total profits, even though employment in the financial sector has been relatively stagnant. Given that finance is an intermediary activity that does not generate value and surplus value, the source of financial profit lies in profits and incomes created in other parts of the economy.�
The chronology for the rise of financialisation therefore follows this timeline:
1970s � End of the value of money being linked to gold.
1970s-80s � Surplus dollars accumulate across the world as it becomes the world medium of exchange.
1980s � Banks take on role as mediating the value of money and develop new functions managing the value of assets and derivatives. Growth of credit. Simultaneously the power of the working class to wrestle its share of value from the system is severely reduced. Social needs increasingly mediated by markets � housing especially.
1990s � “Subordinate financialisation� extends to developing countries who are forced to maintain dollar reserves as insurance against balance of payment crisis.
2000s � The system tailspins into crisis as the weakness of regulation brings higher levels of risk into the circuits of financial flows, with the subprime mortgage crisis triggering the near collapse of world banking.
The book concludes with a discussion about the possibilities for re-regulating financial capitalism and comes to some pessimistic conclusions. Both the ‘market-negating� approaches that had sought to limit the expansion of finance in the 1930s and the ‘market conforming� approaches of the 1990s and 00s are in adequate to the task. The book concludes with a call for a direct confrontation with the fundamental logic of financialisation which would involve, amongst other things, ending the dominant position of the market in areas like housing, healthcare and public education.