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Cooking the Books: Saving Private Capitalism

American capitalism is, apparently, suffering a ‘crisis of faith’, at least according to a 5-page article featured on the front cover of Time magazine (23 May). The author, Rana Foroohar, quotes the findings of an opinion poll which she finds ‘startling’:

‘… only 19% of Americans aged 18 to 29 identified themselves as “capitalists”. In the richest and most market-oriented country in the world, only 42% of that group said they “supported capitalism”. The numbers were higher among older people; still, only 26% considered themselves capitalists. A little over half supported the system as a whole.’

One of the questions must have been odd if it invited people to identify themselves as ‘capitalists’ in the same sort of way that they might have been asked if they were socialists. A capitalist is not someone who believes in capitalism. It is someone who has enough capital to be able to live without being obliged to sell their labour power for a living. In America that will be well under 5 percent.

Foroohar’s article, entitled ‘Saving Capitalism’, is taken from her forthcoming book Makers and Takers. Her argument is that the current problems of American capitalism are due to ‘financialization’. Up until the early 1970s, she says, finance served business:

‘finance took individual and corporate savings and funnelled them into productive enterprises, creating new jobs, new wealth and, ultimately, economic growth.’

However, over the past few decades this has changed:

‘finance has turned away from this traditional role. Academic research shows that only a fraction of all the money washing around the financial markets these days actually makes it to Main Street businesses…. Most of the money in the system is being used for lending against existing assets such as housing, stocks and bonds.’

She says that banks have become more interested in such ‘trading’ than in their traditional role of lending to business. But it is not just banks that have been affected. Businesses themselves have become increasingly involved in hedging, ‘tax optimization’ and offering financial services, to the detriment of productive investment. They have the money to do this because:

‘Top-tier US businesses have never enjoyed greater financial resources. They have a record $2 trillion in cash on their balance sheets – enough money combined to make them the 10th largest economy in the world.’

Her plan to save capitalism is ‘remooring finance in the real economy’, putting ‘the financial system back in its rightful place, as a servant of business rather than its master.’

It’s not the first time in the history of capitalism that finance capital has been seen as the enemy. Before WWI the Austrian Social Democrat Rudolf Hilferding wrote Finanzcapital in which he argued that banks had come to dominate and control industry. Lenin took this up and incorporated it into his theory of imperialism.

To merely denounce ‘financial capital’ is to support ‘manufacturing capital’; which is Foroohar’s (if not the Leninists’) explicit position. She has appointed herself as a defender of manufacturing (‘the makers’) against finance capital (‘the takers’). But she doesn’t consider an alternative explanation for ‘financialization’: that it might be a consequence of slow economic growth rather than the other way round. Since previous profits are not being fully reinvested because it’s not profitable enough a part of them accumulate as cash mountains, providing the stakes for ‘trading’ and ‘hedging’. Like the Stock Exchange, these are zero sum games in which no new wealth is created but where representations of existing wealth are traded instead – where some capitalists get richer but only at the expense of other capitalists, competing against each for the largest share they can get of wealth already taken from the real wealth makers, the working class.