How big the financial industry is....

from UFE:

How Did Finance Capital Gain Ascendancy Over Industrial Capital?

1. This summarizes an excellent article by Walden Bello, "Architectural blueprints, development models, and political strategies," Focus on Trade Number 34, April 1999

This pre-eminence of the financial sector is related to the crisis of dwindling growth or deflation which as increasingly overtaken the real sectors of the global economy. This crisis has its roots in overcapacity or under-consumption, which today marks global industries from automobile to energy to capital goods. Diminishing, if not vanishing, returns in industry has led to capital being shifted from the real economy to squeezing "value" out of already created value in the financial sector.


The result is essentially a game of "global arbitrage," where capital moves from one capital market to another, seeking to turn profits from the exploitation of the imperfections of globalised markets by taking advantage of interest-rate differentials, targeting gaps between nominal currency values and "real" currency values, and short-selling in stocks, that is, borrowing shares to artificially inflate share values then selling. Not surprisingly, volatility, being central to global finance, has become as well the driving force of the global capitalist system as a whole.


... since differences in exchange rates, interest rates, and stock prices are much less among the more integrated Northern markets, movements of capital have been much more volatile between the capital markets of the North [and] the so-called "Big Emerging Markets" of the South and Asia. Thus... the crises of the last few years have been concentrated in the emerging markets. Since late 1994, we have had Mexican financial crisis, the "Tequila Effect" of this crisis in Latin America, the Asian crash, the Russian collapse, the unravelling of the Brazilian real, and the spinoff of the Brazilian crisis on the rest of Latin America.


... finance capital operates... "in a realm close to anarchy." That deregulation at the national level has not been replaced by reregulation at the international level is because finance capital has accumulated tremendous political power over the last two decades.

2. Here is a more historical answer from economist Susan Mesner:

By the 1960s, the US was no longer a leader in world trade but still unquestionably the leader in financial markets. It was to our advantage to arrange the rules of the game so as to keep the position. The response of financial and corporate leaders to postwar restrictions was to seek ways to expand activities while avoiding constraints, so there was a real push to liberalize and deregulate financial institutions beginning in the 1970s. The Eurodollar market was created in the late 1950s because of 1) growth in world trade, 2) desire to elude financial regulations, 3) political considerations, i.e., Soviets' need to hold dollars offshore during Cold War. The system mushroomed in the 1960s as a result of new US restrictions on capital outflows and banking regs. When the gold window was closed in the early 70s, the price of currency became market determined, which marked the collapse of the Bretton Woods era. It's worth noting that in 1973 there was an international effort to give the IMF the power to force states to cooperate in controlling financial movements--it was an ambitious proposal backed by twenty major countries, and ultimately blocked by the US. Financial and corporate leaders saw where the advantages were early on.


Also see Robert Brenner, "The Economics of Global Turbulence," New Left Review 229.


3. And here are some FACTS ON THE GROWTH AND ASCENDANCY OF FINANCIAL CAPITAL:

CHIPS, the Clearing House Interbank Payment System, owned by 11 big NY banks, ties together 142 banks and does 150,000 transactions a day, $2 billion a minute, about $1 trillion a day, half the electronic transfers in the world. Financial assets have been growing at 2.5 times the rate of GDP since 1980. $35 trillion in financial assets were traded globally in 1992 (twice the GDP of the 23 richest industrial countries). The biggest financial market is exchange of currency: 60 times world trade in manufactured goods, $1.3 trillion a day. So volatile that 66% [of the transactions?] hold money less than seven days, only 1% as long as a year. International capital disciplines states. It's not just buying politicians, it's withdrawing money from countries when they adopt unfriendly policies. 1994: investors decided Mexico was unstable and withdrew billions, destroyed the peso, in less than three days. A few 1000 transnational money managers make the decisions. More typically, bondholders can dump holdings, drive up interest rates, and slow economic growth. ("Globalization and the technological transformation of capital," Jerry Harris, Race and Class 40:2/3, pp 21-35)


Question: Why did finance capital gain power over manufacturing capital, which had more power 1945-1970 than it has now? Because the state stepped back from the role of coordinating the economy, and financial markets took over? Because the early 70s saw a crisis in profits/ the rate of profit? Because expansion halted, OPEC extracted a huge amount of capital, and recycled it to banks to invest? Because when states abandoned Keynesianism, mass demand started to erode, huge pools of wealth started to concentrate, and those became available to banks & other financial institutions to invest? Cause or effect?