18 June, 2009
Financial capital has come to dominate productive capital. Short-term speculative investment has gained the upper hand at the expense of long-term investment in job creation, skills development, research and innovation, and sustainable development. The current food, fuel and financial crises, are neo-liberal policy failures, that have drastic consequences for working people and the poor, and that are now dragging the world economy into a severe recession.
Over the past few years the globalisation of finance has taken on a new dimension with the proliferation of novel speculative products that escape monitoring and regulation. Speculative funds are fed by banks and institutional investors such as insurance companies, mutual funds and pension funds. Some part of private equity assets also come from sovereign wealth funds with huge resources at their disposal, and with a deliberate lack of transparency as to their political and economic objectives, as well as to their practices and investment strategies.
Never before has the influence of private equity and hedge funds on markets and enterprises been so strong. Many of them are located in tax havens, which deals another blow to already declining public income from corporate taxation. The financial economy based on short-termism and high rates of return is increasingly disconnected from the real economy with devastating consequences for workers.
Today, hardly any company is immune from takeover by private equity funds. In most cases, these funds take control of enterprises without any industrial plans, and for the sole objective of boosting share prices and extracting maximum returns over a short period. The potentially high short-term gains attract institutional investors, including pension funds. Thus workers who have put their retirement savings in these pension funds find themselves unwittingly involved in speculative finance that is destroying jobs. Many workers have already watched their savings dissolved by corporate scandals.
The instability of the world's financial markets is not just a problem due to a few speculators - the whole system requires new rules.