Concentration of wealth: speculative supernova (primary and secondary financial circuits, extension of concentration to real economy and reinsurances in lands and other strategic resources)

The concentration process is being consolidated in main financial circuits but it also leaks into all the subordinated spaces in which it can increase the extraction of value. Against this tremendous dynamic, which perspectives exist for our countries?

Concentrating order advances mercilessly while it destroys the environments, fragments societies, breaks solidarities, devalues life commodifying it, and ignores dignity and respect for others. In this phase of concentration, powerful groups have established financial spaces for the reproduction of their capital based on the speculation and gaining exorbitant rates of return. They do not generate wealth by mobilizing productive factors to create products that satisfy fundamental needs for society. They apply their resources in financial products that they develop and manage to appropriate the value produced by others.

In this context of concentrated appropriation of socially produced values, large population majorities end up being the victims, losers of the imposed trajectory. If they try to resist the aggression, they end up being dysfunctional nuisances for the hegemonic intention, repressed with either hard or soft modalities. Utter naivety, once skimmed off, majorities become a social burden that needs to get rid of.

Concentrating dynamic

Concentration of wealth and consequent decisional power expand relentlessly. Its inherent dynamic leads to control more and more spaces for value appropriation, to develop new and diverse modalities of intervention. These spaces include, among others, primary and secondary financial circuits for capturing value, as well as a selective projection to get hold of strategic assets and springs of the real economy and, in the event of traumatic changes, the adoption of reinsurances in land and other natural resources. All that is done coupled with a political, informative, and interpretative imposition of reality to restrict or nullify the resistance to the concentration of wealth. The purpose is to make minority interests prevail subduing majorities through colonizing their minds to mold their subjectivities in favor of the hegemony of concentrated groups.

Primary and secondary financial circuits

Financial circuits form the main nucleus of economic concentration; although they are mainly centered in affluent countries, they are global circuits. The volume of transactions in those markets is huge: a few years ago, it was estimated in at least 35 times larger than the world’s GDP[1]; something outrageous, of high risk and extreme volatility for the global impact that it will cost when that speculative supernova[2] reaches the terminal phase because of the social explosion and environmental implosion.

The primary financial circuit is controlled by a handful of powerful actors. Large international banks and concentrated groups from United States, Europe, and Japan lead this accumulation system through a vast number of speculative transactions with products they impose in less regulated markets with great opacity. This is how they obtain great returns with an additional critical factor: they have the ability to transfer to third parties the inherent risk of such speculative bets.

Their actions usually lead to severe systemic crises; but, instead of changing their way of operating, they force governments to rescue them with public funds collected from taxpayers. When speculation expands well beyond growth of public and private incomes (affecting repayment ability of acquired debts), feared bubbles of very high volatility and unstoppable decay are generated.

Financial capital applies its resources in derivatives, futures, options, swaps, among other allocations, allegedly to manage risks; however, in reality, the result is an impious extraction of value form social realities that sustain those instruments. Moreover, with technological revolution of communications, transfers of sidereal amounts are facilitated with mobility and flexibility infinitely larger than those that productive factors have. Thus, financial capital has opportunity avenues open, those that no other economic actor has access.

In addition, there are secondary financial circuits that expand concentration spaces towards smaller markets. To materialize its unlimited greed, concentrated power uses local complicities in populations where inequality and poverty grow steadily. Those groups impose public policies that favor them; they deregulate movement of their capitals what facilitates the entrance and exit of swallow capitals (financial debauchery rules). They provoke the sovereign over-indebtedness, which is one of the most critical factors of submission and loss of national sovereignty. They promote a regressive tax structure that unloads the value-extraction costs onto the most vulnerable sectors of each community. They support a flimsy control of tax evasion and elusion, what facilitates the flight of their capitals towards fiscal havens. They are able to obtain a lax and more permissive treatment for their enterprises that are exporters of commodities and natural resources.

State indebtedness (sovereign debt) is fostered by avid creditors in search for lucrative allocations. The more vulnerable a country’s situation is the more onerous are the rates and conditions that are imposed on the loans it requests. There are very few cases of over indebted countries that manage to free themselves from the swamp that bleeds them out. If they fall into a cease of payments or default, they are mercilessly chased in jurisdictions with laws and judges that favor the creditors. In this context, vulture funds operate acquiring at a vile price defaulted debt to litigate against countries until forcing them to give out exorbitant values.

Expansion to the real economy and reinsurances

Concentrated capitals expand their viability and existence limits by penetrating into whatever niche is not yet invaded around the world, including emerging markets and even impoverished societies. The resources and power they have to influence public policies allows them to appropriate strategic and very lucrative assets of the real economy. For this purpose, they rely on local complicities in critical sectors of the economic system, politics, media, judiciary and some think tanks that offer them ideological coverage.

The presence of concentrated capital together with their local accomplices generate oligopolistic markets in penetrated economies where their prevalent position allows them to abuse suppliers and consumers in terms of prices and commercial conditions. In this way, they are able to perpetuate the appropriation of value while consolidating and expanding their power and influence.

Other cases of flagrant expropriation of value are materialized when concentrated capital takes control of essential public-utilities monopolies, such as the provision of electricity, gas, and water. Their power over lax States enables them to apply more than compensatory tariffs and rates in relation to the quality and sustainability of the infrastructure of provided services.

Some segments of concentrated capital find reinsurance against eventual traumatic changes in their power position by buying or appropriating lands and other strategic natural resources. A paradigmatic case is the purchase of lands by billionaires in latitudes such as New Zealand and Patagonia, quite distant from main financial centers.

A good part of these assets remains frozen as non-financial insurances. Although, because of an endless greed, they can change their function if the contextual situation favors them, as it could be the case with growth in international demand or value enhancement of their properties when the State can provide them with productive infrastructure at no cost (such as with roads, ports, irrigation systems, among many others).

Perspectives for our countries

This highly speculative global situation conditions the perspectives that our countries face, but it does not condemn them to fatalisms that might sterilize the sovereign ability of working out better solutions. Today, the concentrating process occurs in the heart of the fight between United States and China for global leadership, with a diversity of commercial battles, other emerging actors, strong increase in inequality and punishment of multitudes that remain or fall into poverty. Worst of all, life is commodified, economic systems are no longer useful for people in their rights and dignity but just to consumers, there is no interest where profits are not generated.

Our countries’ perspectives for liberating from the domination of concentrated capital and with that preserving their own idiosyncrasy, values, culture, way of living basically is based on politics. That is, how to conform social coalitions mobilized around obtaining national sovereignty in fundamental decisions: which course to follow (new referential utopias) and a more sustainable, equitable, and fairer way of functioning.

Contemporary markets are not democratic and their “signals” are just instruments that the powerful groups use to preserve and extend their privileges. Almost all technological developments are appropriated by these groups and adapted to continue the reproduction of the economic and social order that favors them.

In this context and with these constraints, we need to identify other different policies to open new development perspectives. It is clear that there is no unique and immovable recipe book for everybody, but rather the specific measures will vary according to the circumstances and possibilities of each situation. However, it is possible to list some general orientations, among them, the following:

  • Subordinate the economy to a national policy orientated towards serving general wellbeing and protection of the environment. That would imply making substantive changes in all the economic and cultural variables that have been sustaining the concentrating order.
  • An essential change is related with financing the development. Instead of extracting resources from those who have the least or irresponsibly turning to external indebtedness, we need to concentrate on achieving a full utilization of domestic savings. Today, a good part of that national savings is appropriated by concentrated capital that sterilizes it with the capital flight to fiscal havens. Such large transformation will imply to adopt not just one but a handful of complementary measures. To begin with, establish a progressive tax structure that would levy more on the wealthier and those who earn larger incomes than on those who have the least, as it is happening today. Coupled with that, we will need to fight more firmly against tax evasion and elusion of those who otherwise would be the largest taxpayers (large corporations and affluent people). Moreover, it will be necessary to establish regulations that close the escape routes for undeclared-capital flight and, together with that, promote a capital market funded with resources from insurance and pension fund systems that require medium and long-term allocations.
  • In this way, it will be feasible to strengthen the internal market while enhancing income distribution and promoting local production. We will need to protect real salary, registered employment; public expenditure devoted to pensions, education, health, environmental sanitation, subsidies for every social emergency, and redirect public sector purchases towards national suppliers, in particular, the small and medium size enterprises.
  • The most important change is democratizing the accumulation of surpluses generated by the economic system. It makes no sense to try to reduce the current capital concentration without transforming the sources and channels for accumulation. That requires acting simultaneously at various levels. On the one side, transforming the way in which the results produced by the entire value chain are distributed within each chain. It is not something simple as it always prevails the power that leading companies of value chains have for establishing prices and commercials conditions to suppliers and consumers. Here it is fundamental the role of the State as mediator to facilitate fairer prices and conditions for every participant and, in this way, come ever closer to deconcentrating economic results.
  • On the other hand, we need to encourage capital formation at the base of the productive apparatus; therefore, we will need to promote associative productive ventures, such as first and second-level cooperatives (production and commercialization), popular franchises, locomotive agro-industries that process products from family agriculture, community crop-collection centers, transportation and supermarkets, and consortiums of small exporters. This requires the establishment of comprehensive support systems, including developers for those ventures and trust funds specialized in providing investments as well as resources to financial entities that provide working-capital loans.
  • It is also needed to act on the financial system to orientate public savings (which is not banks’ property) towards credits for activities in the real economy preventing purely speculative allocations. With an addition, banks should not prioritize large enterprises but rather work with the diversity of existent economic actors. All this can be done with monetary policy instruments.
  • A third nucleus of intervention needs to solve the recurrent bottlenecks of the external sector; that is, periodic situations of extreme shortage of foreign currency (expenses larger than income in foreign currency) that generate serious exchange-rate instability with destabilizing effects that affect the entire economic system. To solve that critical restriction, it will be necessary to adopt a series of complementary measures: especially, transforming the national productive matrix to reduce dependency on imported supplies (promotion of industries non-intensive on foreign inputs, import substitution for national production), supporting a large export effort and manage an appropriate use of available foreign currency. Together with that, it will be necessary to limit as much as possible sovereign indebtedness resorting to it only as indispensable to finance carefully selected sectors.
  • Regarding foreign investment, we will need to orientate it towards the real economy and make it conform to the effort of transforming the productive matrix and a new way of functioning of value chains. The denationalization of enterprises should not be encouraged, but rather participation agreements that might add unavailable technologies in the country, access to new markets, and strengthen the integration with neighbor countries or regions.
  • Countries should also look to diversify the main markets for its products (today, United States, China, Europe and Japan). Of especial importance are our own regions, Latin America and Africa, to increase commercial exchanges, investments, regional value chains, joint commercialization of complementary products, strengthening of regional financial entities.
  • A forth area of intervention is to put public accounts in order, what would imply having public incomes and expenses balanced or, if necessary, keeping a low level of fiscal deficit. Neoliberal policies tend not to deepen the knowledge regarding the origin of such deficit and basically orientate themselves towards reducing public spending to the letter. With that, they produce severe damage to large majorities who find expenses reduced on pensions, retirements, education, health, environmental sanitation; neither have they looked to transform income composition, nor the elimination of tax evasion and elusion of the richest and the consequent capital flight. To make matters worse, they try to cover the fiscal deficit by turning to sovereign indebtedness what deepens the extreme external vulnerability of our countries.

What has been noted so far is just an outline, partial and unfinished, of how to exercise sovereignty in an adverse and complex context. The main question is finding the foundations to support this option. We should neither forget nor disregard the fact that there is great social energy in our countries that enlightened and organized around other values and purposes, can become a catalyzer for deep transformations. A mobilized society will know how to advance towards a new referential utopia centered in equity, justice, solidarity with the others, full protection of the environment. Certainly, there are other perspectives for our countries.

 

[1] . Some time ago, Samir Amin said that the volume of transactions in these financial markets was more than 2,500 trillion dollars, while global GDP barely added 70 trillion dollars. That is the reason why he stressed that speculation was not something unexpected, “additional vice” he wrote, but rather a logical requirement of the concentrating system.

[2] . Supernova: star in explosion that frees a large amount of energy

 

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