A report issued by the Organisation for Economic Cooperation and Development (OECD) last Wednesday is confirmation that the financial crisis of 2008 was not a temporary downturn in the world economy, but arose from fundamental contradictions at the very heart of the global capitalist system.
Seven years on, those contradictions are deepening. They have been exacerbated by the policy pursued since then: the provision of ultra-cheap money by the world’s central banks to the banks, financial institutions and speculators whose criminal activities precipitated the crisis in the first place. Touted as necessary to promote growth, this policy has had the opposite effect—fueling the development of financial parasitism, which is starving the real economy of resources even as the wealth of the financial aristocracy spirals higher.
It is not simply that resources are being channelled into financial markets at the expense of the rest of the economy. The financing of share buybacks, mergers, corporate raids and similar speculative activities by the provision of funds at the lowest interest rates in history has usurped what was once the normal process of capital accumulation.
Instead of profits being used to finance further productive investment, leading to a growth of demand, increased employment and a rise in wages, thereby expanding demand and creating the conditions for further economic growth; the operations of financial markets are driving increased speculation.
Examining the operations of some 10,000 companies that collectively produce about 30 percent of global gross domestic product, the OECD report laid bare this destructive logic. It found that in Europe, Britain, Japan and the United States—the heart of the global economy—an investment strategy based on the selling of shares in companies with a high capital expenditure (capex) and the purchase of shares of companies with low capex, as a result of share buybacks, yielded higher returns. The figures ranged from 12 percent higher in Japan to 47 percent in Europe and some 50 percent in the United States.