The following expert is from the program Sandcastles broadcasted 17 November 2002
SourceInterview with American sociologist Professor Saskia SassenWe are dealing today with a phase in what we can still call financial markets where because of the new technologies, because the digitization of finance which means both of software that can be digitized and the fact of global computer based networks where the orders of the magnitude of finance have reached levels that simple blow your mind.
Just to give you some sense of comparison: global trade in the year 2000 was about 8 trillion dollars, that is a lot of money. Foreign direct investments stock was 5,1 trillion, but when you look at global finance, and you look at international global finance (international financial transactions) that was 83 trillion. It is an other order of magnitude.
Secondly, we no longer talking money, in the way that we might still talk money in global trade and when we talk about foreign direct investment. In the case of finance we talk about trance-activity, and it is not that there are 83 trillion dollars. That somehow have been [created], no it is a continues set of movements and it exists and than it disappears and reappears as another thing that you can count again. So this question of what is world finance is actually a very serious one.
There are many examples where auto manufactures, steal companies, in other words we are talking about operations. A steal factory [or] a car making factory, these are not your little you know manufacturing nails but we are talking about massive amounts of material, massive production processes [and] enormous machines. At some point all the major firms in these sectors, and this happens really in the late eighties early nineties begin to develop financial service operations and I have asked myself why. Why is this? And I think that one of the issues is that when you are dealing with such massive production systems that you are freezing capital for a period between nine months and a year that is what it takes to produce a car. You are freezing your capital you are not using all of it all the time.
What finance is brilliant at is that squeezing out every possible second of profitability and that is what finance is all about that is trans-activity. So you setup a financial services division, Volkswagen did it, General Motors did it, General Electric did it. US Steel became a financial cooperation basically.
The reason why finance is so powerful and ascendant is because that it can move into the temporal frames of other forms of capital and play around. You know, a year is a long time in finance. When it comes to a car manufacturing it is your basic production cycle. For finance its potentially 10,000 little production cycles. So finance can grow, grow, grow, grow, grow even while these other… that is the insidious features I would say of finance and when a firm like US Steel decides to become basically a financial services firm… there are of course [these] powerful reasons [for doing this]. We have overproduction of steel in the world. What this certainly means in the most direct sense is the closing up of lots of firms and the elimination of lots of jobs. Finance can produce super profits and if you have capital for investments, rather than building a new factory, you are going to be investing it in the stock market.
I think we lack the vocabulary to capture what we actually trying to name when we say global finance. However, what we do know is that it can do a lot of damage. It can bring down whole economies. It can destroy millions of firms. It can make hundreds of millions of people useless.
When you have a crisis. Lets take the South-East Asian crisis where a bunch of firms… Lets remember that these are not mysterious crisis that happens. These are constructed events where you have particular actors. In the case of the South-East Asian crisis there was a set of hedge funds. Hedge funds are a particular kind of financial services that were almost all in the United States (the Europeans are starting to develop it) and what is characteristic about them is that they are a group of private investors with a lot of money [and] its not accountable to the public. When you list on the stock market [than] there are public accountability rules. You have to bring an outside accountant, not that it helps, look at Enron, you know, but still there is accountability. With, with hedge funds, these hedge funds engineered the crisis, partly I mean, you need other conditions [too].
The crisis in Thailand. That was like, you know what Al Capone used to do drive and shoot. But this was the equivalent but it was all legal because it happened with in the parameters of how the financial system operates, very deregulated. There are many hidden rules of permission in the legal architecture and if you have power you seize upon these hidden rules of permission and do your damage. So they brought down the Thai currency which started the crisis.
South Korea [a] healthy economy, the eleventh biggest economy in the world, millions of workers lost there jobs because thousands of firms which were absolutely doing fine, manufacturing for the export, could not get financing from there banks in South Korea. So you have a very healthy sector. Small specialized manufacturing, mostly for exports, they had orders to fill these factories. They could not get the finance. They all need financing, they operate on very [short term loans]… they need the money. And this is another example where finance can be very, very destructive. It has its particular destructive capability.
At the grandest level it’s a question whether a purely profit-based economy can ever be a compassionate economy and the question: what is [a] sociable economy. We have to begin to explore ways in which we can have sociable economies, or socially responsible economies with the environment, with the question of distribution.
Perhaps the project that one can launch is a project that consists of working at sub economies. There is a way in which, [although] I don’t think it will happen soon, that we –who have these kinds of projects– will bring down the big multinationals, but they will bring down each other and they will bring themselves down by abusing the powers they have. Enron is a case of abuse of enormous powers. It just wanted more and it is also a case of course of these hidden rules of permission in our legal systems that those with power can seize one.
So we have to find zones, I think, were we can within the sort of this whole motion of sub-economies, implant sociable responsible economies and you see this happening although its almost invisible. There are now funds that are sociable responsible investing that are doing very, very well. When they were first launched twenty years ago everybody said: “This is no way of doing finance.” And in fact they have turned out to be very profitable. There are communities that are developing collectives for food, for exchange of services, you know ‘I can paint your house and you can sow my buttons’. The whole bartering economy that is exploding with the internet. But it is too little, it is not enough.
So what I am trying to say however is that we need a of these micro sites and that also means a repositioning of the imagination. The notion of ‘Ok look, I can accept that I can bring this power down. I’m not going to create, you know, a sociably just system’, but I can work on little sites and in so far these get… there are many, many of this little kind of sites, it can make a difference. And I think that many systems of formal power have been brought down that way.