Who Rules the World?

“The City – London and the Global Power of Finance,” by Tony Norfield, 2016

Norfield spent 20 years working at various London-based banks and financial companies and has used that experience to write an anti-capitalist book, dry as it is.  Working from London, he dealt with financial issues in dozens of countries, as London is the center of the most international banking.  His secondary point is to sketch the powerful role of British finance, but really his main focus is how the world is controlled by modern imperialism, following Lenin’s identification of it in 1916 in “Imperialism, the Highest Stage of Capitalism.”

To Protect and Serve

He calls the U.K. not a ‘poodle’ but the leading junior partner (they are ‘binary planets’…) with the U.S., playing the role as the intermediary between the EU and the U.S.  The City in London is the leading international financial center in the world. The British trade deficit is essentially financed by The City’s financial services.  Even Britain’s tax havens would alone rank #7 in the world just behind Germany.  How this will change with Brexit is to be seen and he doesn’t track that. 

Imperialism is not mere military conquest.  It is not political control.  It is not another name for colonialism.   As Samir Amin notes, it is a form of world-wide financial ‘rent’ – specifically ‘imperialist rent.’  According to Norfield it is a matrix of 5 factors – gross domestic product (GDP); foreign direct investment in other countries (FDI); Bank of International Settlements (BIS) tracking the international assets & liabilities of nationally-based banks; the strength of a country’s currency and lastly, its military (state) prowess.  Each of these powers allows the host country and corporations to remit profits and interest back to the imperial center.  He concludes that only 20 countries in this world actually have any power in the world imperial system based on these parameters, and the top 6 have the most, with the U.S. at their head.  Great Britain is in 2^nd place, with China, Japan, Germany & France next.  

Whether a country uses their military or not (and in the case of China…not) or is fully capitalist or not (China is not) still weighs in the scales of international power.  Norfield understands that even the money in the financial system ultimately is based on surplus value sucked out of workers by the ‘vampire squid’ of capital.

Monopoly (or more correctly, oligopoly) is the final stage of the world economy and has been since Lenin identified it during WWI.  Norfield has a great 2007 chart which indicates the role of interlocking financial control worldwide, similar to Domhoff’s 1967 “Who Rules America.”  (Domhoff constantly updates his classic…) It shows that less than .5% of companies controlled 40% of the world’s corporations, with Barclays PLC at the top. Capital concentrates, not just in the upper classes or geographically in large cities, but in corporate ownership too.  This is obvious for all to see.

Norfield constantly points out that modern ‘finance’ capital and ‘industrial’ capital are actually closely interlocked.  This perspective undermines the reformist idea that regulation will somehow tame the ‘finance’ beast, and instead exposes capital in all its guises – financial, industrial and governmental – as one worldwide, inseparable, unified system.

Norfield addresses the fantasy that the economy is only stratified by the ‘1% v. 99%.’ He shows there is a large worldwide spread of stock and bond ownership to a wider group.  In 2014 there were 14 million U.S. residents who had over a $1M in assets.  If you multiply this by 3 persons in each family, that is 44M people in millionaire households, which is a bit more than 10% of the population.  84% of the top 10% own securities and 93% of millionaires own financial securities.  Now tell me these people are going to rock the boat against the 1% or Wall Street!  Taking into account retirement accounts adds to the figures of people with a financial interest in the stock markets, and no doubt a material source of neo-liberal / neo-conservative ideology even farther down the class ladder.

The Old Days Are Back!

Norfield distinguishes between ‘money-dealing’ capital and ‘interest-dealing’ capital.  The former is part of Marx’s early ‘circulation of capital’ into productive enterprise while the latter is based on thin-air credit creation and parasitic interest collecting.  Norfield points out that the former is actually a ‘very small’ part of their overall financial activity.  Norfield thinks that Marxists have not adequately understood how banking capital actually works, especially in the present.  For instance, the U.S. ranks 1^st and the UK 2^nd in providing world-wide ‘financial services’ that bring in dealing revenues, something that was not on the radar even 30 years ago. Norfield twice takes on Marxist Rudolf Hilferding’s 1910 analysis of banking capital, which insisted that the ‘rate of return’ (profits) in industrial and financial capital are about equal.  Norfield shows that no such thing happens.  Among other things, banks do not produce profits based on their buildings, et al. i.e. ‘fixed capital,’ as does a productive concern (financial firms ‘fixed capital’ is very small anyway), nor do industrial concerns ‘create credit.’ Surplus value is only the realm of the former.

A typical bank balance sheet for a UK bank according to Norfield is made up of:  1. currencies, 2. loans, 3. equity shares, 4. short term money market, 5. medium and long-term bonds and 6. derivatives, with derivatives the largest sector in 2011(!)  So this is not your small town bank.  Only 15% of UK bank loans were actually to businesses, while the rest is to other banks or for mortgages. These figures confirm that banking’s role in ‘productive’ capital is now very small, far outweighed by their own financial dealings.

Norfield supports Marx’s idea that there is a tendency over the long term for industrial profit-rates to fall due to increases in fixed capital costs.  He thinks finding data for dropping or rising profits to be very difficult to impossible, but deals with a chart from the U.S. as an example which he considers flawed.  Norfield cites cheaper labor at the ‘center’ and even cheaper labor abroad, as well as lower interest rates and the huge government rescue of the banking system in 2008, as boons to profitability.  According to the chart, profits upticked in the U.S. from their low point in 1983. Capital in the late 1970s and early 1980s started moving more heavily into financial speculation, which promised better returns, though at the cost of vastly increased debts.  So the timing is correct.

Norfield explores how the dollar allows the U.S. to dominate world trade, including oil.  It enables it to cheaply finance deficits, avoid exposure to other nations currency devaluations, benefit U.S. firm's merger and acquisition plans through dollar stock pricing and increases the power of the U.S. Federal Reserve.  87% of global currency deals are in the dollar, which shows why any country trying to avoid the dollar or which displeases the U.S. will be threatened with dollar sanctions, bombing or invasion.  Welcome to imperialist privilege!

Other reviews on this topic:  Amin’s “Law of Worldwide Value,” and “The Implosion of Contemporary Capitalism,” Hudson’s “F is for Fraud Economics,” Foster’s “The Endless Crisis,” and “The Great Financial Crisis,” Ho’s “Liquidated,” and reviews of books by Michael Lewis. 

And I bought it at Mayday Books!

Red Frog

February 14, 2018