Predatory Capitalism and Where to Go from Here

C. J. Polychroniou | July 23, 2014

Contemporary capitalism is characterized by a political economy that revolves around finance capital, is based on a savage form of free market fundamentalism, and thrives on a wave of globalizing processes and global financial networks that have produced global economic oligarchies with the capacity to influence the shaping of policymaking across nations.[1] As such, the landscape of contemporary capitalism is shaped by three interrelated forces: financialization, neoliberalism, and globalization. All three of these elements constitute part of a coherent whole which has given rise to an entity called predatory capitalism.[2]

On the Links between Financialization, Neoliberalism, and Globalization

The three pillars on which contemporary predatory capitalism is structured—financialization, neoliberalism, and globalization—need to be understood on the basis of a structural connectivity model, although it is rather incorrect to reduce one to the other. Let me explain.

The surge of financial capital long predates the current neoliberal era, and the financialization of the economy takes place independently of neoliberalism, although it is greatly enhanced by the weakening of regulatory regimes and the collusion between finance capital and political officials that prevails under the neoliberal order. Neoliberalism, with its emphasis on corporate power, deregulation, the marketization of society, the glorification of profit and the contempt for public goods and values, provides the ideological and political support needed for the financialization of the economy and the undermining of the real economy. Thus, challenging neoliberalism—a task of herculean proportions given than virtually every aspect of the economy and of the world as a whole, from schools to the workplace and from post offices to the IMF, functions today on the basis of neoliberal premises—does not necessarily imply a break with the financialization processes under way in contemporary capitalist economies. Financialization needs to be tackled on its own terms, possibly with alternative finance systems and highly interventionist policies, which include the nationalization of banks, rather than through regulation alone. In any case, what is definitely needed in order to constrain the destructive aspects of financial capitalism is what the late American heterodox economist Hyman Minsky referred to as “big government.” We shall return to Minsky later in the analysis.

The surge of finance capital can be traced at least since the beginning of the 20th century. In a major study addressing “the economic characteristics of the latest phase of capitalist development,”[3] published in 1910, Rudolf Hilferding, an Austrian-born Marxist economist and main theoretician for the Social Democratic Party of Germany during the Weimar Republic, devoted special attention to the processes of the concentration and centralization of capital, and outlined a theory of imperialism as a necessary development in the evolution of capitalism.[4] In the course of this process he also made it clear that systematic investigation of the role of money and credit, the expansion of capitalist enterprises into corporations and their conversion into corporations was of the outmost importance for the understanding of the evolution of capitalism.

Hilferding demonstrated that the rise of the industrial corporation reflects an objective “change in the function of the industrial enterprise.”[5] The industrial corporation, or the joint-stock company, allows anyone in possession of money to become a money capitalist. In effect, what Hilferding was observing was the phenomenon of the separation of ownership of capital from control in the joint-stock company. According to him, this process not only accelerated the concentration of capital, but also provided the joint-stock company with the ability to expand far more rapidly than the individually owned enterprise, thereby leading to the centralization of capital.

For Hilferding, however, it was the emergence of financial institutions and banks, in particular, that truly intensified the processes toward concentration. He stressed that in the mature stage of capitalism, banks, which were quite necessary to the growth of industry, had become fully dominant and directly controlled the economic life of the system. Through its vast resources of liquid capital, banks were able to obtain control of major trusts in industry, since the latter needed idle capital in order to increase and expand the production process. Viewed from this perspective, industrial capital was inextricably intertwined with banking capital and wholly dependent on money capital.

The merging process between industrial and banking capital gives rise to a new form of capital: finance capital. Moreover, the establishment of an intimate relationship between banking capital and industrial capital results in an increased tendency toward the export of capital. The concentration of capital, which leads to monopolization, encourages the export of capital by virtue of the fact that the over-accumulation of capital can no longer find profitable investment opportunities at home.

While it is true that Hilferding mistakenly considered the dependence of industrial capital on banking capital as a permanent state of affairs (the great monopolistic corporations became independent of banking capital and today’s large corporations use their own retained profits to finance investment), there can be no mistake that the transition “from the domination of capital in general to the domination of finance capital”[6] emerged as a key feature of “modern” capitalism even before the outbreak of World War I. Indeed, the Great Depression of the 1930s revealed in unmistakable terms the extent to which finance and financial capitalism had taken central stage, reshaping in a profound way the United States’ economy and dramatically affecting developments across the world.

While Hilferding, Lenin, and many other Marxist thinkers provided important insights regarding the evolution of capitalism, the significance of financial arrangements in “modern” capitalism was scrutinized and analyzed most insightfully and more thoroughly perhaps than anyone else in the postwar period by the American heterodox economist Hyman Minsky. Although he focused purely on the domestic economy, Minsky based his analysis on the claim that financial capitalism is inherently unstable, leading inevitably to financial crises such as those produced by the stock market crash of 1929.

Relying on both empirical observations and theoretical analysis, Minsky underscored the point that the financial component of capitalism was the single most important aspect behind capitalism’s inherent tendencies toward crises. Building upon Keynes’s General Theory, Minsky wrote:

The capital development of a capitalist economy is accompanied by exchanges of present money for future money. The present money pays for resources that go into the production of investment output, whereas the future money is the “profits” which will accrue to the capital asset owning firms (as the capital assets are used in production). As a result of the process by which investment is financed, the control over items in the capital stock by producing units is financed by liabilities – these are commitments to pay money at dates specified or as conditions arise. For each economic unit, the liabilities on its balance sheet determine a time series of priorpayment commitments, even as the assets generate a time series of conjectured cash receipts.[7]

In this manner,

. . . in a capitalist economy the past, the present, and the future are linked not only by capital assets and labor force characteristics but also by financial relations. The key financial relationships link the creation and the ownership of capital assets to the structure of financial relations and changes in this structure. Institutional complexity may result in several layers of intermediation between the ultimate owners of the communities’ wealth and the units that control and operate the communities’ wealth.[8]

Minsky’s analysis of financial capitalism clearly points the way to the development of the financialization of the economy:

In the modern world, analyses of financial relations and their implications for system behavior cannot be restricted to the liability structure of businesses and the cash flows they entail. Households (by the way of their ability to borrow on credit cards for big ticket consumer goods such as automobiles, house purchases, and to carry financial assets), governments (with their large floating and funded debts), and international units (as a result of the internationalization of finance) have liability structures which the current performance of the economy either validates or invalidates.[9]

Consistent with both Marx’s and Keynes’s analysis, and “in spite of the greater complexity of financial relations,” Minsky treats profits as a “key determinant of system behavior”[10], with aggregate demand determining profits.

In Minsky’s analysis, the role of banks as profit-seeking institutions is granted special attention. Noting that banks realize the importance of innovation in the pursuit of profits (he calls bankers “merchants of debt who strive to innovate in the assets they acquire and the liabilities they market”[11]), thus rejecting the orthodox quantity theory in which the circulation of money is treated as constant, Minsky identified three distinct financing positions: hedge, speculative and Ponzi.

Hedge financing units are those that can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on “income account” on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to “roll over” their liabilities: (e.g. issue new debt to meet commitments on maturing debt). Governments with floating debts, corporations with floating issues of commercial paper, and banks are typically hedge units.

For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principal or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts.[12]

This description of lending is closer to the real world of finance that leads to crises than anything available in the existing literature. For Minsky, it is the stability in the system that breeds instability as investors, banks, and financial institutions become complacent and begin to embark on a riskier approach, which results in rising asset prices and eventually financial crashes when people begin to sell en-masse upon the realization that the accumulated debt cannot be paid off. This development is known as a “Minsky moment.”

Minsky’s “financial instability hypothesis” provides a useful explanation of financial crises, but also carries practical consequences. Essentially, Minsky felt that the internal contradictions of financial capitalism could be constrained by the establishment of strong institutions. He argued that the reason there had been no financial crises in the first few decades of the postwar era was because of the presence of “big government.”[13]

The task of stabilizing financial capitalism’s inherent tendency towards instability has clearly been severely undermined since the onset of the neoliberal era, with the global financial crisis of 2008 to 2009 representing just the latest act in a long series of financial crises since 1966 [14], and with each new crisis getting bigger and becoming more severe than the previous one. Yet, it is equally clear that financial crises have occurred prior to the installation of a neoliberal regime. Moritz Schularick of the Free University of Berlin identified more than 70 “systemic banking crises” that took place in the past 140 years prior to the global financial crisis of 2008 to 2009.[15] Moreover, because of globalization, “big government” action is restrained and the challenges posed to central banking from globalized finance are quite severe, with financial globalization leading “to growing frequency and severity of systemic financial crises.”[16] Thus, globalization is in itself a contributing factor to the spread of financial crises while also providing a greater impetus for the deepening of neoliberalism.

Although finance is at the forefront of globalization, there is hardly an aspect of contemporary life that is not affected by globalization, making it a very elusive concept indeed, while adding new levels of complexity to the task of forming appropriate economic and political responses to a system bent on instability and prone to large-scale crises. Globalization creates new systemic risks [17] which we are simply uncertain how to address given the existing power structure in the global political economy, where a plutocracy reigns supreme as national governments have capitulated to the whims of the corporate and financial elite and the formal global governance structure needed is missing. Yet, this is precisely the environment that makes predatory capitalism thrive, and one can be certain that its insatiable appetite for more and more profits will only intensify problems in the years ahead if it is not stopped.

Where to Go from Here

Unsurprisingly, given how dysfunctional and dangerous the neoliberal order has proven to be, proposed solutions for the problems stemming from unfettered capitalism are not in short supply. They extend from short-range (proposals for tax reform in order to close the gap between rich and poor) and medium-range goals (reregulation and even nationalization) to some rather long-range structural reforms (redesigning the architecture of the global financial system). The Stiglitz Report is a prime example of the latter set of proposals.[18] Controlling climate change also represents a long-range goal, in fact of vital importance for the stability of any future social and economic order.[19]

Nevertheless, proposals for major reforms that fail to incorporate a vision of alternative social orders must be treated with skepticism. The same goes for approaches that rely purely on reforms undertaken by the elite without citizen involvement and participation. By the same token, progressive forces bent on social change must re-embrace fundamental political principles and courses of social action. Building and sustaining a mass movement remains the best route to challenging the practices of predatory capitalism. However, progressive forces need to stop being constantly on the defensive and to seek, instead, to sharpen strategic abilities in order to go on the offensive. Narrow ideological blinders must be dropped and joining forces with kindred groups is an absolute necessity in today’s world.

Theoretically, we need an eclectic political economy approach which relies on Marxian, Keynesian, and post-Keynesian traditions in order to understand contemporary capitalist developments. We still need to look to Marx, Keynes, and Minsky for great insights into the true workings of capitalism.

On the political front, the task of recapturing the state would seem to be a necessary first step in the drive of any progressive movement or political party seeking to reestablish balance in the relationship between labor and capital, resurrect democracy, redress social injustice and reorient the economy toward sustainable and balanced growth. Still, such undertakings are likely to fail if they are pursued in the absence of a solid understanding of the nature of the current system and without having captured the public imagination, with ignorance of political and social developments and activist practices in other advanced capitalist countries and elsewhere around the world, and without a vision towards a new global order. A long-term vision should not stand in the way of pursuing immediate reforms that alleviate human pain and suffering, and short-term goals should not block the imagination from opening up a world of new possibilities for human relations.

As this article may have made clear, a major advantage that predatory capitalism has over alternative social orders, especially in the direction of a truly democratic future where the economic system produces wealth for the benefit of society as a whole is that it has managed to (a) break free from national government control, (b) shift the balance of power between labor and capital overwhelmingly towards the latter, (c) establish ideological hegemony, and (d) globalize the environment in which it operates. The future of a progressive social order probably requires nothing short of the reversal these trends.

*This is an abridged version of an article originally published at Truthout.



1. While the existence of a global capitalist class and its power in influencing government policies across the world is undeniable, the analysis advanced here does not subscribe to the instrumentalist and conspiratorial view of a global elite running the world. What it suggests, instead, is that the links that have been created in the global economy have produced a global plutocracy whose vast wealth and control of major corporations and organizations impact heavily on the shaping of domestic economic and social policies. The way national governments bend over backwards in order to accommodate the needs and wants of big corporations and the global rich via low taxation is but one example of the way this influence is carried out. So is the demand placed on national governments by global financial markets for the adoption of austerity measures when deficits and debt ratios are seen as running out of control. The much revered notion of “competitiveness” – national economies undergoing structural reforms in their labor markets in order to reduce unit labor costs – is yet another example of how the global environment shapes domestic policymaking.

2. See C. J. Polychroniou, “The Political Economy of Predatory Capitalism.” Truthout (January 12, 2014)

3. Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Development, edited with an Introduction by Tom Bottomore. London: Routledge & Kegan Paul, 1981), p. 21

4. The discussion on Hilferding draws freely here from the author’s own work titled Marxist Perspectives on Imperialism: A Theoretical Analysis. New York: Praeger, 1991, pp. 53-58.

5. Rudolf Hilferding, Finance Capital, p. 107

6. V. I. Lenin, Imperialism: The Highest Stage of Capitalism, in Selected Works in one volume (New York: International Publishers, 1976), p. 200.

7. Hyman P. Minsky, “The Financial Instability Hypothesis.” Working Paper No. 74. Annandale-on-Hudson, N.Y.: Levy Economics Institute (May 1992), pp. 2-3

8. Ibid., p. 4

9. Ibid., pp.4-5

10. Ibid., p. 5

11. Ibid., p. 6

12. Ibid., p. 7

13. See Dimitri B. Papadimitriou and L. Randall Wray, “Minsky’s Analysis of Financial Capitalism.” Working Paper No. 275. Annandale-on-Hudson, N.Y.: Levy Economics Institute (July 1999)

14. L. Randall Wray, “The 1966 Financial Crisis: a Case of Minskian Instability?” Working Paper No. 262. Annandale-on-Hudson, N.Y.: Levy Economics Institute, January 1999.

15. Moritz Schularick, “140 Years of Financial Crises: Old Dog, New Tricks.” Freie Universität Berlin (August 2010)

16. Piero C. Ugolini, Andrea Schaechter, and Mark R. Stone, “Introduction.” In Piero C. Ugolini, Andrea Schaechter, and Mark R. Stone (eds.), Challenges to Central Banking from Globalized Financial Systems. Washington, DC.: International Monetary Fund, March 2004.

17. See Ian Goldin and Mike Mariathasan, The Butterfly Defect: How Globalization Creates Systemic Risks and What to Do About It. Princeton, NJ.: Princeton University Press, 2014.

18. See Joseph E. Stiglitz, The Stiglitz Report: Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis. New York: New Press, 2010.

19. See, for example, Bert Metz, Controlling Climate Change. Cambridge: Cambridge University Press, 2012.



One Response to “Predatory Capitalism and Where to Go from Here”

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  1. Comment by wright gregson — July 24, 2014 at 3:40 pm   Reply

    re predatory capitalism (against benevolent capitalism)
    google “Market Basket” and the huge battle going on between two cousins that own the company—Arthur S Demoulas–predatory capitalist, and Arthur T Demoulas the benevolent capitalist.

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