You need to sign in or sign up before continuing.
Take a photo of a barcode or cover
4.08 AVERAGE
4.08 AVERAGE
This is the fourth "Financial Times 2018 best books" that I've read. I have found all of them problematic and not especially worth recommending. This is the worst of the four I've read.
It starts by by suggesting that just as there is a "resource curse" -- countries with abundant natural resources often do worse than countries without -- there is also a "finance curse": countries with oversized financial sectors do worse than countries with non-oversized financial sectors. The author is British and (I believe) the book was originally published in Britain. So it is mostly targeted at British audiences and, based on the introduction, he seems to primarily arguing that Britain has been hurt by the outsized importance of London's financial district.
(Notice that phrase "it is no coincidence" where isn't supported by any data or arguments; that's something we'll come back to later.)
But even if the book is focused on Britain, I think everyone in every country should be at least a little concerned about the impact of the financial sector. Maybe Britain is on the "cutting edge" and lessons can learnt from it and applied to wherever you happen to be living.
So even though it is focused on Britain, I was still keen to read on!
As chapter after chapter passed I lost my excitement for the book. The chapters follow a similar pattern -- a topic is introduced who relationship to oversized financial sectors is murky, we are treated to a long history of how things got to this point, and then there are a few unsatisfying & lightweight analyses. This is not a book with data or charts or references. Going back to the introduction and that phrase "it is no coincidence". Well...how do you know?! Prove it! Don't just assert it. Don't just say it is obvious. Convince me. Somehow. With something.
At times it feels like the author is just talking about any bad thing a business does, even if it doesn't seem to have much to do with oversized financial sectors. One chapter is about how communities increasingly compete with one another to offer tax breaks & subsidies to businesses. Amazon and their recent search for HQ2 is mentioned. But...Amazon isn't part of the financial sector. I don't like the practice but I don't see what it has to do with oversized financial sectors?
Likewise, there is another chapter on how old-school anti-trust doesn't seem very effective in the modern business climate. This chapter is primarily about antitrust as practiced in the US. Again, it is hard to see what this has to do with oversized financial sectors (especially the oversized British financial sector).
The chapters feel disconnected from one another. If I skip the chapter on anti-trust in the US, do I really miss out on anything in later chapters? And most of these individual chapters have had entire books written about them. (Indeed, chapter 3, about Britain's tax havens has a book written by this author.) Not that you need book-length treatment for everything -- it would be a bit ridiculous to say "instead of reading this 1 book, go read these 11 other books". But these aren't particularly compelling chapters, either.
We'll be treated to an excerpt from a 1969 Bank of England memo but when it comes to modern day actions & consequences it all tends to be fairly hand-wavy. "A growing global 'wall of money' is constantly seeking and finding new ways to burrow into the many nooks and crannies of our economy." Okay but how much money are we talking about? What are the effects?
Overall, I got the impression that the author was generally more interested in telling the story of how things to how they are -- how British Virgin Islands became a tax haven, how Ireland got its low corporate tax rate, how Robert Bork convinced the world to change how anti-trust was pursued -- than to really delve into the consequences circa 2019.
Of course, it probably didn't help that many of these topics were things I already had at least passing familiarity with, so all of those history lessons were even more boring. Maybe someone who is less familiar would find them interesting or eye-opening?
I guess I just prefer more numbers & data in my financial non-fiction and less storytelling.
It starts by by suggesting that just as there is a "resource curse" -- countries with abundant natural resources often do worse than countries without -- there is also a "finance curse": countries with oversized financial sectors do worse than countries with non-oversized financial sectors. The author is British and (I believe) the book was originally published in Britain. So it is mostly targeted at British audiences and, based on the introduction, he seems to primarily arguing that Britain has been hurt by the outsized importance of London's financial district.
Something similar is happening in Britain ... These top-down wealth flows from the financial sector haven't exactly turned Britain into an authoritarian state but what has happened is that finance is often in conflict with other parts of the economy, and in these battles finance always seems to win out ... It is no coincidence that the decline of British manufacturing since the 1970s has been so much faster than in other industrial economies, at the same time as Britain's financial sector assets have grown so much larger as a share of the economy than in comparable Western nations.
(Notice that phrase "it is no coincidence" where isn't supported by any data or arguments; that's something we'll come back to later.)
But even if the book is focused on Britain, I think everyone in every country should be at least a little concerned about the impact of the financial sector. Maybe Britain is on the "cutting edge" and lessons can learnt from it and applied to wherever you happen to be living.
So even though it is focused on Britain, I was still keen to read on!
As chapter after chapter passed I lost my excitement for the book. The chapters follow a similar pattern -- a topic is introduced who relationship to oversized financial sectors is murky, we are treated to a long history of how things got to this point, and then there are a few unsatisfying & lightweight analyses. This is not a book with data or charts or references. Going back to the introduction and that phrase "it is no coincidence". Well...how do you know?! Prove it! Don't just assert it. Don't just say it is obvious. Convince me. Somehow. With something.
At times it feels like the author is just talking about any bad thing a business does, even if it doesn't seem to have much to do with oversized financial sectors. One chapter is about how communities increasingly compete with one another to offer tax breaks & subsidies to businesses. Amazon and their recent search for HQ2 is mentioned. But...Amazon isn't part of the financial sector. I don't like the practice but I don't see what it has to do with oversized financial sectors?
Likewise, there is another chapter on how old-school anti-trust doesn't seem very effective in the modern business climate. This chapter is primarily about antitrust as practiced in the US. Again, it is hard to see what this has to do with oversized financial sectors (especially the oversized British financial sector).
The chapters feel disconnected from one another. If I skip the chapter on anti-trust in the US, do I really miss out on anything in later chapters? And most of these individual chapters have had entire books written about them. (Indeed, chapter 3, about Britain's tax havens has a book written by this author.) Not that you need book-length treatment for everything -- it would be a bit ridiculous to say "instead of reading this 1 book, go read these 11 other books". But these aren't particularly compelling chapters, either.
We'll be treated to an excerpt from a 1969 Bank of England memo but when it comes to modern day actions & consequences it all tends to be fairly hand-wavy. "A growing global 'wall of money' is constantly seeking and finding new ways to burrow into the many nooks and crannies of our economy." Okay but how much money are we talking about? What are the effects?
Overall, I got the impression that the author was generally more interested in telling the story of how things to how they are -- how British Virgin Islands became a tax haven, how Ireland got its low corporate tax rate, how Robert Bork convinced the world to change how anti-trust was pursued -- than to really delve into the consequences circa 2019.
Of course, it probably didn't help that many of these topics were things I already had at least passing familiarity with, so all of those history lessons were even more boring. Maybe someone who is less familiar would find them interesting or eye-opening?
I guess I just prefer more numbers & data in my financial non-fiction and less storytelling.
By any measure it’s obvious that the financial sector “extracts” more wealth out of communities -- entire countries, for that matter -- than it gives back. You don’t have to know how it’s done to see the evidence: Just look at who consistently reap the largest salaries year-over-year. And for what? "Financial Services"?? Please.
“Financial engineering” is a euphemistic con, a deceptive way of disguising parasitic chicanery as justly rewarded business innovation. As Paul Volcker once said, the only significant innovation banks have made for decades was introducing ATMs. Every time I hear about some brilliant young college grad getting seduced into working as a quant or derivatives designer on Wall St. I think it's a shame and total waste of talent -- not much better than the many young engineers who put their minds to work on the next weapons system.
When you start to ask “how” financial extraction actually works, the story usually starts getting hard to follow pretty quickly. But Nicholas Shaxson is a tremendous reporter and writer who knows how to bring his readers along. In fact, I can’t think of a better explanation of what the “financialization” of the economy means, what’s driving it, and how it damages us and our society.
There aren't too many books about capitalism that hold your attention as well. How many people gave Piketty’s “Capital” five stars on Goodreads actually read that entire doorstopper? That’s not to suggest that Picketty’s book wasn’t important or didn't deserve the attention it got. It did, but more for the depth of research Picketty conducted than for his means of communicating the results. I got so much more out of “The Finance Curse” that there’s simply no comparison.
Thus, I would put "The Resource Curse" on the top shelf, where I keep Jane Mayer’s “Dark Money,” Nancy McLean’s “Democracy in Chains,” Chris Leonard’s “Kochland,” Naomi Klein’s “The Shock Doctrine,” David Korten’s “When Corporations Rule the World,” Steve Coll’s “Private Empire,” Ralph Nader et al's "Taming the Giant Corporation" and other recent classics books on corporate capitalism.
Anyway, back to the topic of “extractivism.” “The Finance Curse” is a reference to “the resource curse,” the notion that countries whose economies are largely dependent upon extracting and exporting oil or valuable minerals almost universally end up saddled with corrupt governments, widespread poverty and misery, and sometimes a cycle of coups and violent upheavals. Just as much damage, although often subtler, has been caused by finance. (Although to be fair, the oil industry's "invisible" damage is also inestimable -- esp. the destruction passed off to future generations...)
Shaxson knows enough about oil and finance to draw the analogy. His first book was “Poisoned Wells: The Dirty Politics of African Oil” and his second book, “Treasure Islands,” was about offshore tax havens, a kind of prequel to this book.
The irony is that finance probably does more damage than these dirty industries (except in a few cases), but it’s more diffuse and the damage isn’t as easy to see as the messes oil companies have created in places like Nigeria and the Ecuadorean Amazon. And where they don't outright demolish weakened businesses, the damage that private equity, tax dodging trusts, hedge funds and other financial predators create isn't always easy to trace back to its source. Offshore tax havens and new multi-layered legal/financial vehicles, special purpose entities and other forms of speculation and obfuscation are extremely difficult to untangle.
The fundamental problem stems from the shift towards neoliberalism that followed the “Golden Age of Capitalism” in the decades that immediately followed WW II.
The hollowing out of the productive economy cannot simply be written off as the consequence of free trade and technological change. Or even tax competition. There's more to it than that.
The chapter on Iowa and what Big Meat is doing to farmers and rural communities is an example. In most of its 99 counties, Iowa has seen an explosion in CAFOs and extinction of small independent farms. Sure, blame Giant Ag companies that have forced farmers into serfdom. But their enablers include various financial operators.
Shaxson is a Brit. He came briefly to Iowa to look at the Ag sector. So perhaps he can be forgiven for not reminding his readers that a century ago people responded to the big industrial trusts and banks with more effective means than pitchforks. They organized to demand an equitable democratic banking system – demands that led to the FDIC and Farm Credit System. (Christopher Shaw writes this history in "Money, Power, and the People")
Another thing about financial predation is that it cuts across many sectors in the same communities. For example in Iowa, like many states, private equity also had a mostly invisible hand in driving deregulation and consolidation of radio news stations, a story told in the excellent documentary “Corporate FM.” I remember very little talk about private equity’s role in driving media consolidation back in the early 2000s, when the media reform movement peaked. As movements, we didn’t quite go that deep. That I know. But we saw the damage: Clear Channel cut station staff then started to pipe in national programming, including a steady stream of pro-war propaganda before the invasion of Iraq. For some communities, the damage was direct. In Minot, ND, after the station scooped up by Clear Channel was emptied of staff, there was no one left to answer the phone when first responders called to request an emergency broadcast warning after a train carrying deadly anhydrous ammonia derailed and gassed the town. One person was killed and many more went to the hospital.
This is just one example of why we need to keep financial companies from controlling businesses involved in essential services. There are many other examples that led Rep. Garcia and Rep. Tlaib to introduce the “Protecting Consumers From Market Manipulation Act,” which would amend the Bank Holding Company Act by prohibiting large non-financial firms from deriving 5 percent of their revenue from financial activities and restricting banks' ability to own commodities.
Because the connections aren’t always clear, the precise cost of “financialization” is not measurable. In one study, economists at UMass (PERI) estimated that by 2023 our supersized financial sector will have cost the US economy a cumulative $13 to $23 trillion since 1990.
I don't fault Shaxson for missing these or other specific examples of finance-driven gutting of other businesses. There is plenty of evidence here to make the general point and plenty of threads that readers can pursue further, with tightly referenced footnotes.
But he does give a tour of other examples of "financialization" - including the riverside tax-free zone in Dublin that powered Ireland's reputation as the “Celtic Tiger,” a primer in how secretive offshore (and onshore) trusts are used to keep wealth in the family and insulated from taxes, and The City of London (the financial center inside London, treated as an autonomous district) that drives the worst tax avoidance and corrupt money flows in the world -- not just through the City itself, but via its involvement in designing the laws and business vehicles and strategies used to park giant piles of money on small islands. The financial centre's elegant staid architecture houses a festering nucleus of global corruption that keeps politicians in the U.S. from advancing bank transparency laws (because, well, if you do that here, everyone will move their money there).
One sidebar note that occurred to me again: Many people mistakenly believe that corporations are LEGALLY required to maximize profits. Not true. (Law Prof. Lynn Stout debunks this myth directly in her book, “The Shareholder Value Myth.”) So then why do companies act like it is true? Partly because maybe some execs believe it. Partly because of the pressures they are under. Telescope back, however and look at the big picture: Neoliberal economics created its own cult of magical thinking that rationalized a masculine and competitive business culture of “short-termism.” Milton Freedman is usually cited here for his 1970 NYT magazine article, “The Social Responsibility of Business Is to Increase Its Profits.” (note that he cites "social responsibility" - not fiduciary duty under the law). I.e. serve shareholders, not the communities they operate in, workers they employ, or (by paying their taxes) the governments that support the infrastructure and services they rely upon. After Michael Milken, Ivan Boesky and other junk bond shysters crashed savings and loan banks and other businesses another important though less well-known proponent of shareholder primacy stepped up as the “intellectual savior” of that myth in the early 90s: Harvard Business School Prof. Michael Jensen published a couple of seminal papers that argued that the interests of shareholders, managers and the company were all aligned. Corporate America just needed a new breed of superstar owner-managers in a financial “market for corporate control” that would boost efficiency across the system. By pursuing profits for themselves they would be doing good for shareholders and others who depended upon the company for employment and spin-off advantages. In the early 90s, soon after Jensen’s paper, executive compensation shifted to reflect his “pay for performance” philosophy: Executives were rewarded with stock options whose value would rise precipitously with the value of the company. (Of course that incentivized execs and their professional enablers aka "gatekeepers" at accounting firms and banks to juice short-term performance – often by cooking the books, as we saw at Enron, WorldCom and a dozen other companies a decade later).
And when cable television entered the picture, it added a kind of cultural dimension to the phenomenon, as more and more business observers paid closer and closer attention to the stock market. Corporate executives soon learned to hit quarterly targets (see “The Number” by Alex Berenson). Jensen, meanwhile, said that firms should also borrow heavily, because the “discipline of debt” would make them focus even more intensely on the profits necessary to service that debt. How to get those profits? Financial engineering, destructive mergers and acquisitions (bankers and lawyers always there to help out in exchange for the usual fee-raking), etc. R&D on a technology that might take 5-10 years? No -- let the VC guys do that. We can always borrow and buy them when they're about to launch an IPO.
The point is, the "finance curse" is a kind of magical mode of parasitism facilitated by a class of professionals and the rules they have managed to embed in obscure regulatory corners (or the absence of any regulations that would impede systemic risk-taking). It is systemic, multi-dimensional and, importantly, global. Money travels faster and further (and in greater secrecy) than any commodity grown or manufactured.
A sample of Shaxson's limpid prose: I’m sure Neoliberalism has been defined as accessibly elsewhere, or maybe as accurately:
“Neoliberalism is an outgrowth of classical liberalism, which dates back a couple of centuries. There’s political liberalism, which is all about citizens having equal democratic rights in a system of sovereign law, and there’s economic liberalism, which starts from Adam Smith’s “invisible hand,” by which free exchanges or trade in properly functioning – that is, unsabotaged – markets are supposed to make society better off overall. The more liberal (or free) the exchange, in this view, the better for society as a whole; government’s role is to provide basic functions like defense, to enforce property rights, and to keep a watchful eye out for monopolies, but otherwise to get out of the way. … Neoliberalism put these ideas on steroids and gave them a rather large twist. Its starting point was the theory that government amasses ever more power and heads toward tyranny. … Hayek’s most famous book, The Road to Serfdom, laid this all out. Competition and the price system were the only legitimate arbiters of what was good and true, he said. And soon this became a neoliberal mantra. Cut taxes, deregulate, privatize, and launch all these pieces into competition with one another, then let it rip. … In this framework, explained the writer Stephen Metcalf, humans are transformed from being “bearers of grace, or of inalienable rights and duties,’ into ruthless profit-and-loss calculators, sorted into winners and losers. […] In terms of raw power, neoliberalism takes authority away from politicians and hands it to economists and moneyed interests.” (recall the famous moment at the beginning of Clinton’s first term when he realized that his agenda was limited by bondholders).
Although the book is not too difficult, it conveys the sense that the “finance curse” is not simply the growth in the size of the financial sector, but the many and pervasive ways that it injects financial techniques and metrics into the entire economy (and much that lies outside of it). That includes systemic rules like “competition” between tax jurisdictions (forum-shopping is often more of an excuse for companies to avoid taxes than a competitive necessity). And there are no limits – i.e. “the race doesn’t stop at zero” taxes or deregulation.
In other words -- without organized people wielding pens and pitchforks -- there is seemingly no end in sight. It's difficult. We are usually fighting symptoms not causes, or if so, only beginning to seriously fight back.
But if a lot more people read this book, we would at least begin to see more clearly what we have to contend with.
New movement formations like the "Hedgeclippers," the "Stop the Money Pipeline" coalition, Americans for Financial Reform and the global Tax Justice Network (which apparently helped Shaxson understand the world of offshore tax havens), are examples of new activism against the finance curse that we can support if we are too busy working to pay off our credit cards.
“Financial engineering” is a euphemistic con, a deceptive way of disguising parasitic chicanery as justly rewarded business innovation. As Paul Volcker once said, the only significant innovation banks have made for decades was introducing ATMs. Every time I hear about some brilliant young college grad getting seduced into working as a quant or derivatives designer on Wall St. I think it's a shame and total waste of talent -- not much better than the many young engineers who put their minds to work on the next weapons system.
When you start to ask “how” financial extraction actually works, the story usually starts getting hard to follow pretty quickly. But Nicholas Shaxson is a tremendous reporter and writer who knows how to bring his readers along. In fact, I can’t think of a better explanation of what the “financialization” of the economy means, what’s driving it, and how it damages us and our society.
There aren't too many books about capitalism that hold your attention as well. How many people gave Piketty’s “Capital” five stars on Goodreads actually read that entire doorstopper? That’s not to suggest that Picketty’s book wasn’t important or didn't deserve the attention it got. It did, but more for the depth of research Picketty conducted than for his means of communicating the results. I got so much more out of “The Finance Curse” that there’s simply no comparison.
Thus, I would put "The Resource Curse" on the top shelf, where I keep Jane Mayer’s “Dark Money,” Nancy McLean’s “Democracy in Chains,” Chris Leonard’s “Kochland,” Naomi Klein’s “The Shock Doctrine,” David Korten’s “When Corporations Rule the World,” Steve Coll’s “Private Empire,” Ralph Nader et al's "Taming the Giant Corporation" and other recent classics books on corporate capitalism.
Anyway, back to the topic of “extractivism.” “The Finance Curse” is a reference to “the resource curse,” the notion that countries whose economies are largely dependent upon extracting and exporting oil or valuable minerals almost universally end up saddled with corrupt governments, widespread poverty and misery, and sometimes a cycle of coups and violent upheavals. Just as much damage, although often subtler, has been caused by finance. (Although to be fair, the oil industry's "invisible" damage is also inestimable -- esp. the destruction passed off to future generations...)
Shaxson knows enough about oil and finance to draw the analogy. His first book was “Poisoned Wells: The Dirty Politics of African Oil” and his second book, “Treasure Islands,” was about offshore tax havens, a kind of prequel to this book.
The irony is that finance probably does more damage than these dirty industries (except in a few cases), but it’s more diffuse and the damage isn’t as easy to see as the messes oil companies have created in places like Nigeria and the Ecuadorean Amazon. And where they don't outright demolish weakened businesses, the damage that private equity, tax dodging trusts, hedge funds and other financial predators create isn't always easy to trace back to its source. Offshore tax havens and new multi-layered legal/financial vehicles, special purpose entities and other forms of speculation and obfuscation are extremely difficult to untangle.
The fundamental problem stems from the shift towards neoliberalism that followed the “Golden Age of Capitalism” in the decades that immediately followed WW II.
The hollowing out of the productive economy cannot simply be written off as the consequence of free trade and technological change. Or even tax competition. There's more to it than that.
The chapter on Iowa and what Big Meat is doing to farmers and rural communities is an example. In most of its 99 counties, Iowa has seen an explosion in CAFOs and extinction of small independent farms. Sure, blame Giant Ag companies that have forced farmers into serfdom. But their enablers include various financial operators.
Shaxson is a Brit. He came briefly to Iowa to look at the Ag sector. So perhaps he can be forgiven for not reminding his readers that a century ago people responded to the big industrial trusts and banks with more effective means than pitchforks. They organized to demand an equitable democratic banking system – demands that led to the FDIC and Farm Credit System. (Christopher Shaw writes this history in "Money, Power, and the People")
Another thing about financial predation is that it cuts across many sectors in the same communities. For example in Iowa, like many states, private equity also had a mostly invisible hand in driving deregulation and consolidation of radio news stations, a story told in the excellent documentary “Corporate FM.” I remember very little talk about private equity’s role in driving media consolidation back in the early 2000s, when the media reform movement peaked. As movements, we didn’t quite go that deep. That I know. But we saw the damage: Clear Channel cut station staff then started to pipe in national programming, including a steady stream of pro-war propaganda before the invasion of Iraq. For some communities, the damage was direct. In Minot, ND, after the station scooped up by Clear Channel was emptied of staff, there was no one left to answer the phone when first responders called to request an emergency broadcast warning after a train carrying deadly anhydrous ammonia derailed and gassed the town. One person was killed and many more went to the hospital.
This is just one example of why we need to keep financial companies from controlling businesses involved in essential services. There are many other examples that led Rep. Garcia and Rep. Tlaib to introduce the “Protecting Consumers From Market Manipulation Act,” which would amend the Bank Holding Company Act by prohibiting large non-financial firms from deriving 5 percent of their revenue from financial activities and restricting banks' ability to own commodities.
Because the connections aren’t always clear, the precise cost of “financialization” is not measurable. In one study, economists at UMass (PERI) estimated that by 2023 our supersized financial sector will have cost the US economy a cumulative $13 to $23 trillion since 1990.
I don't fault Shaxson for missing these or other specific examples of finance-driven gutting of other businesses. There is plenty of evidence here to make the general point and plenty of threads that readers can pursue further, with tightly referenced footnotes.
But he does give a tour of other examples of "financialization" - including the riverside tax-free zone in Dublin that powered Ireland's reputation as the “Celtic Tiger,” a primer in how secretive offshore (and onshore) trusts are used to keep wealth in the family and insulated from taxes, and The City of London (the financial center inside London, treated as an autonomous district) that drives the worst tax avoidance and corrupt money flows in the world -- not just through the City itself, but via its involvement in designing the laws and business vehicles and strategies used to park giant piles of money on small islands. The financial centre's elegant staid architecture houses a festering nucleus of global corruption that keeps politicians in the U.S. from advancing bank transparency laws (because, well, if you do that here, everyone will move their money there).
One sidebar note that occurred to me again: Many people mistakenly believe that corporations are LEGALLY required to maximize profits. Not true. (Law Prof. Lynn Stout debunks this myth directly in her book, “The Shareholder Value Myth.”) So then why do companies act like it is true? Partly because maybe some execs believe it. Partly because of the pressures they are under. Telescope back, however and look at the big picture: Neoliberal economics created its own cult of magical thinking that rationalized a masculine and competitive business culture of “short-termism.” Milton Freedman is usually cited here for his 1970 NYT magazine article, “The Social Responsibility of Business Is to Increase Its Profits.” (note that he cites "social responsibility" - not fiduciary duty under the law). I.e. serve shareholders, not the communities they operate in, workers they employ, or (by paying their taxes) the governments that support the infrastructure and services they rely upon. After Michael Milken, Ivan Boesky and other junk bond shysters crashed savings and loan banks and other businesses another important though less well-known proponent of shareholder primacy stepped up as the “intellectual savior” of that myth in the early 90s: Harvard Business School Prof. Michael Jensen published a couple of seminal papers that argued that the interests of shareholders, managers and the company were all aligned. Corporate America just needed a new breed of superstar owner-managers in a financial “market for corporate control” that would boost efficiency across the system. By pursuing profits for themselves they would be doing good for shareholders and others who depended upon the company for employment and spin-off advantages. In the early 90s, soon after Jensen’s paper, executive compensation shifted to reflect his “pay for performance” philosophy: Executives were rewarded with stock options whose value would rise precipitously with the value of the company. (Of course that incentivized execs and their professional enablers aka "gatekeepers" at accounting firms and banks to juice short-term performance – often by cooking the books, as we saw at Enron, WorldCom and a dozen other companies a decade later).
And when cable television entered the picture, it added a kind of cultural dimension to the phenomenon, as more and more business observers paid closer and closer attention to the stock market. Corporate executives soon learned to hit quarterly targets (see “The Number” by Alex Berenson). Jensen, meanwhile, said that firms should also borrow heavily, because the “discipline of debt” would make them focus even more intensely on the profits necessary to service that debt. How to get those profits? Financial engineering, destructive mergers and acquisitions (bankers and lawyers always there to help out in exchange for the usual fee-raking), etc. R&D on a technology that might take 5-10 years? No -- let the VC guys do that. We can always borrow and buy them when they're about to launch an IPO.
The point is, the "finance curse" is a kind of magical mode of parasitism facilitated by a class of professionals and the rules they have managed to embed in obscure regulatory corners (or the absence of any regulations that would impede systemic risk-taking). It is systemic, multi-dimensional and, importantly, global. Money travels faster and further (and in greater secrecy) than any commodity grown or manufactured.
A sample of Shaxson's limpid prose: I’m sure Neoliberalism has been defined as accessibly elsewhere, or maybe as accurately:
“Neoliberalism is an outgrowth of classical liberalism, which dates back a couple of centuries. There’s political liberalism, which is all about citizens having equal democratic rights in a system of sovereign law, and there’s economic liberalism, which starts from Adam Smith’s “invisible hand,” by which free exchanges or trade in properly functioning – that is, unsabotaged – markets are supposed to make society better off overall. The more liberal (or free) the exchange, in this view, the better for society as a whole; government’s role is to provide basic functions like defense, to enforce property rights, and to keep a watchful eye out for monopolies, but otherwise to get out of the way. … Neoliberalism put these ideas on steroids and gave them a rather large twist. Its starting point was the theory that government amasses ever more power and heads toward tyranny. … Hayek’s most famous book, The Road to Serfdom, laid this all out. Competition and the price system were the only legitimate arbiters of what was good and true, he said. And soon this became a neoliberal mantra. Cut taxes, deregulate, privatize, and launch all these pieces into competition with one another, then let it rip. … In this framework, explained the writer Stephen Metcalf, humans are transformed from being “bearers of grace, or of inalienable rights and duties,’ into ruthless profit-and-loss calculators, sorted into winners and losers. […] In terms of raw power, neoliberalism takes authority away from politicians and hands it to economists and moneyed interests.” (recall the famous moment at the beginning of Clinton’s first term when he realized that his agenda was limited by bondholders).
Although the book is not too difficult, it conveys the sense that the “finance curse” is not simply the growth in the size of the financial sector, but the many and pervasive ways that it injects financial techniques and metrics into the entire economy (and much that lies outside of it). That includes systemic rules like “competition” between tax jurisdictions (forum-shopping is often more of an excuse for companies to avoid taxes than a competitive necessity). And there are no limits – i.e. “the race doesn’t stop at zero” taxes or deregulation.
In other words -- without organized people wielding pens and pitchforks -- there is seemingly no end in sight. It's difficult. We are usually fighting symptoms not causes, or if so, only beginning to seriously fight back.
But if a lot more people read this book, we would at least begin to see more clearly what we have to contend with.
New movement formations like the "Hedgeclippers," the "Stop the Money Pipeline" coalition, Americans for Financial Reform and the global Tax Justice Network (which apparently helped Shaxson understand the world of offshore tax havens), are examples of new activism against the finance curse that we can support if we are too busy working to pay off our credit cards.
The financial sector is inflicting a staggering cost on people - how exactly this happens is what Mr. Shaxson's book aims to explains. The title is a witty assimilation with the "resource curse", when resource-rich countries stop bargaining with their citizens because all the money comes from one or two corrupt places - democracy falls apart, living standards dive, lives are devastated. That could very well be the future. The books is a knowledgeable walkthrough into important economic ideas and instruments, such as: the theories of Veblen, Hayek, neoliberalism (as the source of most evil), the history of the Eurodollar trade in the City of London, fiscal paradises (very interesting info here, Mr. Shaxson has written a whole other insightful book about this), the Third Way & Competitive agenda as political messages corrupting past decades, how Ireland became the "Celtic Tiger" and then went bust in 2008' Great Crisis, Basel rules, how CDO's came to exist, trusts, private equity's history, the City of London's very flimsy regulations, Big Four companies, tax cuts and the impossibility to judge their effectiveness. The book is filled with great information, which I've not read elsewhere; at times it's quite extreme, but it does not aim to be mild - its message is that something is deeply rotten in the City, people should worry and act. I've read it after seeing the good review granted by Mr. Martin Wolf, Financial Times' chief economics commentator, who also included it in his 2018' Best Economics Books list (he also said it's been an exceptional year for economic books, oh the joy!).
The Finance Curse is the reason I will not achieve my 2019 GoodReads Reading Challenge of 200 books, but it was worth it. This is a very detailed review of the myriad ways the finance industry is undermining democracy, good government, and the economy. It is a well-known truism that resource-dependent economies enrich those in power, impoverish the rest, and tend toward authoritarianism. Russia and its oligarchy are a perfect example of a petrostate of corruption and authoritarian rule by corrupt leaders. Nicholas Shaxson makes the argument that this happens in countries whose economices are dominated by finance as well and he proves his point.
So what happens to economies that become financialized. The finance, insurance, and real estate economic sectors explode, this is where finance happens, not in manufacturing. The point of finance becomes extracting value, not creating it. Companies are bought to take on debt, have their assets stripped, their employees laid off, and then allowed to go bankrupt. Asset mining is more profitable than making things. Worse, the ideology of finance become internalized in the culture, so people nod approvingly while their pockets are picked.
Shaxon meticulously documents how finance became such an international juggernaut and how it has completely gutted many industries, shuttering newspapers and family farms along the way. It seems they will roll through industry after industry, cannibalizing the productive side of the economy to feed the greed of financiers whose hunger for wealth is infinite.
I think The Finance Curse is one of those important books everyone who cares about democracy should read. I also think few will invest the time. I am a fast reader and it took me two weeks to read this. While nearly a fourth of its 384 pages are footnotes, the prose is dense with detail. Then it is also so depressing that I had to put it down after each chapter to shake off the despair.
What makes it even more despairing is that so little of the book is devoted to ways to address the plague of financialization and the suggestions are weak sauce. Campaign finance reform is offered as this unversal panacea, but fighting financialization requires far more than getting money out of politics.
Financialization is a cultural blight. An entire section of every major newspaper devotes itself to the business of finance with the premise that what’s good for finance is good for the country. There is no such attention for labor or industry. Finance is the be all and end all of the economy. The health of Wall Street is proof the economy is working even though wages are stagnant, bankruptcies increase, and homelessness is rampant. How the country serves the needs of finance has become more important than how it serves the people, not just to the government, but to the public. Farmers who have declared bankruptcy still think the economy must be good because the Dow broke a new record. Finance has not just captured the government and the economy, it has captured the culture. We need cultural weapons to fight a cultural cancer.
I received a copy of The Finance Curse from the publisher through Edelweiss.
The Finance Curse at Grove Press
Nicholas Shaxson on Twitter
https://tonstantweaderreviews.wordpress.com/2019/12/30/the-finance-curse-by-nicholas-shaxson/
So what happens to economies that become financialized. The finance, insurance, and real estate economic sectors explode, this is where finance happens, not in manufacturing. The point of finance becomes extracting value, not creating it. Companies are bought to take on debt, have their assets stripped, their employees laid off, and then allowed to go bankrupt. Asset mining is more profitable than making things. Worse, the ideology of finance become internalized in the culture, so people nod approvingly while their pockets are picked.
Shaxon meticulously documents how finance became such an international juggernaut and how it has completely gutted many industries, shuttering newspapers and family farms along the way. It seems they will roll through industry after industry, cannibalizing the productive side of the economy to feed the greed of financiers whose hunger for wealth is infinite.
I think The Finance Curse is one of those important books everyone who cares about democracy should read. I also think few will invest the time. I am a fast reader and it took me two weeks to read this. While nearly a fourth of its 384 pages are footnotes, the prose is dense with detail. Then it is also so depressing that I had to put it down after each chapter to shake off the despair.
What makes it even more despairing is that so little of the book is devoted to ways to address the plague of financialization and the suggestions are weak sauce. Campaign finance reform is offered as this unversal panacea, but fighting financialization requires far more than getting money out of politics.
Financialization is a cultural blight. An entire section of every major newspaper devotes itself to the business of finance with the premise that what’s good for finance is good for the country. There is no such attention for labor or industry. Finance is the be all and end all of the economy. The health of Wall Street is proof the economy is working even though wages are stagnant, bankruptcies increase, and homelessness is rampant. How the country serves the needs of finance has become more important than how it serves the people, not just to the government, but to the public. Farmers who have declared bankruptcy still think the economy must be good because the Dow broke a new record. Finance has not just captured the government and the economy, it has captured the culture. We need cultural weapons to fight a cultural cancer.
I received a copy of The Finance Curse from the publisher through Edelweiss.
The Finance Curse at Grove Press
Nicholas Shaxson on Twitter
https://tonstantweaderreviews.wordpress.com/2019/12/30/the-finance-curse-by-nicholas-shaxson/
The Finance Curse is excellent throughout: it touches on a number of different topics related to financialization in our economy and makes the very basic but very astute case that higher flows of net wealth and financialization of a region or economy will tend to have negative repercussions. I’ve never come across a better source that describes as Shaxon does in plain English how pernicious and toxic many Trusts are and what this has to do with Sioux Falls – it is really fascinating stuff. Equally great are the chapters on the Irish economy and Big Ag. Overall powerful stuff.