Financialization’ – Conference Review

‘Financialization’ –What Does it Mean for Work and Employment?

Centre for Sustainable Work and Employment Workshop

October 16th College Court

Financialization is a relatively new but widely used concept which highlights the dominance of money markets and financial assets and institutions within contemporary capitalist economies. It  refers to the growing importance of finance as a lever and generator of profits  in and beyond the financial sector.  Since the financial crisis of 2007, financialization has been examined with reference to the costs and consequences of financial innovation for the financial sector, non-financial firms, and the state. Less well understood are its consequences for work and employment.

The focus of the first of a series of themed CSWEF workshops, the concept of financialisation was probed analytically and empirically by four noted specialists. Addressing an invited audience of researchers, practitioners and policy-makers, the key-note speakers set out an impressive research agenda to promote a deeper  understanding of the nature and consequences of current shifts and transformations in the circuits of capital for the security, nature and experience of work and employment in the twenty-first century. The workshop was introduced by Professor Nolan, Director of CSWEF.

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Financialization: Another Heathrow Problem! - How Did We Get Here and Can We Get Back?

Professor Ian Clark presented an historical overview of the material shifts in the global economy that laid the conditions for the rise of financialization. He outlined the contagion effects of financialization and highlighted its spread from the financial sector to non-financial firms and the state. He examined the effects of contagion on the ownership of non-financial firms and resultant approaches to corporate governance. Of critical importance, Professor Clark argued, are the distributional effects of financialisation on workers and managers when investor and shareholder inspired approaches to business weaken established stake holding approaches to employment. Beyond these distributional effects, financialization and the recent financial crisis have wider consequences for workers. Financial bailouts, austerity measures and the overall effects of financial corrections to asset and commodity prices represent a massive subsidy to capital and a further push towards the degradation of work.

The presentation concluded with a discussion of whether or not it is possible to contain financialization. Pointing to the possibilities and benefits that might flow from  more effective regulation of intermediary actors in financialization, Professor Clark emphasised the importance of  re-coupling credit creation to bank deposits and breaking with the short-term approaches to growth focussed around credit, debt and asset bubbles. .

You can view Professor Clark’s presentation here.

Private Equity in the U.S.: Effects on Workers' Pay, Jobs and Pensions

Professor Eileen Appelbaum examined the effects of private equity on workers’ pay, jobs and pensions in the United States. Professor Appelbaum outlined the strengths and limitations of the private equity business model and emphasised the role of investors as managers to identify the impact of financial engineering on the operation of portfolio firms and workers and managers therein. The presentation outlined both good and bad examples of financial engineering but examined the potential for asset stripping and investor gains at the expense of creditors as well as the role of investors as labour negotiators. The presentation examined in detail the net effects of private equity ownership on bankruptcy rates, employment and wages and pension fund returns as compared to listed firms. With respect  to bankruptcy even the most favourable  econometric studies demonstrate that private equity owned firms are twice as likely to go bankrupt than publicly listed firms. A similar pattern emerges for  jobs, wages and productivity. Although private equity investors target the acquisition of better performing firms, the record shows that post acquisition job destruction outpaces job creation both at establishment level and across the firm as a whole.  Employment tends to go down but productivity is spurred by new performance measures to intensify work. Lastly, pension fund returns by private equity backed firms are rendered opaque by an absence of transparency and flawed self-selected measures of performance.

In summary, drawing on evidence presented in her recent acclaimed book with Professor Rose Batt, Professor Appelbaum argued that while private equity firms failed to beat average market performance they did secure significant returns and profits for private equity investor-owners. Echoing  Clark, Appelbaum identified the imperative of smarter regulation to contain financial engineering and support the operation of portfolio firms.

You can view Professor Appelbaum’s slides here.

Financialization - What does it mean on the ground?

Rob Macey, a solicitor at the GMB union, presented evidence of the effects of financialization on staff and human resource practices at the Automobile Association. He detailed the manner in which private equity owners funded their acquisition of the AA by highly leveraged loans secured against AA assets. These leveraged loans incurred significant interest payments which placed huge pressures on the business. The cost pressures, equivalent to £1.3 million per patrol, meant that each patrol had to earn £53,000 each year to meet interest payments imposed on the firm before salary, profits and other business costs. The consequences for  staff were wholly deleterious.

In 2005, the AA de-recognised the GMB union that represented 10,000 staff while simultaneously helping to establish a ‘pet’ union, the AA democratic union (AADU).  The AADU,  fully reliant on company payroll for its income, removed the main opposition to incoming changes and cutbacks. Generally terms and conditions deteriorated significantly after the private equity acquisition. The AA commenced a widespread programme of change management which divided staff into `good' and `bad' performers. The former were given a £2000 bonus, the latter were offered £18,000 to leave or be placed on an improvement programme that would lead to dismissal if staff declined to accept new, tougher work routines. The GMB has since won several Employment Tribunal cases on behalf of employees who were unfairly treated because of this programme. Nevertheless,  half the workforce left the firm, accepting £18,000 as a redundancy payment despite this amount being less than the redundancy terms in place pre-acquisition. All of this occurred as the new investor owners took millions out of the business.

The GMB continues to represent AA workers in employment tribunals, organize demonstrations outside investor owner premises and lobby for re-recognition.

You can read more about the GMB here.

Financialization and the Workplace: why Labour and the Labour Process Still Matters

Professor Paul Thompson of Strathclyde University provided a compelling case for placing labour and the labour process at the centre of the analysis of financialization. The key theoretical and empirical challenge, he argued, is to identify the mechanisms through which shareholder value pressures are translated into workplace outcomes and worker experiences, to distinguish that is between the financialization of objectives and operations. The presentation focussed on the pressures and processes, triggered by financialization, to  take- out labour costs in order to lift returns to investors through the deployment of stricter and more extensive hierarchical and financial controls.

Professor Thompson noted that it is important however to recognise that financialization is only part of the explanation for these processes: financial pressures interact with, accelerate, and exacerbate longer term trends such as labour market insecurity, externalization and internationalization. Labour process changes continue to reflect product and labour market competitive dynamics and sources of value creation. The extent to which financialization is a primary or secondary driver of change varies by sector, and remains a crucial issue for future empirical and conceptual analysis. The presentation illustrated these arguments empirically with reference to case study analysis of a leading global IT firm and its Irish subsidiary. He described how the imposition of strict targets to meet the requirements for corporate revenue generated conflict in the labour process and promoted resentment and disengagement within a highly skilled knowledge-intensive workforce.

You can view Professor Thompson’s slides here.

Discussion

The debate that followed underscored three basic themes running through all four plenary papers: first, the analysis of financialization and its relationship to the changing world of work is in its infancy; second, our understanding of the complex interplay of money markets, financial institutions and the generation and appropriation of value through the interconnected circuits of capital remains a daunting theoretical and empirical challenge; and finally and crucially the consequences of financialization, politically and materially, for labour are considerable but not beyond the forces of resistance and reversal. It was concluded that CSWEF, together with other leading international research centres, must move the research agenda  forward in an attempt to better understand the contradictions engendered by the reproduction of a bloated financial sector and diminished material production.

The next workshop held by the Centre for Sustainable Work and Employment Futures will take place early in 2015 on the subject of Labour, Global Value Chains and the Re-Shoring of Profitable Production.

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