Globalization and Economy, Vol. 2: Global Finance and the New Global Economy (2007)

CENTRAL CURRENTS IN GLOBALIZATION Globalization and Economy VOLUME 2 Globalizing Finance and the New Economy EDITED BY Paul James and Heikki Patomäki Introduction and editorial arrangement © Paul James and Haikki Patomäki 2006 First published 2006 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act, 1988, this publication may be reproduced, stored or transmitted in any form, or by any means, only with the prior permission in writing of the publishers, or in the case of reprographic reproduction, in accordance with the terms of licences issued by the Copyright Licensing Agency. Enquiries concerning reproduction outside those terms should be sent to the publishers. Every effort has been made to trace and acknowledge all the copyright owners of the material reprinted herein. However, if any copyright owners have not been located and contacted at the time of publication, the publishers will be pleased to make the necessary arrangements at the first opportunity. SAGE Publications Ltd 1 Oliver’s Yard 55 City Road London EC1Y 1SP SAGE Publications Inc. 2455 Teller Road Thousand Oaks, California 91320 SAGE Publications India Pvt Ltd B-42, Panchsheel Enclave Post Box 4109 New Delhi 110 017 British Library Cataloguing in Publication data A catalogue record for this book is available from the British Library ISBN: 10 1-4129-1952-5 ISBN: 13 978-1-4129-1952-4 (set of four volumes) Library of Congress Control Number: 2006901469 Typeset by Star Compugraphics Private Limited, Delhi Printed on paper from sustainable resources Printed and bound in Great Britain by TJ International Ltd, Padstow, Cornwall Contents VOLUME 2 GLOBALIZING FINANCE AND THE NEW ECONOMY SECTION 1 Historical Developments: From the Gold Standard to a New Era of Global Finance 19. The International System Karl Polanyi 20. Globalization of Capital and the Theory of Imperialism Prabhat Patnaik 21. The Transnational Debt Architecture and Emerging Markets: The Politics of Paradoxes and Punishment Susanne Soederberg 22. Globalization in Search of a Future Pascal Petit and Luc Soete 00 00 00 00 SECTION 2 Global Futures and Derivatives 23. Derivatives: Virtual Values and Real Risks Jakob Arnoldi 24. Global Microstructures: The Virtual Societies of Financial Markets Karin Knorr Cetina and Urs Bruegger 25. The Schumpeterian Role of Financial Innovations in the New Economy’s Business Cycle Charles G.Leathers and J.Patrick Raines 00 00 00 SECTION 3 Global Finance as a Dominant Economy? 26. Accounting for Globalization Cameron Graham and Dean Neu 27. Globalization and Electronic Commerce: Inferences from Retail Brokering Steve Globerman, Thomas W. Roehl, and Stephen Standifird 28. Are Offshore Financial Centres the Product of Global Markets: A Sociological Response Matthew Donaghy and Michael Clarke 00 00 00 vi Contents 29. Passing Judgement: Credit Rating Process as Regulatory Mechanisms of Governance in the Emerging World Order Timothy Sinclair 00 SECTION 4 Debating the Regulation and Taxation of Global Capital 30 The Globalization of Taxation? Electronic Commerce and the Transformation of the State Roland Paris 31. Globalization and Justice Jon Mandle 32. The Tobin Tax: A New Phase in the Politics of Globalization? Heikki Patomäki 33. Capital Mobility, Capital Controls, and Globalization in the Twenty-First Century Sebastian Edwards 00 00 00 00 SECTION 5 Critical Projections 34. Global Crisis: Political Economy and Beyond John Hinkson 35. Solving Sovereign Debt Overhang by Internationalising Procedures Kunibert Raffer 36. Beyond the Tobin Tax: Global Democracy and a Global Currency Myron Frankman 37. Regulating Economic Globalization Ash Amin 00 00 00 00 Globalizing Finance and the New Economy: A Critical Introduction ix Globalizing Finance and the New Economy Paul James and Heikki Patomäki D oes the contemporary dominance of haut finance, or ‘mighty finance’, constitute a new era of globalizing economics? Or is it just another phase of globalization and not much different from the processes of financial exchange evident at the end of the nineteenth century? These questions are dramatic but unhelpful. Such dichotomous ways of understanding globalizing finance have been behind a series of debates in the globalization literature. They have tended to disallow the possibility of talking about both long-run processes and significant (qualitative) changes in the contemporary period of intensifying globalization. This volume presents many different takes on these central questions of globalizing finance. Nevertheless, the framing consideration of the volume is that we need to be able to say, without being contradictory, that at one level we can see long-term continuities in the mode of exchange; at another level there are new formations of practice that in their emerging dominance have reconstituted the face of contemporary global finance. Financial exchange, as an expression of the changing modes of exchange across history began as far back as the development of coinage in antiquity. It has undergone significant and momentous shifts in its dominant forms of practice. However, these have tended to layer across prior formations rather than simply replace them. For example, derivatives exchange as one of the driving globalizing modalities of the last decade, and which involves hedging against fluctuations in the value of a currency, overlays the agricultural future markets of the nineteenth century when the producers of such basics as wool and wheat hedged against the possibility that when their produce went to market the price may have fallen. In other words, the emerging dominance of derivatives might be said to represent a further aspect of what Karl Polanyi calls the ‘Great Transformation’ of international financial exchange,1 even as it has its historical antecedents in dealing with the long-run practical problems of a time-delay between seeding a crop and selling it in an international market. x Globalizing Finance and the New Economy: A Critical Introduction The temporal horizons of the various approaches to globalizing finance determine, to a large extent, their assessment of the importance of financial globalization. By focusing, for example, on just the period following World War II, the evidence shows a steady increase in global openness, interchange and interdependency. However, on the basis of extensive empirical evidence that stretches the period of focus to the last century or so, sceptics of globalization such as Paul Hirst and Grahame Thompson have been quick to point out that there is nothing new in this. The evidence, they say, suggests greater openness in the pre-World War I period than when compared to more recent years. They claim that this applies equally well to global finance, which has exploded since 1980. They acknowledge that there is an important difference between the two eras of global finance but they do not treat this difference as basic: In the high Gold Standard period long-term capital dominated international capital flows. In the recent period there has been a switch to shorter-term capital. In addition, a wider range of countries have now been included under the international capital movement umbrella.2 Gold Standard provided a relatively fixed and negotiated exchange-rate system, contrasting the floating rates systems of 1918–25 and post-1971 era when the Nixon administration delinked the relationship between the US dollar and gold, thus undermining the Bretton Woods agreements.3 Floating rates in particular, Hirst and Thompson acknowledge, have confirmed ‘the impossibility of complete national economic autonomy’ and brought on ‘the demise of this form of governance as a viable long-term objective in the present era’.4 On the other hand, as they point out, the Gold Standard system had in the nineteenth century already involved a process of limiting national autonomy: [T]here must be domestic wage and price/cost flexibility to allow the nominal price level to be determined endogenously by the worldwide demand and supply of gold. Thus the Gold Standard, in so far as it actually functioned along these lines, represented the quintessential integrated economy, where ‘national autonomy’ was minimal.5 Their point is overstated, even if it appropriately redresses a tendency to treat globalization as a new process supposedly first developing in the last decades of the twentieth century. National autonomy was never a condition of the development of nation-states. With the rise of an organized working class, economic nationalism (and other interests following the same direction) and the Gold Standard never quite worked in this automatic manner to integrate an international economy. However, the main point here is that whereas Hirst and Thompson are usually read as critics who argue that the effects of globalization have been greatly exaggerated, they also conclude Globalizing Finance and the New Economy: A Critical Introduction xi that both in the pre-World War I period and the post-Bretton Woods era, financial globalization greatly diminished national autonomy. Summarizing our argument thus far we can make four concurrent points: firstly, globalization may not be as new or discontinuous as sometimes depicted. Secondly, and qualifying the first point, the changes associated with such developments as the derivatives market are substantial and have material consequences in the present that are remaking earlier forms of financial exchange. Thirdly, questions of financial globalization and state autonomy exist in a complex relation, and have done so since the system of nation-states emerged in the nineteenth century. Fourthly, the current form of global finance has some new characteristics and emergent properties that shape the ongoing processes of globalization. It would be an exaggeration to maintain, as Manuel Castells does, that ‘If globalization is widely acknowledged as a fundamental feature of our time, it is essentially because of the emergence of global financial markets’,6 but our concern about such a onedimensional claim is not to take away from the momentous of the changes. As a way of establishing this series of arguments we will first turn to tracing some historical lineages of the development of globalizing finance. Globalizing Finance: A Deeper Geo-historical Perspective Modern financial globalization, like other forms of globalization discussed in the various volumes of the ‘Central Currents in Globalization’ series, goes back much earlier than even the late-nineteenth century. This is despite many assumptions in the literature to the contrary. The modern state-system, and with it, the capitalist world economy, emerged, and, almost simultaneously, started to expand in what Immanuel Wallerstein calls ‘the long sixteenth century’ (1450–1640).7 We emphasize the concept of modern here because the emergence of capitalism was based on various monetary, financial and legal innovations that broke with prior and continuing traditional practices such as the demonization of usury. This practice of value (or interest) accruing on a loan with the passing of time was not uncommon going back to the European Middle Ages, but it was nevertheless damned as against God and Nature. Richard Sennett records a story told by the twelfth-century Parisian scholar, Humbert de Romans. It concerned a man who, upon entering an abbey, found many devils in the cloister but in the market place found only one, alone on a high pillar. This filled him with wonder. But it was told him that in the cloister all is arranged to help the souls to God, so many devils are required there to induce monks to be led astray, but in the market-place, since each [person] is a devil to him [or her]self, only one other devil suffices.8 xii Globalizing Finance and the New Economy: A Critical Introduction As such traditional cultural constraints became less imposing, the development of early modern capitalist credit-money facilitated exchange and investments across extended distances. Monetary innovations also enabled new forms of capital accounting and thus increasingly abstract forms of capital accumulation. One of the principles that needed to be developed included that of negotiability between strangers – the usually completely overlooked series of processes which saw the depersonalizing and legalizing of relations of negotiation.9 We also too quickly forget that abstracted creditmoney was built upon the globalization of a Hindu-Arabic place-valued decimal number system and Arabic numerals, written into an influential book called Liber Abbaci (1202) by a Pisan mathematician, Leonardo Fibonacci.10 This system used in the thirteenth century to simplify commercial accounts is the foundation of the system used across the globe today. More generally, we can say that when the signifiers of value and debt became systematically transferable to third parties, and were gradually depersonalized and issued as underwritten bank-money, the private capitalistic financing of enterprise on a large scale and across distant markets became a possibility.11 Theoretically expressed, we can say the following: Proposition 1. The abstraction and therefore commensurability of money as capital – money able to be accumulated, stored, and converted as a medium of financial exchange across different regional and economic systems – was a necessary though not sufficient condition of both modern capitalism and financial globalization. The techniques of such abstraction were themselves unevenly globalized over centuries. We further emphasize the modern characteristic of classical capitalism here because the practices of financial exchange that most contributed to generalizing an extension of social relations across world-space were framed within a dominant formation that largely emptied (abstracted) time of personalizing or sacred (traditional) relations. Instead of a place in which a devil sits on a high pillar, it became an empty time-space able to be represented by red and black marks on an accountant’s ledger and filled with return-on-investment outcomes. As we will later suggest, late-twentieth-century (and increasingly postmodern) developments such as the derivatives market relativize this empty accountable time-space and take it to a further level of abstraction. In this new setting, the time-spaces of the market are themselves able to be contracted, speculated upon and bought and sold as units of value. For example, future options – contracts to possibly buy a financial object in the future and at a certain price – are themselves now tradeable objects. Going back to our historical narrative, many banking concepts and practices emerged, or re-emerged in Renaissance Italy, and Europe became, Globalizing Finance and the New Economy: A Critical Introduction xiii for an ongoing period after the sixteenth century, central to global financial exchange. Some practices had already existed in the Roman Empire, or they had precedents elsewhere such as in China where, for example, from the twelfth to the fifteenth century China replaced all its gold and silver circulation by paper money.12 In Europe, financial markets developed further on par with the modern state and corporations in their attempts to find new ways of raising funds. Governments often became banks’ largest clients, and this later resulted in the issue of credit-money by states. Moreover, joint investments in trade companies had already begun in the sixteenth century, including funding for the world-extending expeditions to America and the Far East, and for the colonization of the Americas. The implications here for questions of agency-extended globalization are very direct. About half of the financing of Columbus’ first voyage in 1492, for example, came from private Italian investors. In the next stage, in the early-seventeenth century, both the Dutch and East India Companies issued shares to the public to fund their early imperial enterprises, closely linked to the Dutch and British state imperialism. The share certificates were made freely transferable; hence, a secondary market to claims for future income was established.13 Amsterdam opened a stock exchange in 1611.14 According to Robbie Robertson, there have been three great waves of globalization, starting with the integration of the American continent with the rest of the world through the imperial states of Europe, by Spain and Portugal: Europe’s expansion was not planned. It was haphazard, uneven and opportunistic. It possessed no goal other than the acquisition of wealth. If it can be argued that vastly increased trading networks helped to produce future industrial societies, it was certainly not something foreseen by European nations.15 The first European expansion had large-scale monetary and financial consequences. America may have been ‘discovered’ by Columbus, in part due to mere miscalculation and coincidence – although the new techniques of finance, cartography, and shipbuilding, also made his gamble possible. Yet once established, the new colonies provided a steady flood of silver and gold. This metal was used for military spending and imports from England, Holland and elsewhere. The price increase occurred first in Spain and then moved on to the rest of Europe; it followed the path of silver and gold. In a century, prices rose fivefold in Andalusia and 250 per cent in England.16 In connection with new imports from the New World, and the re-establishment of regular connections with China and India, rising prices greatly stimulated trade and investments throughout Europe.17 Rather than Spain or Portugal, which reaped only short-term benefits, the true beneficiaries of the European expansion turned out to be England, France, and Holland. Subsequent economic and administrative innovations xiv Globalizing Finance and the New Economy: A Critical Introduction occurred in north-west Europe. These included various new financial concepts, practices and institutions. In 1694, the same year in which the Bank of England was founded, English governmental lotteries were (re-)established through an Act of parliament. Lottery tickets were an indispensable part of government finance in England between 1694 and 1826, and were early forms of government bonds. They were used to finance further colonial expansion, wars, and other major state expenditures. In many cases, ticketholders were entitled not only to a possible prize, but also a periodic payment. From 1710 onwards, English state lotteries were organized by the Bank of England. A lively secondary market in lottery tickets emerged, and it became possible to make side bets on the outcome of the draw – known as insurance.18 Multiple coffee houses were used as trading sites to regulate the market: in 1773, one of them was converted into the Stock Exchange. Paris was the early financial centre of the imperial world, but the Revolution of 1789 ended that. The formal and regulated New York Stock Exchange was founded in 1792, and the London Stock Exchange opened in 1802. In the early-nineteenth century, English state lotteries were eventually abolished and replaced by the more modern-sounding financial practices of the City of London. At first, railroad shares and bonds assumed a central place in these markets; hence, the expansion and intensification of capitalist markets were funded with this new financial instrument. Although there had been precedents in medieval Europe, Japan and elsewhere, the futures market seems to have been a United States’ mid-nineteenth century-innovation, originally devised to counter the impact of long distances and unpredictable weather. Similarly, the modern joint-stock company was a US innovation of this era. In Europe, established structures tended to slow down these legal developments, despite their apparent attractiveness.19 The joint-stockcompany legislation clarified the distinction between owners and managers of a corporation, and was a significant basis for the rise and growth of the United States’ stock markets in the late-nineteenth century. The innovation was, however, soon replicated in other parts of the English-speaking world, and in continental Europe. By the latter half of the nineteenth century, financial actors and markets had assumed a prominent place in the world economy (based on the Gold Standard), and in international relations. Thereby, the first ‘era’ of high or mighty global finance began – haute finance to use Polanyi’s term (see his contribution to the present volume). As pointed out by Hirst and Thompson, the evidence may suggest greater openness and integration during the preWorld War I period compared to more recent years. However, as we have seen, even the sceptics of globalization admit that the late-twentieth century saw the re-establishment of extensive relations of global finance after the slowing of the world economy in the 1930s and 1940s and subsequent national and multilateral re-regulations. They acknowledge that the changes Globalizing Finance and the New Economy: A Critical Introduction xv constitute a qualitative leap, at least in some regards. After what appears retrospectively as a rather exceptional period of financial autonomy of nation-states in 1945–1971, the centrality of global finance has not only been re-established, but has assumed new forms and qualities. An important question is whether this means that the mechanisms and laws of economy have also changed? The Question of a New Economy Most of the essays brought together in the present volume concentrate on the global financial practices and systems of the twentieth and twenty-first centuries. Within that broad area, one of the points of focus is the question of the emergence across the turn of the twenty-first century of a so-called ‘New Economy’. Many commentators talk about the existence of a New Global Economy, although only a few, if any, seem to be able to define clearly what it is. Some writers have talked of a ‘virtual economy’, as if finance projection is dissolving into a fantastic electronic chaos, or it is not real. For example, the NASDAQ, originally an acronym for National Association of Securities Dealers Automated Quotations, is often taken as a symbol of the New Global Economy, particularly because of its central role in the dot.com collapse in the early 2000s. The index peaked at over 5,000 on 10 March 2000, and this signalled the beginning of the end of the dot.com boom stock-market bubble. The NASDAQ fell from its peak of around 5,000 in 2000 to roughly 1,850 in March 2002. Can we conclude from this that the New Economy was just a label for another unreal new bubble in stock markets? Or have the contrastive demi-regularities20 – that is, the mechanisms and tendencies of the capitalist market economy – substantially changed? The short response is that at one level things have changed and we are still grapping with ways of theorizing the patterns of that change.21 Perhaps part of the problem is that most of the scholarly debate is divided between those who argue for a completely epochal shift and those who suggest that there are essential continuities with the past. However, even if we argue alternatively for different patterns of change across different levels of the economy, the adjective ‘virtual’ does not get at the patterned complexity of the new dominant level of electronic financial interchange. If it was a ‘virtual economy’ then its effects evidenced in the dot.com collapse would not have had such concrete consequences. For example, in 2001 as the NASDAQ slid, almost 100,000 jobs were lost in the US at various dot.coms or internetbased companies. Jacob Arnoldi’s otherwise excellent contribution to the present volume, attempts to give theoretical weight to the concept of ‘virtuality’ and to show how it is real. However, as the heading of his article xvi Globalizing Finance and the New Economy: A Critical Introduction testifies – ‘Virtual Values and Real Risks’22 – he gets caught on an apparently complex ontological problem that besets much of the present literature. How can it be that forward-projected and hedged risks are somehow real when the value-objects over which the risk is being taken and also projected into the future are by implication not part of the already-existing actual reality but mere future possibilities that may never become actualized? In order to clarify what is new (and real) about the contemporary economic configuration, our discussion will necessarily again take us back and forth across history. The New Economy has been associated with various trends and developments in the late-twentieth century, particularly in the United States, Western Europe and Japan. Perhaps the main claim in the literature is that whereas the ‘old industrial economy’ was fundamentally organized around standardized mass production, the New Economy is organized around ‘flexible’ production of goods and services, including financial services. The New Economy is said by some to be a knowledge and idea-based economy where the key to economic growth lies in innovative ideas and technology embedded in services and manufactured products.23 Apparently, following the pattern long known in speculation-prone financial markets, it is an economy where risk, uncertainty, and constant change are the rule, rather than the exception.24 It has also been described as a shift from Fordism to Post-Fordism, where Fordism was characterized by ‘mass production, scale economies and mass consumption’ and Post-Fordism is ‘oriented to flexible production, innovation, scope economies, innovation rents and more rapidly changing and differentiated patterns of consumption’.25 Alternatively it has been described as a shift from ‘organized capitalism’ to ‘disorganized capitalism, where the financial dimension of disorganized capitalism is characterized by decreasing national regulation and the disaggregation of capital markets.26 All of these characterizations have a dramatic epochal note to them. As a cultural indication of the difficulty of understanding the idea of an emergent new layer of the economy, one business book published in the early 1990s had the following note on its cover: The 1980s seemed to present us with shocking evidence that the money business is in utter chaos. A $500 billion S & L bailout, LBOs in bankruptcy, defaulting junk bonds, bad real estate loans all over the US, massive layoffs in the securities and banking industries … In The Troubled Money Business, Crawford and Sihler[’s] … conclusions may surprise you. The financial system isn’t failing – rather an old financial system is being replaced by a new one.27 This is not the first time when people have talked about a new economic era. Parallel views were in fact prevalent particularly in the US in the late 1920s. For John Kenneth Galbraith and other economic historians, these views centred on grand hopes of an economic boom, part of an illusion that Globalizing Finance and the New Economy: A Critical Introduction xvii quickly passed. At the time when the New York Stock Exchange dominated not only the news but also culture, a number of respectable opinions were expressed to confirm that a new era of permanent boom and easy prosperity for everyone had arrived. New technologies and industries such as radio, cinema, and aviation often prompted hectic speculation, soon followed by various investment funds that devised ways of creating ‘leverage’ (that is, money out of projected accruals in value) by mutual cross-investments. On 4 December 1928, US President Coolidge infamously sent his last message on the state of the Union to Congress: No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquillity and contentment … and the highest record of years of prosperity. In the foreign field there is peace, the goodwill of which comes from mutual understanding…28 By this time, a number of academic economists were also involved in speculation. In the autumn of 1929, one of the best known, all-American economists, Professor Irving Fisher of Yale, proclaimed that ‘stocks have reached what looks like a permanently high plateau’. Acting on this assumption, he soon lost between USD 8 million and USD 10 million in net worth.29 Many other actors were also structurally inclined to reinforce the collective illusion of official optimism. The US government, the Federal Reserve Board, the Federal Reserve Bank of New York, and other official bodies, did not want to trigger a downturn; thus they continued with the official optimism, qualified only by occasional acts and words of caution. Those with their own money at stake believed that the New Era would last permanently, while some of them used the optimistic prognosis to manipulate share prices. Widespread consensus in the media was also reinforcing. As described by Galbraith, Joseph Lawrence from the University of Princeton used the prevailing opinion against the few who warned of a possible end to the boom: In a statement which achieved minor notoriety, Lawrence … said that ‘the consensus of judgement of the millions whose valuations function on that admirable market, the Stock Exchange, is that stocks are not at present overvalued’. He added: ‘Where is that group of men with the all-embracing wisdom which will entitle them to veto the judgement of this intelligent multitude?’30 The Great Crash of 1929 followed this statement almost instantly. What this episode tells us, firstly, is that certain beliefs and interpretations are very much a part of the economic reality, but they can also be wrong.31 Secondly, it tells us, any explanation needs to be based on more than proximate events and beliefs, and needs to understand broader and longer-term patterns of practice and sensibility. As Jon Elster has reasoned: ‘to explain the economy, xviii Globalizing Finance and the New Economy: A Critical Introduction one must also explain how the economic agents – and, following them, the political economists – arrive at incorrect beliefs about how it works.’32 This is equally true of the New Global Economy. Ideas in themselves do not maketh or breaketh the market – for ideas too can be explained up to an extent in terms of social structures and processes – just as analyses about new dominant layers of exchange relations cannot be reduced to the ideologies associated with new dot.com booms and crashes. The concept of the ‘New Economy’ refers to various long-term and emergent trends that cannot be reduced to dominant beliefs. As one indication of a shift in the nature of the market, markedly fewer people work in agriculture or on the factory floors, particularly in the OECD world, than did a hundred years before. As another indication, discussed in a later volume in the present series,33 intellectually-trained groupings now constitute a new dominant layer of the work-force.34 Furthermore, market value is increasingly being added elsewhere than only in the production of commodities. Dominant practices of production and exchange have transformed, and with it the nature of work for many has changed. What we are interested in here, however, is whether new financial structures, regularities, mechanisms, and tendencies have emerged. In the sense that we use the term here ‘structures’ should be taken to mean internal and external relations of practices and subjectivities. Booms and crashes, generated by social structures and actions, tend to have their own demi-regularities. As one pathway to examining the patterns of continuity and change it is worth examining earlier financial upheavals. Charles Kindleberger maintains that ever since the Tulipmania in Holland (1636–1637) and the South Sea Bubble in Britain (1711–1720), financial crises have followed a common pattern.35 Tulips arrived in Holland with extended trade and became, in the early-seventeenth century, a luxury good sold to courtiers and country gentlemen. Speculation in common bulbs started in November 1636, and prices crashed in February 1637. The name ‘South Sea Bubble’ is given to the economic bubble that occurred in Britain through overheated speculation in the South Sea Company’s shares during 1720 (the company was granted exclusive trading rights in Spanish South America in 1711). One problem was that the War of the Quadruple Alliance (1718–1720) did not lead – despite some military success – to a significant British access to the South American goods and markets. The price of the South Sea Company shares collapsed soon after the Bubble Act (June 1720) required all joint-stock companies to have a Royal Charter specifying their purpose, following a peak in September 1720. According to Kindleberger, in these, and all the subsequent financial crises, the pattern has been very similar.36 The key to understanding financial mechanisms lies in credit-money and the process of money-creation – two formations expressive of what we earlier called ‘capital’, the abstraction of value from any personal or face-to-face Globalizing Finance and the New Economy: A Critical Introduction xix relationship for the purposes of the exchange. Banks create money when they give loans against future revenues and profits. Credit-money and moneycreation have generated resources for various colonial, military, technological and industrial ventures, but credit-money and money-creation have also enabled speculation that is increasingly detached from the objects of speculation, leading to manias, panics and crashes. In the first phase of Kindleberger’s scheme, there is an effective demand for specific goods or financial assets that seem to promise either good or excellent returns. Prices increase, giving rise to new profit opportunities and attracts more firms and investors. A positive feedback sets in, and ‘euphoria’ develops. Many may think that a new era of prosperity and getting-rich-rapidly has arrived. Actors’ motives tend to become increasingly greedy and speculative. Pure speculation involves buying for resale rather than use, in the case of commodities, or for resale rather than income in the case of financial assets. Without gearing or leverage, this would amount to mere arbitrage. However, credit-money and moneycreation enables actors to speculate on what they own partly or not at all, fuelling a process of rapid financial multiplication that has all too often turned out to be unsustainable. The objects of speculation have differed from boom to boom and crisis to crisis. There is a tendency for these objects to move from a few favoured items at the beginning to a wide variety of commodities, and other assets and instruments at the end. Thus, in the period of Tulipmania, the other objects included Dutch East India company shares, canals, drainage projects, and elegant houses; and in the South Sea Bubble period, government debt and various, often fictional, companies. The cycles of learning and unlearning about financial mechanisms and processes may in part explain economic cycles of various lengths. At the point when such explanations are converted into mathematical laws about regularized Kondratieff cycles of boom and bust it becomes harder to sustain,37 but it is important to take both subjective cycles of learning and objective cycles of market movement into account. It also seems plausible to posit a hypothesis that, due to the prevailing power-relations based on private and alienable property constitutive of capitalist relations of production and exchange, there is a tendency for the economic orthodoxy to assume prevalence in policy-making. Economic orthodoxy assumes that markets are self-correcting and in a state of equilibrium (or getting there), a process that is said to be normally beneficial to all parties. Quantity, theoretical thinking and modifications of monetarism, and rational expectations theory are historical variations of economic orthodoxy. Contemporary orthodoxy typically favours financial liberalization and deregulation. Hence, often after times of growth and relative affluence, financial actors are first liberated from some of the regulations that the previous crises had precipitated, and soon financial markets begin to develop in a more speculative and crisisprone direction.38 xx Globalizing Finance and the New Economy: A Critical Introduction Does this mean that the main financial regularities, mechanisms and tendencies have remained about the same for centuries? We would suggest not. Some of the mechanisms may remain similar, but there are also qualitatively new layers of reality. The NASDAQ as an electronic stock exchange can be taken as a symbol of the new globalizing economy – not because of its association with a bubble phenomenon, nor because it somehow represents a new virtual exchange system from the attribution by Jacob Arnoldi that we criticized earlier. Rather, NASDAQ has become one of the peak bodies of electronic capitalism in terms of its trading form. It has moved to become the largest stock-market trader of equities in the United States based in large part on forging a connection between the dominant means of exchanging value (digitally-stored fiduciary capital) and the dominant means of communication (digitally-encoded electronic transmission). Its website has more than seven million page views per weekday, accessed in rank order from the United States, Canada, the United Kingdom, Germany, Belgium, Israel, Italy, the Netherlands, Switzerland, Spain, and Sweden. When it began trading on 8 February 1971, it was the world’s first electronic stock market, although up until 1987 most trading occurred by telephone. With the stock-market crash of October 1987, in order to avoid the problem of investors not answering their phones the NASDAQ changed its trading regime to an electronicallyregulated system called the Small Order Executing System (SOES). On the one hand, it forces the transactions to comply with US Securities and Exchange Commission rules, and on the other hand it is an electronically-automated system for trading value. Its electronic platform and globalizing joint ventures make it a global corporation in its own right even if its global reach is uneven. NASDAQ has resulted in less intermediaries and more capacity for complex trading. Its joint venture with the London International Financial Futures and Options Exchange (LIFFE) was short-lived, and other joint ventures have tended to focus on the United States including with the Chicago Mercantile Exchange (CME), the largest futures exchange in the United States. Nevertheless, the pressure to globalize is strong. In 2006, NASDAQ renamed its NASDAQ National Market as the NASDAQ Global Market with a listing of 1,450 companies.39 In summary, NASDAQ is representative of both continuities and discontinuities with prior trading regimes. Even if there are continuities across modern history in both the cultures of speculation and the base logic of capital accumulation, capitalism has been changing in various ways. In a well-known article, Wallerstein discusses generalizability in terms of various durations of social time.40 Typically, historians, journalists, and social scientists alike all tell short-term stories with a mass of small details about diachronic sequences involving financial actors (both individual and collective), actions, instruments and events. These stories do not usually explicate the underlying social relations and mechanisms. Globalizing Finance and the New Economy: A Critical Introduction xxi To correct this, Wallerstein borrows the notion of longue durée from Fernand Braudel. Wallerstein argues that although social regularities and structures – or causal laws – are historical and changeable, they may last for a fairly long period of time. But how long is long in the longue durée, and can it be characterized as a single homogenous epoch anyway? The question of long-term continuities is a salutary one that needs to be taken into account, but Wallerstein implicitly makes it one of epochal generality – for him either it is still capitalism, or it is not. For Wallerstein, the basic unit of analysis is the capitalist world-economy, and within it certain key regularities and structures have remained largely intact since the longsixteenth century. Even if we accept the broad parameters of this argument in relation to the globalizing system of production and exchange called ‘capitalism’ – in other words, we agree that the present world is characterized by the dominance of capitalism defined in the broadest sense – it does not help to make ‘capitalism’ the unit of analysis. In relation to finance, as one aspect of the mode of exchange – keeping in mind that capitalism is defined, in part, by the systemic dominance of monetary and commodity exchange – it is clear that there have been manifold social and institutional changes since 1640. These include the concept and practice of lender-of-last-resort that emerged in the eighteenth century, the Gold Standard of the nineteenth century; and the multilateral systems of global financial regulation and governance of the twentieth century, and most recently the derivatives markets. As argued in Globalization and Economy: Vol. 3, Globalizing Economic Regimes and Institutions, the next volume in this series, demi-regularities and geo-historical structures of national and global finance are intertwined with particular institutional arrangements, and change can be understood as moving at different rates depending upon how near or far one stands from the detail of history.41 For present purposes we need to move back to specify some of the generalizing claims made thus far. A New Dominant Mode of Exchange? This argument about change in the patterns of finance can be taken further in relation to specifying the dominant contemporary mode of exchange. Across all of the volumes in the ‘Central Currents in Globalization’ series we have been working with the notion of intersecting modes of practice, concentrating on modes of production, exchange, communication, organization, and enquiry. In the previous volume in the series we argued that in terms of the dominant mode of production the late-twentieth century had seen the overlaying and reframing of industrial capitalism by what might be called techno-scientific capitalism. Here we want to suggest that at one level there has been a shift in the framing mode of financial exchange. xxii Globalizing Finance and the New Economy: A Critical Introduction Proposition 2. Expressed in terms of the dominant mode of exchange, commodity capitalism has been overlaid by the emerging dominance of electronic capitalism. The dominance of electronic capitalist exchange does not mean that commodity exchange had fallen away – quite the contrary. It does, however, mean that global exchange systems of both commodities and money have now been reconstituted or at least reframed in terms of the computer revolution, digitalization and electronic information-processing techniques and technologies. Across the course of the twentieth century, concomitant with the development of electronic codification as a new dominant means of communication, we saw the overlaying of coinage and paper money by electronic exchange systems that unevenly but fundamentally changed the nature of global financial exchange.42 It was something that a classical social theorist such as Marx could not have envisaged despite his understanding of money as a material abstraction.43 Although many of the developments had slow antecedents, the changes multiplied quickly. As a way into clarifying the nature of those changes there are some key examples that are worth listing. In the area of consumption, the first globally-linked credit and charge cards such as American Express, MasterCard, and Visa expanded across the 1960s;44 electronic cheque-clearing systems were developed in the 1970s; and electronic fundstransfer systems (EFTPOS) and automatic teller machines (ATMs) came into regular use in the 1980s. For example, in 1985 the Netherlands communications corporation Phillips and the British bank Lloyds announced a joint global funds-transfer system called Sopho-net WAN, spanning countries from Peru to Papua New Guinea. Electronic banking through global browsers such as Netscape, Internet Explorer and Google took hold in the 1990s, as did new schemes for electronic marketing, merchandising, and computerassisted share trading such as through the NASDAQ system, London Stock Exchange Automatic Quotation system (1986) and the Hong Kong Automatic Order Matching and Execution System (1993). In the business area, the changes were both extensive and intense. IBM made a corporate comeback across the late 1990s popularizing the new concept of ‘e-business’ under its slogan ‘Solutions for a small planetTM’. New financial instruments were built upon older processes. Traded derivatives – that is, ‘contracts specifying rights and obligations which are based upon, and thus derive their value from, the performance of some underlying instrument, investment, currency, commodity or service index, right or rate’45 – developed from the 1970s and grew exponentially from the mid-1980s. By the turn of the century, they amounted to an estimated USD 70 trillion or eight times the annual GDP of the United States. Hedge-funds also increased significantly over the first years of the new century, growing annually at approximately Globalizing Finance and the New Economy: A Critical Introduction xxiii 15–20 per cent to an estimated USD 1 trillion. The vagueness of the figures is testament to both the abstraction of the process and the superseding of older forms of institutionalization. Derivative exchanges, for example, are conducted ‘over the counter’ on private digital networks as the exchange of the temporally projected value of value-units that do not yet exist except as projections. Hedge-funds effectively gamble on (or protect themselves from) the future, by trading in options on the future now. Both collapse time-space into an eternal present-future. They trade in fine calculations about what might happen and the risks either way. To use the terms introduced earlier in this Introduction, this is related to a generalizing shift in the nature of how time-space is constituted – the (modern) ‘empty’ space-time of trading in objects and services, with value directly connected to the objects and services being traded, has been overlaid by a level of (postmodern) time-space in which the objects and services have become secondary items of exchange. Now, with the derivatives market, valueoriented and abstracted time-spaces have become the constitutive context in which items – in this case, future possibilities – are traded. This has profound political consequences. The phenomenal world of producing and moving goods around the world has now been framed by a new layer of the economy (ironically ushered in through the legislation of nation-states) that now operates far beyond the reach of democratic influence.46 As Saskia Sassen and others have documented, the foreign-currency exchange market led the way with increasingly globalized transactions from the mid-1970s with a daily turnover of USD 15 billion. The escalation in itself was extraordinary: USD 60 billion in the early 1980s; USD 1.3 trillion in the late 1990s. Over and above this, however, the point is that these more abstract forms of exchange outpaced more concrete exchange transactions such as commodity trading, which itself was greatly increasing in volume: foreign currency exchange was ten times world trade in 1983, sixty times in 1992 and seventy times in 1999.47 For all the substantial facts and figures that Paul Hirst and Grahame Thompson accumulate in order to dismiss the significance of this change and to show the continuities in the international integration of the economy from the 1870s to the present, they reduce the differences in form to the kind of empirical generalizations that an accountant might make. To go back to our earlier discussion, the change in character of financial exchange for them is reduced to ‘a switch to short-term capital’ from the longer-term capital of the Gold Standard period. Some of ‘the capital flows of the present, they suggest, ‘could thus be accounted for by significant differences in the pattern of interest rate variation’.48 This hides so much, including the recurrent themes of contemporary globalization: the speed of transactions (challenging, at least at one level, the modern idea of regulating temporality for social return) and the transversal of jurisdictional bases (challenging, at least at one level, the modern idea of the nation-state regulating territoriality). The volume of traded derivatives, in this respect, abstracts xxiv Globalizing Finance and the New Economy: A Critical Introduction from and carries forward the power of older kinds of capital movement such as direct foreign-currency exchange, but also is embedded in a major transformation of the dominant layer of financial exchange. To summarize this section, two interlinked points can be made about the nature of this emerging and increasingly superordinate mode of exchange. Firstly, the new exchange system became re-institutionalized along global lines as technologically mediated and abstracted from the production and exchange of commodities. For the purpose of the derivatives market the final exchange of a commodity is only of second-order interest. While electronic finance remains deeply institutionalized in codes, conventions and trading systems, exchange at this level is neither dependent on an ‘object’ referent such as the Gold Standard sitting behind the exchange – the New York Mercantile Exchange instituted gold futures trading in 1974 – nor on an ‘embodied’ referent such as Queen Elizabeth II or Mao Tse Tung whose faces are still printed on Pound or Yuan notes respectively. This process is not confined to the area of finance. Michael Power’s study of auditing illustrates this point in relation to a key area of knowledge-management. Auditing activities changed from auditing the accounting books of a corporate entity to auditing of the control systems of that institution to using an auditor as a signifier of an assured high-level auditing practice. In Power’s words: The abstract system tends to become the primary external auditable object, rather than the output of the organization itself, and this adds to the obscurity of the audit as a process that provides assurance about systems elements and little else.49 Secondly, this is a patterned process. The dominant metaphor for the system, ‘the free market’ suggests an open fluidity of movement, but what we have been narrating is a systematic pattern of meticulously-regulated material abstraction of the dominant system of exchange. Thus we can say that the material abstraction of the mode of exchange allowed the means and objects of exchange to be increasingly ‘dematerialized’ (and not necessarily the other way round). In other words, it was not so much that the items of trade in the financial area are dematerialized blips on the screen that has underpinned the change in the nature of financial exchange, but rather a series of qualitative changes that have occurred in the technologies, techniques and relations of exchange. Global Power and Governance Money – whatever dominant form it takes in moving and translating value across time and space – carries social and economic power. Those who possess money can buy assets, things, and people’s labour-time. These resources Globalizing Finance and the New Economy: A Critical Introduction xxv can in turn be organized into various collective ventures whether in financial markets or elsewhere. The concept of ‘structural power’ helps to explain more thoroughly the role of the financial markets in the complex nexus of global power relations. All aspects of structural power actually refer to the positioning of actors in the relational and positioned, discursively understood practices, some of which have become institutionalized in the longue durée of historical time. Using the concept of ‘structural power’ should not, therefore, be seen as inferring the existence of a different kind of power.50 It is simply to stress the implicated social relations and their analysis. The pre-World War I form of haute finance – the speculative markets of the 1920s – and the currently prevailing form of haute finance, the postBretton Woods system of globalizing finance, both generated or generate specific relations of power. While the control over financial decisions is typically highly asymmetric, financial capital tends to be allocated, collectively, by the main investors, in accordance to the expectations constituted by the shared frameworks of interpretation. For instance, in the post-1971 system, dealers and fund-managers made their far-reaching investment decisions on the basis of their largely shared discursive understandings of the world. The investment managers, brokers, dealers, etc., reproduce certain discourses in their daily activities; these discourses presuppose the essentials of orthodox economic theory which until recently have been brought together under the Washington Consensus. Due to the competition to attract investments, and the widespread fear of sudden financial capital flight the discourses of financial actors have had non-intentional power effects over both states and other economic actors. For many actors in the global political economy, it is quite reasonable to advocate liberalized financial markets, not only for their own sake, but also because they constitute a decisive element in the global context within which political agendas are set, discussed and fought over. These representations help to reproduce not only the social relations in this global context; they may also make it easier to advocate a contested political aim given that the global context appears to deem that aim necessary, or natural. What are the effects of global finance on interstate relations? According to Karl Polanyi, trade, the Gold Standard, and the transnationally-operating European financial system, maintained the nineteenth-century conservative order, and a relative peace – notwithstanding the Crimean War of 1854–56, the Franco-German War of 1870–71 and other lesser wars between European powers. It was the transnational financial system of Rothschild and other main banks that sustained a system power-balancing in Europe. In contrast, before and during the World War I, some Marxists and other theorists of imperialism assumed with V.I. Lenin that ‘the highest stage of capitalism’ is the era in which monopoly finance capital becomes dominant, forcing nations and corporations to compete amongst themselves increasingly for xxvi Globalizing Finance and the New Economy: A Critical Introduction control over resources and markets all over the world.51 At that time, others such as Karl Kautsky suggested that transnational finance would unite, at least, the elites or upper classes of the core countries of the world economy. It is unlikely, however, that there is any linear or singular causal relationship between globalizing finance and the nature of interstate relations. According to Polanyi, the turning point for the nineteenth-century era of long peace in the core areas of the world economy came during the downward wave that lasted from 1870/1875 to 1890. In particular, in 1875 to 1880 there was a significant response to the economic troubles of the day, and the European great powers returned to the practices of imperial expansion of the past centuries.52 As we have argued in an earlier volume in this series, Globalization and Violence: Vol. 1, Globalizing Empires, Old and New, imperialism itself involved a globalizing extension of structural violence. Thus, in the late-nineteenth century, Africa was divided between the European colonial powers. The colonial control in the Middle East and Asia was deepened and extended. In 1876–1900, the total colonial area expanded from 46.5 to 72.9 million square kilometres and the colonial population from 314 to 530 million people.53 The great powers again started to use power for political means to support the interests of particular investors. The traditional champion of free trade, Britain, was close to resorting to a system of imperial preferences, following the selected protectionism of its rivals, Germany and the United States. Unilateralism and resorting to force prevailed. Perhaps the late-nineteenth-century colonial expansion of markets, and the consequent availability of cheap raw materials, enabled a new upward wave that began around 1890? Of course, the upward economic swing was also based on new technical innovations such as steel, electricity, the internalcombustion engine, cars and various machines. Growth in this era was accompanied by the rise of trade unions and social movements, which contributed to the rise in real wages, at least in many of the core countries. This in turn induced an aggregate demand of goods and services at home, thereby contributing to further growth. Industrial growth was particularly strong in Germany and the US; both soon bypassed Britain in terms of production volumes. However, with declining competitiveness, Britain began to rely more extensively on its empire and, to an extent, the system of imperial preferences. Others saw colonial possessions as equally important. The remaining non-colonized space was already occupied, however. A new science and practice of struggle over global territorial space was born, namely geopolitics. The new neo-imperial and geopolitical stories told and the opinions adopted during the second downward wave constituted neo-imperial identities, and also redefined the interests of the great powers. In the social context this constituted the unequal growth of the long upward wave leading to the formation of new alliances and armament race between them. Globalizing Finance and the New Economy: A Critical Introduction xxvii Given the ideological similarities between the two eras of haute finance, an increasing number of commentators have raised the question whether the early-twenty-first century might resemble in geopolitical terms at least, the 1870s or 1880s? Some are close to Kautsky, who maintained in 1914 that inter-imperialist rivalries driven by the monopolistic drives of nationstates and national cartels could transcend by means of capitalist cooperation, and new forms of global governance. Thus, for instance, Robert Went concludes, after a careful comparison of the two eras: The interests of First World capital are also the driving forces behind the current economic globalization. But today’s world economy is characterized by an increasing number of cross-border links among different countries, a higher level of internationalization of capital, an integrated worldwide financial system, and a greater role for international organizations and panels charged with coordinating and regulating economic policies. Consequently, domination is expressed today mainly in economic and hardly at all in military rivalry among the main capitalist powers.54 Others argue that recent US politics of unilateralism and military supremacy is spelling the end to the era of multilateralism based on free trade and global finance, which has unleashed disintegrative forces. Will this be ‘a turning point in history, like the one that marked the end of the first phase of capitalist globalization, which lasted from 1880 to 1914?’ asks, Philip Golub.55 This is not only an academic question. The horizon of social action is always inherently temporal. The making-present of practical action stems from the anticipation of possibilities for transformative actionproducing outcomes on the basis of an understanding of that which has already been. In this light, the present volume is intended to shed light on global finance and the New Economy, both in terms of what has been and what could be. Ethico-political possibilities are not limited to repetition of the past. Re-regulation and Ethical Political Transformations Global finance is a highly technical and complex social system. All social systems are composed of time space situated relations between individual and collective actors, in this case such as between dealers in stock exchanges, managers of hedge-funds or transnational banks, financial departments of multinational corporations, central bankers and governments. In this sense, the modern/postmodern finance market is a social formation organized as a regularized, interconnected and codified system of practices of individual and collective actors. For example, dealers and those deciding on loans follow meticulously-defined legal rules and financial codes of conduct in the dozens xxviii Globalizing Finance and the New Economy: A Critical Introduction or hundreds transactions that they conclude every day. When they are not simply implementing the orders they have received, dealers and bankmanagers follow not only various algorithms of risk assessment but also rumours and stories that they have heard about market developments. Likewise, central bankers supervise and inspect these transactions on the basis of carefully defined procedures that they are required to follow. However, because the components of a social system are also connected through unintended consequences of action, the processes of codification and regularization do not make the finance market ethical in itself. Price movements, often volatile, are mostly unintended results of numerous transactions, although market leaders also play a role, and occasional manipulation of markets is possible. It also needs to be said that social systems have potential powers and properties, and these may constitute their ideologically charged raison d’être. For instance, do capitalist financial markets provide economic efficiency? The basic business school and economics approach is to justify free (liberalized) financial markets as an efficient mechanism of allocating savings to investments. Alternatively, those more inclined to various heterodox approaches in economics and political economy tend to argue that financial markets are not efficient but unstable, crisis-prone and harmful to long-term business interests and economic policies. Political economy critics also emphasize the disciplinary powers and redistributive effects of global finance, perhaps seen as undemocratic or unjust, as evidenced for instance by the chapters by Susanne Soederberg, Roland Paris and Heikki Patomäki in the present volume.56 Thus, it is not surprising – as is evident also from other essays in this volume – that the late-twentieth-century re-intensification of global finance flows has led to recurrent calls for both re-regulation and more thorough transformations of prevailing financial relations and practices. Some of the debates of the 1930s and 1940s have resurfaced, but also novel ideas and innovative solutions have been proposed. An already-existing regulatory novelty is the lender-of-last-resort role of the International Monetary Fund (IMF) (and of the central banks of course, earlier introduced in the wake of the 1930s’ Great Depression). There is also the relative novelty and significance of the Bank for International Settlements (BIS) regulations. In the aftermath of various late-twentieth-century agreements between the 55 member central banks of BIS, tier-one capital must now be at least 4 per cent of total risk-weighted assets. Total capital must be at least 8 per cent of total risk-weighted assets. When a bank creates a deposit to fund a loan, its assets and liabilities increase equally, with no increase in equity. That causes its capital ratio to drop. Thus the BIS capital requirements limit the total amount of credit that a bank may issue. The existence of lenders-of-last-resort and the new capital requirements make the financial markets less vulnerable to major disturbances and collapses. Globalizing Finance and the New Economy: A Critical Introduction xxix This kind of regulation works to stabilize the existing system; however it does so without questioning the broader consequences of the dominance of global electronic capitalism. Global finance continues to pose ethically-charged risks and have effects that many consider both unnecessary and undesirable. One of the new proposals discussed in the articles collected in this volume is the currency transaction tax (known also as the Tobin tax). James Tobin first proposed this tax in 1972, in the wake of the demise of the Bretton Woods system of fixed exchange rates. In fact, this proposal resonated with some of the earlier debates. The need to curb financial flows is based on a suspicion towards the effects of highly developed or mature financial markets. In his General Theory of Employment, Interest and Money, Keynes wrote: when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done … It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true for Stock Exchanges … The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.57 James Tobin’s original proposal for a currency transaction tax globalizes Keynes’ suggestion and applies it to the foreign exchange (forex) markets. Similarly, many other innovative measures are based on earlier proposals and simply take them forward one or another. This clearly holds true for Kunibert Raffer’s idea to apply US insolvency procedures to international debts.58 Concrete reforms can be also connected to wider issues of world politics, as when Myron Frankman writes that ‘imagining a world community and building world-scale democratic institutions may well be the only peaceful and sustainable way out of our increasingly strife-prone global race to the bottom’.59 However, Ash Amin adds a more sceptical voice, suspecting that many of the prevailing reform proposals ‘assume that the economy falls into neat territorial packages that can be governed in conditions of extensive globalization by better inter-scalar coordination and more effective governance by global institutions’.60 Amin is quick to emphasize that his call for new understandings is not an argument against globallevel reform, but the whole discussion suggests that a completely reconfigured social ontology of exchange-production relations is needed to cope with the effects of global finance. Conclusion Hedging, derivatives, options on futures, compound options (that is, options on options) currency and bond futures, over-the-counter transactions, arbitrage, xxx Globalizing Finance and the New Economy: A Critical Introduction are all methods of organizing and trading in value that have continuities with the past. However, they have been carried forward within a changing dominant framework of global exchange – a formation we have been calling electronic capitalism. This formation has continuities with the past, but our argument is that, at one level, this constitutes a New Economy that alternatively breaks with, re-makes, or re-frames many older practices. Writing in the early twentieth century before the full force of the changes that we have described, Karl Polanyi called attention to a Great Transformation. The literature does not allow us to be conclusive on the nature of the contemporary changes, and there is no Polanyi of the twenty-first century yet emerged to guide us, but the least that we can say is that over the past decades there have been significant changes in the mode and relations of exchange that entail an ongoing retheorizing of its dominant and emergent patterns. Techniques and technologies of financial exchange are being employed that may have antecedents going back to the nineteenth century, and in many cases long before, but at the same time in their consolidation and intensification they are remaking the nature of the global economic system. Less than a century ago it was possible to conduct one’s business on the edge of metropolitan capitalism relatively oblivious to the reach of the global financial market. Now, it is impossible to conduct even local economic transactions without reference to the reach of globalizing finance. Everybody’s life is directly or indirectly touched by it, whether it is in the form of mandatory-collection retirement funds, floating currency valuations, fluctuating national economies built into the global market, or, as is the case of a significant proportion of countries in the Global South, fragile economies made more fragile by contradictorily being framed by global exchange systems but unable to partake into the flows of capital that are said to be associated with ‘development’. This global–local reach makes it imperative that we examine the nature of the continuities and discontinuities of global exchange, and that we are rigorously and ethically attentive to its intended and unintended consequences. Notes 1. See Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, Beacon Press, Boston, 1944, pp. 3–30, reproduced in the present volume. Polanyi was writing before the derivatives market came to such prominence, but even if the derivatives market appears to be just a technique for contracting future exchanges, it is, by our argument, part of a long-term transformation in the dominant mode of exchange that emerged into dominance in the twentieth century. 2. Paul Hirst and Grahame Thompson, Globalization in Question, 2nd edition, Polity, Cambridge, 1999, p. 29. See also their contribution (‘The Future of Globalization’, Cooperation and Conflict, vol. 37, no. 3, 2002, pp. 247–65), reproduced in a prior volume in the present ‘Central Currents in Globalization’ series: Paul James and Barry K. Gills, eds, Globalizing Finance and the New Economy: A Critical Introduction 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. xxxi Globalization and Economy: Vol. 1, Globalizing Markets and Capitalism, Sage Publications, London, 2007. To be precise it should be noted that the era of floating rates did not actually begin in 1971. In 1972, governments began abandoning the devalued peg against the dollar, and it took years for all of the OECD countries to do so. In early 1973 the Bretton Woods currency exchange markets closed and shortly reopened in a floating currency regime. Hirst and Thompson, Globalization in Question, p. 61. Hirst and Thompson, Globalization in Question, p. 53. Manuel Castells, ‘Information Technology and Global Capitalism’, in Will Hutton and Anthony Giddens, eds, Global Capitalism, The New Press, New York, 2000, p. 53. Immanuel Wallerstein, ‘The Rise and Future Demise of the World Capitalist System: Concepts for Comparative Analysis’, in I. Wallerstein, The Essential Wallerstein, The New Press, New York, 2000, pp. 71–105, from p. 93. Note that here we are taking about the modern state system and earlier we were talking about the nation-state system. Richard Sennett, Flesh and Stone: The Body and the City in Western Civilization, Faber and Faber, London, 1994. Discussed in the introduction to the next volume in the present series: Paul James and Ronen Palan, eds, Globalizing and Economy: Vol. 3, Globalizing Economic Regimes and Institutions, Sage Publications, London, 2007. Humphrey McQueen, The Essence of Capitalism: The Origins of Our Future, Sceptre, Sydney, 2001, p. 59. Geoffrey Ingham, The Nature of Money, Polity, Cambridge, 2004, pp. 107–8. Pierre Vilar, A History of Gold and Money, Verso, London, 1976, pp. 95–8. Doug Henwood, Wall Street: How It Works and For Whom? Verso, London, 1997, p. 13. Stephen Valdez, An Introduction to Global Financial Markets, revised edition, Macmillan, London, 1997, p. 188. Robbie Robertson, The Three Waves of Globalization. A History of a Developing Global Consciousness, Zed Books, London, 2003, p. 91. John Kenneth Galbraith, A History of Economics: The Past as the Present, Hamish Hamilton, London, 1987, pp. 33–5. Dennis O’Flynn and Aruro Giráldez, Cycles of Silver: Global Economic Unity through the Mid-Eighteenth Century’, Journal of World History, vol. 13, no. 2, 2002, pp. 391–427. For a fascinating cultural history of financial practices, see Marieke de Goede, Virtue, Fortune, and Faith. A Genealogy of Finance, University of Minnesota Press, Minneapolis, 2005. Vaclav Holesovsky, Economic Systems: Analysis and Comparison, McGraw-Hill, New York, 1977, p. 329. Contrasts between different times and places often reveal relatively regular patterns in the way certain phenomena occur, i.e., contrastive demi-regularities. Demi-regularities are interesting first and foremost because they demand explanation. The essential question is whether it is possible to identify relatively enduring mechanisms that have causally produced the demi-regularities that we have detected. We also know that any demiregularities may at some historical point be transformed or cease to exist. Also this kind of change would require explanation. See Tony Lawson, Economics and Reality, Routledge, London, 1997, pp. 206–8; and for further development of the idea see, Heikki Patomäki, ‘Realist Ontology for Futures Studies’, Journal of Critical Realism, vol. 5, no. 1, 2006, forthcoming. See, for example, an early go at this rethinking by John Hinkson in ‘Global Crisis: Political Economy and Beyond’, Arena Journal, New Series, no. 12, 1998, pp. 67–81, reproduced in the present volume. Jakob Arnoldi, ‘Derivatives: Virtual Values and Real Risks’, Theory, Culture & Society, vol. 21, no. 6, 2004, pp. 23–42, reproduced in the present volume. See for example, Lester C. Thurow, ‘Globalization: The Product of a Knowledge-Based Economy’, Annals of the American Academy, no. 570, 2000, pp. 19–31. He overstates this position by arguing that globalization is an effect of this technological revolution. xxxii Globalizing Finance and the New Economy: A Critical Introduction 24. See for example, Ulrich Beck, What is Globalization? Polity Press, Cambridge, 2000. 25. See for example, Bob Jessop, ‘Towards a Schumpeterian Workfare State? Preliminary Remarks on Post-Fordist Political Economy’, Studies in Political Economy, vol. 40, Spring, 1993, cited on p. 14, reproduced in the next volume in the present series: James and Palan, eds, Globalization and Economy: Vol. 3, Globalizing Economic Regimes and Institutions. 26. Scott Lash and John Urry, The End of Organized Capitalism, Polity Press, Cambridge, 1987. 27. Richard D. Crawford and William W. Sihler, The Troubled Money Business: The Death of an Old Order and the Rise of a New Order, HarperCollins Publishers, New York, 1991, cover details. 28. Cited in John Kenneth Galbraith, The Great Crash of 1929, Penguin Books, Harmondsworth (1954), 1980, p. 30. 29. Kenneth Galbraith, The Great Crash of 1929, p. 95; Davis B. Bobrow, ‘Prospecting the Future’, International Studies Review (Special Issue: Prospects for International Relations: Conjectures about the Next Millennium), vol. 1, no. 2, 1999, pp. 5–6. 30. Galbraith, The Great Crash of 1929, p. 95. 31. See, more generally, Angus Cameron and Ronen Palan, The Imagined Economies of Globalization, Sage Publications, London, 2004. 32. Jon Elster, Making Sense of Marx, Cambridge University Press, Cambridge, 1985, p. 127. 33. Paul James and Robert O’Brien, eds, Globalization and Economy: Vol. 4, Globalizing Labour, Sage Publications, London, 2007. See also Hinkson, ‘Global Crisis: Political Economy and Beyond’ in the present volume. 34. Here the concept of ‘intellectually training’ does not mean that the workers are trained to be intellectuals, but rather they learn the techniques that intellectual labour has produced and learn to apply those techniques in practice. See for example, Karin Knorr Cetina and Urs Bruegger’s discussion of the work of the floor-traders (‘Global Microstructures: The Virtual Societies of Financial Markets’, American Journal of Sociology, vol. 107, no. 4, 2002, pp. 905–50, reproduced in the present volume). See Geoff Sharp, ‘The Idea of the Intellectual and After’, Arena Journal, New Series, nos. 17–18, 2002, pp. 269–316. 35. Charles P. Kindleberger, Manias, Panics, and Crisis. A History of Financial Crises, John Wiley & Sons, New York, 1996. 36. Kindleberger, Manias, Panics, and Crisis, pp. 11–43. 37. In economics there are now numerous competing wave and cycle theories: the Kitchin inventory waves (three to five years); the Juglar fixed investment cycle (seven to eleven years); the Kuznets cycle (fifteen to twenty-five years); the Bronson asset allocation waves (approximately thirty years) and the Kondratiev waves (forty-five to sixty years). 38. Heikki Patomäki, ‘The Long Downward Wave of the World Economy and the Future of Global Conflict’, Globalizations, vol. 2, no. 1, 2005, pp. 61–78. 39. http://www.nasdaq.com/ accessed during January 2007. 40. Immanuel Wallerstein, ‘Time and Duration: The Unexcluded Middle, or Reflections on Braudel and Prigogine’, Thesis Eleven, no. 54, 1998, pp. 79–87. 41. Paul James and Ronen Palan, eds, Globalization and Economy: Vol. 3, Globalizing Economic Regimes and Institutions, Sage Publications, London, 2007. 42. While the electronic means of communication made a difference, again it depended upon an extensive development in the relations of exchange. Thomas Crump’s discussion of the ‘pure-money complex’ (The Phenomenon of Money, Routledge & Kegan Paul, London, 1981, ch. 12), that is, of transactions performed ‘purely in terms of time and money’, goes too far to suggest that such complexes characterize all societies, but it is instructive. 43. Indicatively Karl Marx (Capital: Vol. 1, Progress Publishers, Moscow [1887], 1977, p. 129), writes ‘Only insofar as paper money represents gold, which like all other commodities has value, is it a symbol of value’. 44. Lewis Mandel (The Credit Card Industry, Twayne Publishers, Boston, 1990) shows for example how the credit card developed over the period from local bankcard experiments Globalizing Finance and the New Economy: A Critical Introduction 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. xxxiii in the 1940s, but the shift really took off with the systematization of computerized codification. American Express (formed in 1891) had its beginnings with the circular note system established in the eighteenth century for European travellers (John Booker, Traveller’s Money, Alan Sutton Publishing, Stroud, 1994), but electronic transfer and credit-card banking took the ‘travellers cheque’ into a new constitutive setting of highly abstract exchange. A. Cornford cited in Susan Strange, Mad Money, Manchester University Press, Manchester, 1998, p. 30. Various responses to this shift have taken up the idea taxing such financial exchange. See Heikki Patomäki, Democratising Globalisation: The Leverage of the Tobin Tax, Zed Books, London, 2001. Interestingly, Joseph Stiglitz in his recent book on reforming the global system (Making Globalization Work: The Next Steps to Global Justice, Allen Lane, London, 2006) completely ignores this emergent and increasingly dominant level of the global economy. Saskia Sassen, ‘Digital Networks and the State’, Theory, Culture & Society, vol. 17, no. 4, 2000, pp. 19–33. Hirst and Thompson, Globalization in Question, p. 29. Michael Power, The Audit Society: Rituals of Verification, Oxford University Press, Oxford, 1997, p. 85. Stefano Guzzini, ‘Structural Power: The Limits of Neorealist Power Analysis’, International Organization, vol. 47, no. 3, 1993, pp. 443–78. V.I. Lenin, Imperialism, the Highest Stage of Capitalism, Progress Publishers, Moscow, (1917) 1978. Polanyi, The Great Transformation, pp. 264–6. John Milios, ‘Colonialism and Imperialism: Classic Texts’, in P. O’Hara, ed., Encyclopedia of Political Economy, Routledge, London, 2001, p. 114. Robert Went, The Enigma of Globalization. A Journey to a New Stage of Capitalism, Routledge, London, 2002, p. 60. Philip S. Golub, ‘United States: The Slide to Disorder’, Le Monde Diplomatique, July 2005. Susanne Soederberg ‘The Transnational Debt Architecture and Emerging Markets: The Politics of Paradoxes and Punishment’, Third World Quarterly, vol. 26, no. 6, 2005, pp. 927–49; Roland Paris, ‘The Globalization of Taxation? Electronic Commerce and the Transformation of the State’, International Studies Quarterly, vol. 47, 2003, pp. 153–82. Heikki Patomäki, ‘The Tobin Tax: A New Phase in the Politics of Globalization?’ Theory, Culture & Society, vol. 17, no. 4, 2000, pp. 77–91, all reproduced in the present volume. John Maynard Keynes, General Theory of Employment, Interest and Money, Harcourt Brace, New York (1936), 1961, pp.159–60. Kunibert Raffer, ‘Solving Sovereign Debt Overhang by Internationalising Procedures’, World Development, vol. 18, no. 2, 1990, pp. 301–11, reproduced in the present volume. Myron Frankman, ‘Beyond the Tobin Tax: Global Democracy and a Global Currency’, Annals of the American Academy, no. 581, 2002, pp. 61–73, reproduced in the present volume. Ash Amin, ‘Regulating Economic Globalization’, Transactions of the Institute of British Geographers, New Series, no. 29, 2004, pp. 217–33.