Yesterday, the Financial Times reviewed the state of the major international banks by comparing the changes in their market capitalisation and scale between 1999 and 2009.
Such an analysis takes no account of many other sources of lending and investment, including organised crime and sovereign wealth funds, but it offers some clues to the long term effects on the global balance of power of the current crisis.
Finance capital and state power have always been indissolubly linked where markets are allowed to operate. Of course, we are looking at the Western banking sector at its darkest hour. The $1trillion programme of the US Government has only just been announced and its success is in the balance.
If Geithner's programme fails, we may be seeing the twilight of the Wall Street gods but the expectation is of a slow, painful recovery that restores a weakened but still strong Atlantic-based financial system to something much better than its current low point.
Nevertheless, the shift in financial power from 1999 to 2009 has not been a slow and steady one. Decisive changes have been concentrated within the last two years. Some of these changes will be permanent, suggesting an equally permanent relative decline of the West.
1999 was in the middle of a period when over-excitable strategists were highly disturbed by the prospect of Western global domination ending in or around 2030. This lobby fuelled policies in the subsequent decade that now seem to have brought that prospect forward by two decades.
The Shift of Power: 1999 to 2009
Over $1,000bn has now been written off the banks’ balance sheets and the search for fresh capital is becoming desperate but there are still a few banks that have done well. This crisis is still one of correction rather than meltdown.
The main shift has been the displacement of banking from London and Wall Street, with only one of the top 20 now in London [HSBC] and four in the US. London's relative collapse may be seen, historically, as devastating - for the UK, it could be argued that it is now well and truly trapped by its history.
This means that only 25% of the very biggest banks (those market capitalised at or over $29bn) are now in the Anglo-US sphere of influence (although another four are Australian or Canadian). The figure was 75% in 1999.
So, Anglo-Saxon Western banking has, at the least, not merely lost a third of its power on paper but nearly half of that power has migrated out to much smaller resource-rich white commonwealth countries.
A decade ago, it was unarguable that finance capital (motor of industrial capital and source of wealth for taxation and so public welfare in free market systems)was overwhelmingly American. There were two powerful associated offshore centres in London and Tokyo (with the Swiss and Germany not far behind).
In 2009, this world has been displaced by a new picture of a newly dominant China with a US reduced (albeit temporarily no doubt) to around 70-75% of the Chinese presence by scale and with less proportionate but still definite falls in the importance of London and Tokyo.
The top four banks in 1999 were American and British. The top three banks in 2009 are Chinese (ICBC, China Construction Bank and Bank of China). This is not necessarily a decisive or permanent shift - China may be less stable and the US more resilient than this implies.
Nevertheless, the new world of finance capital (even assuming some eventual major recovery in the US) might be characterised as a much more balanced but unstable model in which Wall Street and Shanghai will oversee a multiplicity of secondary centres.
These centres include Japan and Australia in the East and Canada, the UK (now merely first amongst equals that include Spain and France) and Brazil in the West – and these will compete with SWFs in a world where private equity lending is likely to be much more circumscribed by regulation.
This is not so much the triumph of the East as a thin spreading of available finance capital across the world, following a pattern of new capital accumulation based on labour and natural resource advantage. The specialist intellectual skills of the old imperial centres are being whittled away before our eyes.
Banks – Winners & Losers
Bank market capitalization everywhere has plummeted to levels not seen since the early 1990s – now, as then, below 5% of GDP in most nations.
In some ways, this is merely a healthy restoration of the status quo before a frenetic globalisation gave trade finance and international corporate expansion reason to over-privilege the financial engineers who had helped to make it happen.
For example, bank capitalisation in the UK had been hitting levels in excess of 25% of GDP and certainly not below 20% throughout the New Labour regime.
Although this rise began under the Tories (the Major Administration), New Labour will now represent to historians the very high point of British finance capitalism – an irony for a Party founded by labour unions at the start of the previous century and perhaps the basis for the sense of betrayal in its street.
New centres (Canada, Sweden and Russia) have emerged, but the real 'winners’ appear to be Australia which has grown rapidly and Brazil. These ‘winners’ have a natural resources/commodities base that is accumulating capital and needs servicing and does not need to go to the North Atlantic to do so.
These are also the sorts of economy that are elsewhere also accumulating capital in sovereign wealth funds. So, to these ‘free market’ non-Western or off-core Westernised centres, we may now add the Gulf, Russia (again) and other major energy and mining producing countries, including some 'rogues'.
As for the key losers amongst banks in the last decade – self evidently Lloyds TSB, Citigroup, Merrill Lynch and, to a lesser extent, Bank of America have fallen from great heights. The ‘winners’ are Goldman Sachs (which defies gravity), Banco Santander and (enough to note) Chase Manhattan.
In other words, this 'crash' is nothing more than, as we have said all along, a Great Correction. We might even go so far as to say that, if Geithner's toxic asset plan fails, there is no intrinsic reason now why, if the US were to implode, it would necessarily bring down the rest of the world.
Geo-Political Consequences
Since political power generally follows capital accumulation, the suggestion here (if this settles into a pattern) is one of a reduced West sharing its dominion of the world with China and of a relatively greater say in events for the Europeans within the West.
Of course, the ability of Europeans to speak in one voice is a moot point. The logic is of a struggle between the Western and Chinese spheres for dominance in East Asia and the probability is that two Southern continents (South America and Australasia) will increasingly follow their own paths.
While political stability issues might continue to dominate the dangerous zone from which most Western and Chinese resource and energy needs derive (Africa, the Middle East and West and Central Asia), competition will hot up for access to all natural resources.
Increased and more direct economic struggles are also likely between the US and China with the East Asian and European economies the primary battleground. Chinese strategists must be tempted to seize the moment even if it is a fine judgement how much they can see safely see the US weakened.
The prediction of the Financial Times (they cannot be blamed for the above analysis) is that banks may be forced to become less global, especially where taxpayers demand that banks do not take undue risks and/or are forced to take a prior interest in their own national economy.
This suggests to us that the fuel for globalization may not be present for a generation except insofar as SWFs take up the slack. We are moving into a period in which regional blocs become more self-sufficient, more competitive and more risk-averse – and in which the direction of capital becomes more politicised.
www.tppr.co.uk
www.pendrywhite.com
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Friday 26 June 2009 at 12:11