Financialisation Transformation in Australian Household Economy

1. Working Title

: Domestic Value circulation model in Australian Household and Financial Industry in four sectors.

2. Context

This project has been designed for analysing the incident of Financialisation transformation in Australian household economy. It would concern transformation of value cycle change cause by Financialisation between former and present period, Fordism era and neo liberalism era, for detecting economic effect of neo liberalism transformation.

There has been several radical economic explanations about Financialisation. From the 1970’s the MontelyReview director, sweezy (1997) warned about different kind of capital accumulation trend, which remained the term, Financialisation. It mentioned three characteristically changes such as decrease of economic growth, rise of multinational corporations, and Financialisation in matured economies. Brenner (2003, 2006) offered the argument that, tendency of profit decline that Harman(2010) and callinicos (2010) followed. Especially, callinicos developed the tendency of profit fail in pointing the role of fictitious capital.

However, Post Keynsisan like Estein (2005) laid the poor performance of production is cause of increase the volume of financial sector. It has been explained base on social entitle called reinter by Keynes (Crotty 1990, and Pollin 2007). Crotty (1990) described reinter has depressing effect on the real sector by investment fund and lower return. It has a theoretical similarity with Marxist theory about financed lead capital (2011).

Also Lapavitsas (2011) introduced another heterodox and sociological approach in Financialisation. For instance, David Arrighi (1994) described Financialisation as an autumn of matured capital hegemony. However, Lapavitsas lays his theory about Financialisation in his 2011 work. Three charactical transformations in financial industry, Non- Financialisation Corporation, and household sector, have been mentioned in the paper and it nd concluded with transformation of social value cycle in Neo Liberalism era.

For empirical research base on the Lapavitsas’s theory, Australia might be a suitable sample country, because, it has a matured economic condition and population size which is enough for household research, and apart from that, the industrial proportion is matured-over 61 percentages of service industry but less 7 percentage of manufacturing industry (IMF 2017)

However, Financialisation transformation in Australian economy has been researched by Mark Westcott and John Murray’s (2017), analyzing Financialisation transformation in Australian listed corporation. Unfortunately, it only discussed the condition of Non financial corporation sector; even it states social inequality (Westcott, Murray 2017).

It is important to research household economy for disclosing inequality rather than corporation, because inequality means income difference in household not any other.

As a result, this project would research Financialisation transformation, which is related with four sectors of Australian household and financial industry as a loan provider. It will research social provisional change during the era, for disclosing neo liberal social structure of financial expropriation.

3. Research Questions or Aims

Research question for this project might be ‘How Financialisation transformation changed value circulation cycle in Australian Household?’.

From Marxist perspective, if human labor creates value, even fiat currency era that currency is able to print without real economy, financial relationship between household and loan provider might be standard measurement start point for disclosing exploitation mechanism base on private social provision. From the logic, this research might have two more sub-questions which are,

  • What are Financialisation transformations in traditional financial sector and household in Australian economy? And how it affects in four economic activities, (housing, education, health, and credit money usage) of household?
  • Analyse the different value accumulation systems between Fordism era and Financialisation era in Australia?

In short cut, final aim of this research is to measure value flow or financial expropriation cycle in resent Australian economy.

4a. Empirical Research Methods

It is arguable that, usage of dynamic modelling program such as ‘Minsky’ is a empirical research method in this project, but in microeconomic approach method it is commonly accepted that using modelling program is suitable as a scientific method. Furthermore, for supporting dialectic approach for accuracy of the Lapavistas’s Financialisation theory in Australia case, it is important to draw relationship between traditional financial industry and household economy.

The dynamic modelling program is a good tool for visualizing the relationship map in the two different periods. Sub-research section in household might be several, which strongly influenced the necessary activities of individual’s life such as Education, Health, Housing, and Credit money usage. If research adopts traditional analysis method, it would not be efficient to demonstrate visually to influence of each entities.

One of benefit that Australian Household become a research sample is the size of research sample is not too much bigger than any other matured economy-. From IMF report (2018), total population in the country is 24,908,500, it belongs to middle population country in OECD --14th out of 26 countries (OECD Data. 2018). From Australian Bureau of Statistics site estimated the number of household in 2016 is 9,268,700 household (Australian Bureau of Statistics 2015). Its GDP (PPP) is 1,246 trillion, which ranking 17th in the world. It is reasonable the treat as a developed country economy, which matched with Financialisation theory. Finally, one of the reason Australian economy might be a good research sample is simplicity of its financial industry. Four big banks dominated country’s financial industry with good transparency reputation, which is very efficient to research (Global Finance. 2012).

Data collection might be an issue in this empirical research project. First industrial data are available in official originations site such as Australian Bureau of Statistics (ABS), the Reserve Bank of Australia (RBA), and Australian Stock Exchange (ASX). The data from international origination might be useful for collecting highly accurate information about industry and household like the World Bank and the World Federation of Exchanges (WFE).

With accuracy of industrial and household data, dynamic modelling program might be a core element of success of this research project. This project would use Minsky program, which accepted as an alternative modelling program in hetedox economy school. One of example of usage might be Steve Keen’s research based on the program. One of comparative advantage of the program is price and usage. Both have been reasonably acceptable for the researcher who cannot expect financial supporting from another entitle. Because it is open program in public Internet site, and all usage method are in the site. Under the assumption that researcher would get accurate data the modelling program that would be suitable tool for this project.

4b. Theoretical Research

Costas’s Financialisation theory is based on matured economy and it describes three structural transformations in capitalist economy, which are transformation of financial industry, non-financial industry and household.

Costas Lapavitaslied that Financialisation started based on situation that investable capital seeking refuge of circulation (Lapavitsas 2011). According to Sweezy’s prediction in 1970’s, financial industry has been liberated by deregulation. One of the examples might be Glass-Steagall Act that separated the role of investment banking and commercial banking service. It was Clinton government that deregulated the act, and Stigrass pointed as a cause of 2008 Global Financial Crisis (Stiglitz 2009).

The deregulation has opened the door that non-financial corporations are running business model based on financial service like bank. Ford Motor Company might be a good example where the financial service is bigger than car production-Retain Earning in 2016 is $15,634,00 but Financial Service Receivable Net is $46,266,000 in consolidate balance sheet- (Ford Motor Company. 2017). As a result, non-financial industries do not need traditional financial service from banking system. It cause that financial industry was looking for new business partner, which are household. It changed social provision system such as education, health, and housing so on, from free to onerous. And with the tendency fixing working class’s real income, the high press of social provision payment have been pointed the cause of increase inequality.

For empirical research for the theory, according to Westcott and Murray’s work (2017), in a strong capitalist perspective, it is obvious to analyse the Financialisation transformation in the non-financial industry and financial industry sector in Australian economy. But it missed to research about financial expropriation mechanism in household sector. Even household economy research might be a fundamental of the financial expropriation research. For extending the Australian Financialisation research, it is logical that there must be a research project that disclose relationship between Australian financial industry and household for illustrate character of Financialisation, which often described as a debt base social system.

There are many research articles about debt driven social system but there are not enough number of research to explain the reason public provision should change to private, and how much it has a systemic sustainability.

Furthermore, hopingly, this research project would become a basement of class research in the Financialisation economy. Because there is possibility that Financialisation that might create another type of class structure, which is based on financial exploitation compared with production in manufacturing capital era or consumption power in mass consumption era, causing by the change of private provision. It would be crystal clear, if there were dynamic simulation program that demonstrate relationship between households and financial, it is efficient to demonstrate the labor value flow or manipulation map in financialisation economy.

5. Reflections

There are no commonly accepted theories about Financialisation. So result of this project might have an academic limitation because of each economic school’s different perspective. Even if it is obvious but also it is difficult to prove Marxist’s theory as each school has a different analytical perspective about the cause of financialisation. It means there are possibilities to have many acceptable explanation of Financialisation because each school has their unique academic view about economy, which one cannot totally substitute. For example, in the sociological perspectives, David Arrighi, argued that Financialisation has been general economic phenomena that appeal in last period of empire. Marxist’s explanation, new type of exploitation may not be rejected but still they can keep their point.

Data collection is an issue in this research. First always there are possibility that Australian Government body or international organization could not provide suitable data, which will put all research in danger to fail. And even partially provide data also can be an issue because it will damage accuracy of total modelling. If it is impossible to find a right data partially or totally, there is risk to extend research period to turning to another method or adjusting project. Also category of data might be a controversial. For example, education, health, and mortgage may not be all sectors that influencing in household economy. Always there are other hidden economy sectors.

Obvious failure that can be expected is research result could not match with theory. Because there is always possibility that empirical research will create unexpected conclusion. For example, Lavitas’s theory could not be proving by this project or the result is supporting another school’s theory. However, if whole process were accuracy, the result should be accepted as a scientific conclusion or another way might be redesign whole project. However, suggested attitude for this project might be that this empirical research would perform under scientific perspective not dogmatic.

6. Conclusions

This research project has been designed for scientifically analysing the financialisation theory with Marxist perspective. It will take a part that current similar research did not touched; relationship between financial industry and household. Sample County has been chosen Australia, because it’s economic level and population is suitable for efficient research for an independent researcher. For household economy, four economic sectors have been chosen for the research. It needs technical supporting, which will be running dynamic modelling program for obvious visual result. There might be several technical variables. But if successfully prove Marxian financialisation theory in Australian case, the theory would have a strong position in Political Economy.

It is a brief schedule. However, there are few variables in the timetable. Under the assumption, the project has been started on time where the first variable is data collection. It is uncertain that all data, that are needed, can be collected at right time. If there are missing data, it needs to take more time, the schedule might be extended and second variable might be input data to dynamic program. There may be technical issue, if there is technical difficulty and it will take more time until fix it.

It is basically three years project, form August 2018 to early 2020, and between the periods there would be minimum three academic meeting for reporting and getting advice and permission to move to next stage.

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