Gambling on Hunger and Climate Change

19 January 2015

Financial speculation has not just rewarded bankers; it has played a major role in fuelling hunger, land dispossession and climate change. Yet the financial sector innovates false financial ‘solutions’ to the very problems it creates.

Due to far-reaching national and international efforts to deregulate and liberalise global financial markets since the 1960s, the global financial system today wields enormous power over national governments, local communities and families. Financial speculation influences prices in markets for basic goods such as food and energy. Debt undermines the well-being and autonomy of consumers, farmers, students and governments. A handful of big banks hold entire economies hostage to their needs and appetites, particularly during times of economic crisis.

Pressures for higher profits originating in the financial system constrain the behaviours of companies in every part of the economy. There has been a proliferation of dangerous financial products designed just for the global poor – a group that used to be largely excluded from global financial markets. Nor has plant and animal life been spared; polar bears, bees and rainforests all suffer from the environmental devastation accelerated by the workings of the financial system. Indeed, through a variety of mechanisms the financial system today often works to undermine social welfare, increase inequality and accelerate environmental damage.

The scope and depth of financial sector involvement in global social problems is well documented,1 and this essay will focus on one recent case of financial speculation to illustrate in microcosm some of the pathways by which financial actors, instruments and markets exert their power. The case of financial speculation in global commodities markets illustrates how financial innovation and market expansion is connected to the disempowerment and marginalisation of poor and working class people, especially in the global South. It also helps to draw clear lines between gambling in commodities markets, on the one hand, and land degradation, water pollution, climate change and deforestation, on the other.

The conundrum for social activists is that the financial system today, despite its blatant disregard for people and Earth, has acquired political legitimacy in many circles. Shielded in part by the technical complexity of the field in which they work, financial actors and institutions wield political and cultural power that undermines public debate, financial sector transparency and accountability, and substantive market regulation. The financial system is also quite good at generating financialised “solutions” to the global social and environmental problems that it creates. These purported solutions, from risk management for peasant farmers to carbon trading, provide political cover for financial actors (who are seen to be social problem-solvers), all the while generating a steady stream of new profits. This suggests the need for a multidimensional approach by social activists to simultaneously shed light on global social problems caused by finance and disable some of the mechanisms that currently generate complacency and/or support for financial actors and institutions among politicians and the general public.

The case also generally questions the proper role of the financial system in social life. While most mainstream, neoliberal voices today suggest that a large and sophisticated financial sector relatively free from regulation provides a path to prosperity, the materials reviewed here give reason to think otherwise. At the very least, the commodities market speculation case suggests the urgent need for regulations that limit financial sector power in markets for basic goods and services. The case also suggests that we may want to think deeply about strategies for community protection from predatory and dangerous financial system activities. In the case of food price speculation, this implies thinking about ways for communities to insulate themselves from the consequences of commodity price speculation, for example through local food production.

The reader should be aware that the proper role of finance in the economy is a long-debated topic. In some intellectual traditions, for example the Keynesian tradition, the financial sector is pictured as a potentially supportive system that, with proper regulation, helps society to grow and become more equitable. In the liberal tradition mentioned above, a relatively free financial system helps to increase productive efficiency and works as a check and balance upon the pernicious influence of government in the economy. In contrast, the Marxist tradition sees finance capital as accelerating the exploitation and subjugation of labourers and the Earth, generating inequality, poverty, dependence and, ultimately, crisis. Feminists, ecological economists, anarchists, and voices from the anti-globalisation movement offer still other interpretations. Policy recommendations vary accordingly. As the reader will no doubt glean from the following discussion, it is my general opinion that the financial system should, at the very least, be smaller, simpler, less powerful and better regulated, given its tendencies to excess, abuse, repression and injustice.

This essay was published in the State of Power 2015.

photo by MXN

Pages: 12