May-June 1999

Today, only one in every seventy dollars that changes hands on the world currency markets actually pays for trade in goods and services.... the entire balance finds speculative outlets. This speculative capital results in little or no creation of jobs, no creation of assets, no creation of goods, ....but gives huge profits to the handful of international sharks who control it. It functions like a leech on the ‘productive’ economy, sucking out the surplus from the worker, devastating an entire populace, not merely of one country, but the entire globe. If eighty years ago Lenin saw finance capital as being moribund, decadent, parasitical; then today that same finance capital is a thousand times more moribund, a thousand times more decadent and a thousand times more parasitical. It is now like a twin-headed monster, with one head in the ‘productive’ economy (FDIs) and one in the speculative economy (FIIs), fattening from the blood of the oppressed masses the world over. And these vampires suck and suck and suck....killing, destroying thousands, each day, each hour. But, Dracula-like, in order to mask its true character, it has two faces – one, gentlemanly, polished up by the pen-pirates of the media; the other venomous, with its fangs extracting blood from its prey.

It is not just the millions killed in genocidal mania in the Balkans, Rwanda, etc; it is not just the millions more massacred by imperialists’ butchers like Marcos, Mobutu, Pinochet, Fujimori, Suharto or their refined avatars like Indira Gandhi, Vajpayee or Gujral; it is not just the millions more exterminated, ‘ethnically cleansed’, ‘purified’ by racist, zionist, communalist or casteist regimes – it is the millions and millions who die each day through poverty, hunger, starvation, curable diseases and by the brutal arms of the state. It is this that finance capital has bequeathed to the world, making it a living-hell for most. Yet it has successfully numbed a large section of the middle-classes into passivity, insensitivity and indifference by a continuous blasting from the electronic and print media, and by a set of values that seeks crude self-promotion, self-gratification and self indulgence as the only goal in life.

Finance capital, or imperialism, still has all the basic characteristics outlined by Lenin eighty years back in his pathbreaking work, ‘Imperialism-the Highest stage of Capitalism’... only today, each of those characteristics have got far more accentuated. The concentration of production and the size of the monopolies and multinationals has reached unbelievable proportions; the export of capital has seen a geometric increase since the 1970s and more particularly since the ‘globalisation’ of the 1990s; the merging of bank capital and industrial capital, and the creation on the basis of this ‘finance capital’ of a financial oligarchy, has become even more fused, more cohesive – with the state playing a catalytic role; and the fierce contention for re-division of world markets, continues apace with US, Europe and Japan leading the battle for a greater slice of the cake. Finally, the fact that imperialism means war, is even more evident today by the continuous sabre-rattling of US imperialism and by the militarisation of its economy, in a desperate attempt to maintain its world hegemony in the face of the other growing economic powers – particularly of Europe and Japan.

In this article we shall, first, take a historical view of the growth of finance capital in the post-war period; we shall then analyse the enormous centralisation of capital, in both production and finance; we shall then turn to the gigantic leaps in the export of capital and also the growing debt burden, particularly of the third world; and finally we shall see the disastrous impact of such a parasitical system.

History

Following World War II, USA dominated the world economy. With the crushing of Nazi Germany and Imperial Japan, the devastation of European industry, and the loss of more than 20 million Soviet lives together with one quarter of its industrial assets and most of its farm and transport infrastructure – the US owned roughly half of the world’s entire wealth. Never had a single ‘empire’ (not even Rome) engulfed such overwhelming power and control over the entire globe. And, immediately after the war, at the Bretton Wood’s dining table, sat the two major imperialist powers, USA and the UK, to carve out the world in their interests. The first, a swiftly soaring imperial superpower whose economic muscle power had enormously swelled between 1941 and 1944, the other, a debilitated empire thrashing at the throes of disintegration. In 1944, at the Bretton Woods Conference in New Hampshire, was born the International Monetary Fund (IMF) and the World Bank – the IMF, as an instrument for short-term credit, the Bank for long-term loans. Both, acting as the twin arms of international finance capital. The General Agreement of Tariffs and Trade (GATT) was also set up in order to regulate trade, in the interests of the imperialists.

At Bretton Woods, was decided the fate of the future world financial system, tied hand and foot to US imperialism’s financial interests. The headquarters of these two financial bodies was to be based in Washington.... and the Dollar was made the anchor currency, tied to gold at the rate of $35 for one ounce. Other major currencies were to be fixed against the dollar, to be agreed by the US-dominated IMF. For every $35 presented by a Central Bank of any country to the US, the US had to present one ounce of gold. At that time the USA had cornered 70% of the world’s gold stocks in order to meet claims.

The post-war years saw the triumphant march of US imperialism. Not merely was US money and Marshall "aid" reimbursed at exorbitant interest rates, but US corporate capital seized entirely new markets.... like the tobacco industry in Germany. Further, US geo-political control was reinforced thanks to an ascendant and subservient European political elite that gained from being on the American payroll in many ways. For example, huge financial transfers were lavished on the Christian Democratic Party in Germany, the Conservative party in the UK, the Vatican, and even (as was revealed in 1994) the Liberal Democratic Party (LDP) in Japan had been financed by the CIA for nearly three decades.

The 1945 post-war boom resulted from a big pool of purchasing power accumulated during the war years in North America, together with the huge potential markets of war-shattered Europe and Japan. In addition, the US instigated war in Korea and Indochina bestowed golden gifts to the US arms industry, as well as powered the Japanese boom. Japan’s post-war take-off owed much to the massacres of Asian people by US-generated wars. Once those conditions that triggered the immediate post-war boom petered out, towards the end of the 1960s, capitalism’s instability quickly resurfaced. The table in the next column gives a picture of the pre-war, war-time and post-war growth rates of the major imperialist powers.

The post-war boom is clearly visible from the table in the period 1948 to 1971. Besides, in this period, exports in the OECD countries (i.e. the major 24 capitalist countries) grew by 8.8% per year. But, with 1971, the new crisis began, and the growth rate slowed.

(in per cent)

In the first decade after the war the main form of foreign investment was imperialist-state-investment (officially known as public-long-term capital). This US capital, mainly in the form of grants and loans, went into rehabilitation of the war-torn economies in Europe and Japan, and, in the third world into the consolidation of semi-feudal, semi-colonial state structures. They were accompanied by large ‘military assistance’ in order to contain communism, encircle the socialist states and police the world.

In the next period, from the mid-1950s until the early 1970s, private direct investment occupied a central position in overseas expansion of capital. The requirements and possibilities of global accumulation called forth the massive export of productive capital (FDI). In particular, this involved the expansion and diversification of multinational (TNC) operations in the third world. Between 1955 and 1973, US private direct investment overseas increased five-fold. In the third world, the so-called ‘import substitution’ development, was not a programme of autonomous national development, as portrayed by the revisionists – foreign capital was heavily involved. For example, between 1960 and 1972, the value of US direct investment holdings in Latin America nearly doubled.

But, by the late 1960s, the rumblings of a crisis, began to disturb this so-called ‘Golden Era’ of post-war capitalism. The very system on which Bretton Woods was based, got smashed by the US itself.... with the reckless printing of dollars. The US financing of the Vietnam war, a series of budget deficits, swelling inflation, mounting debts, and, faced with a wave of speculation against the dollar – the entire system collapsed. Once the supply of dollars (in America and abroad) overtook the stock of gold at Fort Knox.... the system was in deep trouble. Finally, President Nixon, at his wits end, without even consultation of his IMF ‘partners’, arbitrarily declared, in August 1971, the inconvertibility of the dollar into gold.

But the crisis and havoc in the economy only deepened. Desperate attempts were made to salvage atleast one part of the Bretton Woods system – the fixed exchange rate mechanism. The dollar was devalued twice, in swift succession.... but to no avail. Finally, by March 1973, all efforts were abandoned, fixed exchange rates were abolished and a floating exchange rate system was introduced. With this step the seeds were sown for the future gigantic growth in speculative capital on the currency markets. Exchange rates were henceforth determined by buyers and sellers on the market, that became increasingly deregulated as one country after another abandoned exchange controls. Traders began to exchange currencies for purely speculative purposes, that had nothing to do with trade or investments in assets. And in late 1973, came the final straw that broke the back of the then prevailing international financial system – the overnight quadrupling of crude oil prices. The ‘Oil Shock’ repudiated all semblance of monetary discipline and international co-operation.

All these factors combined to create a deep stagnation in the world economy. From 1973 to 1987 economic growth in the developed countries slowed to 2.6% annually and export growth dropped to 4.7% annually.

With this slump in the world economy the outlet for private direct investment abroad dwindled. But, beginning in the mid-1970s and continuing through the 1980s, private bank lending – i.e. debt-creating flows of capital on commercial terms – became the predominant form of foreign investment in the third world. And with this, came the debt-trap, strangulating the third world countries in a web of indebtedness.

The large deficit-financing and printing of dollars to finance America’s war machine... led to a surfeit of dollars all over the world. Particularly, a gigantic sum of Eurodollars, as these came to be known, accumulated in European banks. Added to this, was the huge stock of petro-dollars generated through the rise in oil prices, which also found their way to the big banks based in Europe. This was coupled with the 1973-74 global turndown – the most serious since the Great Depression. All this resulted in an enormous pool of loanable funds at the disposal of commercial banks, with no investment outlet. This, then went as loans to third world countries, specifically to Brazil, Mexico and Argentina. Between 1974 and 1982 about $285 billion was lent to non-oil producing underdeveloped countries.

The expansion of loan capital (debt) in the 1970s was an important means by which imperialist capital generated profits in the third world, in a climate of narrowing investment possibilities. From 1971 to 1981 the Third World Debt grew from $70 billion to $600 billion. Its service cost rose from $20 billion to over $120 billion. Simultaneously, the giant American banks like, Citi Bank, began earning 40% of its profits from underdeveloped countries, from only 7% of its assets.

With the terms of trade deteriorating at a fast pace through the 1970s, with a rise in the interest rates on the debt, and with the second ‘Oil Shock’ in 1979 and the onset of a sharp global recession in 1981-82.... a number of third world countries went bankrupt and defaulted on their external debts. By 1982, Latin America’s external debt was $ 318 billion, while its trade surplus was a mere $30 billion – not even sufficient to pay the interest on the debt. By 1984, all new loans, were infact going merely to refinance the existing debt. The Latin American countries were caught in the quicksand of the debt trap.

In 1982, the IMF intervened in Latin America’s debt crisis, and with it came the IMF’s Structural Adjustment Programme (SAP).... i.e. to squeeze the last drop of blood out of the people in order to service the foreign debt. Its effect began to tell by the late 1980s when inflation reached gigantic proportions (1,600 % in Brazil, 3500 % in Argentina) leading to severe economic decline and mass destitution. But this resulted in explosions of violence, like in the oil-rich Venezuela. In the face of increasing violence, the imperialists stepped in with their ‘Brady Plan’ in 1990, to reschedule the loans and organise a bail-out through the IMF, World Bank and an International Consortium (to which Japan contributed a large amount).

Meanwhile, by the late 1970s, the developed countries were themselves facing a severe crisis – growing unemployment, high inflation and stagnation. The stagflation culminated in the recession of 1981-82. To pull the economy out of crisis, the bitter medicine prescribed was Thatcherism and Reagonomics. This was nothing but a massive attack on the working-classes of Britain and America, coupled with huge concessions to big business. The so-called ‘supply-side’ economy entailed revival of the market through : big tax concessions which raised the purchasing power of the elite, large deficit financing and privatisation. The weak recovery that followed through the 1980s, curbed inflation, but unemployment sky-rocketed and people’s condition deteriorated phenomenally.

Also, during this period, Germany and particularly Japan grew at a rate much faster than America. The President of the European Bank for Reconstruction and Development observed, "The signs of America’s relative decline are converging and unquestionable. Japanese productivity is increasing at three times the US rate, while European productivity increases at twice the US rate." For example, in the USA ten lawyers graduate for each engineer. In Japan ten engineers graduate for each lawyer. Germany had twice the number of scientists and engineers per capita, than the USA.

Simultaneous to this, with the dismantling of financial barriers with the introduction of a floating exchange rate and with the lack of investment opportunities due to recessionary conditions, the 1980s saw a massive spurt in speculative capital. To the anarchy of the market economy was added the anarchy of the financial system. Trading in currencies, in securities, in equities on the stock exchanges grew to unbelievable proportions. Advances in information technology allowed huge sums of money to be shifted from country to country in a matter of seconds. Within the global financial web, money transited from one banking haven to the next, in the intangible form of electronic transfers. The cost of a multi-million dollar transfer was just 18 cents. By the 1990s, through the aggressive promotion of ‘globalisation’, speculative capital like a mad elephant was already trampling under foot national economies, smashing financial barriers, destroying currencies, subverting governments ... and forcing the entire world economies to bow to its strength. By 1991, international bank loans which were only 4% of the GNP of the industrial countries in 1980, rose to 44% of their GNP. Outstanding international bonds had reached the huge figure of $1.7 trillion (one trillion = thousand billion) by 1991.

As we shall see later, 1991 was only the beginning. In the next seven years finance capital has grown astronomically – in private direct investments, in a burgeoning debt and, most of all, in the sphere of speculative capital. But, the gigantic growth of such a parasitical economy, has made it excessively fragile and prone to sudden shocks and crashes. Black Monday on October 19, 1987, with the crash of the New York Stock Exchange, saw $2,000 billion wiped out; the collapse of the savings and loan institutions and big banks in the USA in 1990/91 was saved only by massive infusion of (public) money by the government, amounting to 3% of its GDP; the 1994 Bond market crash saw another $1,500 billion wiped out, the bankruptcy of the Mexican economy in 1994 involved the gigantic bail-out of $50 billion. And all this pales into insignificance compared to the present crisis in South East Asia and the collapse of large number of Japanese financial companies and banks. The South East Asian crisis has already involved a bail-out of $100 billion and this is not working. Last year the GDPs of South Korea and Malaysia declined by over 6%. The Russian economy has collapsed. And now Latin America, particularly Brazil has been seriously hit. In Brazil the GDP is likely to shrink by 6% this year; the REAL in the first three months of this year was devalued by 44%; and to cover the $41.5 billion IMF-bailout, the puppet Brazilian government plans to extract a massive $23.5 bn in just one year through tax hikes and spending cuts. The crisis is threatening to engulf the entire world economies.

Already according to a report, it is being predicted that the Asian crisis will cost one million American jobs as cheap imports will come in and exports from America to these countries will be hit by austerity measures.2 The Economist, a major apologist for finance capital, pictures a similar impact when it says, "Most Wall Streeters expect Asia’s turmoil to knock around half a percentage point from America’s growth rate this year. The more pessimistic expect growth to fall by a full 1%, with America’s trade deficit worsening sharply."3 With the crash of the Rouble the Dow Jones stock index plunged 554 points on August 31, 1998 – its second largest decline in the history of the New York Stock Exchange. The German economy has been severely hit by the Russian collapse as it has lent a huge $75 bn to the Russian public and private sectors. Japan recorded a negative growth rate as high as 2.8% in 1998. The Economist, also describes the hopeless situation thus : "While the remedies currently on offer are clearly not working – the mixture of tight government budgets, high interest rates and liberalising economic reforms, supplemented by loans arranged by the IMF has failed to stabilise anything – it is not obvious what would work better." 4

Such then is the history of the evolution of finance capital in the post-war period.... leading to one of its most serious crisis ever. The IMF austerity measures outlined above by ‘The Economist’ will only worsen the conditions in these countries and push them deeper into the tightening grip of finance capital. Now, the imperialists, in order to shift the blame from themselves, have launched a tirade against the ‘corrupt’ governments of South East Asia... as though they alone are to blame for the collapse and not the system. Suddenly, the ‘miracle economies’ have become ‘crony capitalism’.5 Their major stooges, have become incompetent, corrupt, dictators. What they, ofcourse, do not say is that the ‘corrupt’ dictators, were propped up, pampered and fattened by the imperialists themselves, as a bulwark against communism. Now that their roles are over, their time has run out, they can be discarded; and more effective agents put in their place. The Marcos, Mobutus, Pinochets, Suhartos, may be replaced by neo-liberal ‘reformers’ – merely old wine in new bottles !!

Now let us turn to analysing each of the separate aspects of finance capital as it exists today.

Centralisation of Capital

As part of the restructuring of capital in this period of globalisation, a massive wave of mergers and acquisitions are creating even more gigantic conglomerates. Already large conglomerates are forming into even bigger and bigger combines, which wield even greater control on not only markets but on every aspect of life of countries in which they operate. The total value of these mergers and acquisitions in merely the USA in the seven year period 1988-1994 was $2.8 trillion; while on a global basis it was $6 trillion.6 In the last three years it has reached record levels. Last year saw record number of mergers in both America and Europe. The process continues, and in Europe it is likely to be even larger in order to catch up with the bigger conglomerates of America.

Here, we shall first look at the transnational corporations, and then the banks.

(i) The TNCs

Today, there are roughly 44, 000 TNCs with close to 2,80,000 foreign affiliates worldwide. Of these, the top 300 TNCs, excluding the financial institutions, own 25% of the world’s productive wealth.7 A mere 1% of the top TNCs own half the total stock of Foreign Direct Investment (FDI)8.

A small handful of 15 TNCs control the market in 20 key commodities. They control 90% of the world’s wheat trade, 70% of the rice trade, 80% of the tea and coffee trade, 90% of the timber, cotton and tobacco trade, 80% of the copper, 60% of oil, 90% of iron ore....

The top 5 companies typically account for 35-70% of total sales across a range of products. The following table gives the percentage of world sales by sector of the top 5 TNCs in the year 1992 9:

Consumer Durables 70%

Cars and Trucks 58%

Aerospace 55%

Electronic Components 53%

Oil, Steel, Personal Computers
and Media industries 50% each

To get an idea of the truly gigantic size of these TNCs, and consequently the power they wield over economics and even governments, can be seen from the fact that, the combined sales of the world’s top 200 corporations are far greater than a quarter of the world’s economic activity. Their combined sales are larger than the combined economies of all countries except the biggest nine. In other words, they exceed the combined economies of 182 countries – there being 191 countries at the latest count. If we exclude the 9 biggest economies (those of the US, Japan, Germany, France, Italy, UK, Brazil, Canada and China) the combined GDP (Gross Domestic Product) of the remaining 182 was $6.9 trillion. However, the combined sales of the top 200 corporations amounted to $7.1 trillion.10

The top 200 have almost twice the economic clout of the poorest four-fifths of humanity. According to the UN, some 85% of the world’s GDP is controlled by the richest fifth of humanity. Hence the poorer 4.5 billion people in the world account for only $3.9 trillion of economic activity; this is only a little over half the combined revenues of the Top 200’s $7.1 trillion.

The share of the global economic activity of these top 200 has grown rapidly ever since 1982. Whereas in that year the sales of these top 200 amounted to 24.2% of global GDP, it had risen to 28.3% in 1995.11 Besides, TNCs account for 70-80% of all Research and Development (R & D) expenditure and 80-90% of all technology payments.

If we look at a countrywise break-up of the top 500 TNCs we find that over 80% belong to the top five countries. Also due to the severe slump in the Japanese economy, in the last two years a number of companies have dropped out of the top 500 listing. The above chart gives a picture of the number of TNCs in the top 500 belonging to the major countries. The fluctuations in their economies are reflected in the number of companies in the top 500. While Japan grew very fast to nearly equal that of America, the present slump has pushed it temporarily back. Europe has been steadily growing.... though slow, it is soon catching up with America. Today, of the top 500, USA has 175, E.U. 154 and Japan 112.

There is a misnomer that these giant corporations, because of their international reach, no longer ally with any one country and are world bodies. That they are multinational and not transnational. Though generally referred to as multinational corporations, a more correct term for most would be transnational corporations. Strictly, a TNC is one in which ownership is with one country while a MNC is multinational, or where ownership is with more than one country. The bulk are TNCs while only a few, particularly in Europe (eg. Shell, Unilever) are MNCs.

Firstly, even at a very superficial observation it is incorrect, to assume that these corporations are not closely tied to the rulers of a particular country as governments and their political leaders are today aggressively pushing the TNCs of their own country at the cost of competitors from other countries. Second, governments are very closely tied to their TNCs, in assisting them with subsidies, tariffs and other trade concessions and even funding gigantic sums (of peoples’ money) to collapsing banks in their respective countries. And thirdly a study has shown that, though TNC operations may be transnational, its ownership and control are very much in the hands of the parent company. For example, the proportion of foreign-born board members of America’s 500 leading companies in 1991 was just 2.1% – the same as ten years earlier.13 Japanese multinationals will be even more tightly controlled by Japanese; while in Europe there will be more interlinking of directors from the major European countries linked to the political union that is taking place.

Now if we look at the top 10 MNCs in the world, we get yet another picture of their gigantic size. The above chart gives a picture of their sales, profits and their change in ranking in the last two years. Again here we find that the Japanese companies have slipped from their top positions in 1995. We also find an enormous drop in profits of all the Japanese giants (except Toyota).

The top 500 global giants had combined revenues in 1997 of $11,454 billion on which they earned profits of $452 billion. Though revenues increased in 1997 by just 0.2%, profits increased by 12%. If we compare the revenues of General Motors with the GDP of a number of Asian countries, we can imagine the power the TNCs wield. In 1993, the GDP of India was $225 billion, Singapore $55 billion, Hongkong $90 billion, Malaysia $64 billion, Thailand $125 billion and Indonesia $145 billion.15

But these giants, are rapidly becoming even bigger, as there appears no end to the wave of mergers and acquisitions (M & A). With 1997 reaching an all-time record of M & As at $1.6 trillion; in just the first half of 1998 the amount of M & As doubled the previous years’ figure already reaching (upto June 30 ’98) $1.4 trillion. The banking industry led the merger wave, closely followed by the telecommunication companies. Such giants, with enormous money-power at their disposal, easily dominate the comprador bourgeoisie of third world countries. Even in a big country like India, the biggest comprador company, Tata’s TISCO, had a revenue of just over Rs. 10,000 crores or $2.4 billion – i.e. 1.4% of General Motors. Market capitalisation of TISCO varied from $2 to $3 billion, and only about 20 comprador companies had a market capitalisation over Rs. 1000 crores or $0.2 billion.

(ii) Banking

The chief function of banks is to act as middlemen in the making of payment – to recycle deposits as loans. Through this, they transform inactive money capital into active money capital; that is to say, capital yielding profit. As Lenin said, "they collect all kinds of money revenues and place them at the disposal of the capitalist class." He added, "As banking develops and becomes concentrated in a small number of establishments, the banks grow from modest middlemen into powerful monopolies having at their command almost the whole money capital of all the capitalists and small businessmen and also the larger part of the means of production and sources of raw materials in any one country and a number of countries. This transformation of numerous modest middlemen into a handful of monopolists is one of the fundamental processes in the growth of capitalism into capitalist imperialism."16

If this was the situation eighty years back, today the size of banking monopolies is multiplied a hundred fold. The degree of concentration and monopoly in banking capital can be seen from the fact that a handful of banks today dominate the capitalist countries.... and even these are fast merging. In fact some of the biggest mergers and acquisitions have been amongst banks. In just the first six months of 1998 bank mergers alone amounted to more than $320 billion – equal to the total worldwide mergers four years back. In Germany it is the three giants – Deutsche Bank, Dresdner Bank and Commatz bank; in Japan it is the six giants – Sumitomo Bank, Fuji Bank, Sakura Bank, Sanwa Bank, Dia-Ichi Kaneyo Bank and Tokyo-Mitsubishi Bank; in France it is the four giants – Societe Génerale, Credit Lyonnaise, Banque National de Paris and Cie de Suez; and in the USA it is the five giants – Chase Manhattan, Bank of America, Nations Bank First Union, Bank One Corporation etc. Though many small banks exist, these dominate the banking world.... and the small ones are fast being wiped out or bought over. For example, late last year First Union bought over the Philadelphia based bank, Corestates, worth $ 16.6 billion. In 1998 there was the gigantic $70 billion merger of Travelers Group Inc’s merger with Citicorp. And in Europe in one of the biggest mergers ever, there was the $29 billion merger of Swiss Bank Corp with Union Bank of Switzerland.

Taking a global view, at the end of 1990, 15 of the largest banks in the world had assets totaling $5 trillion, an amount three times larger than that possessed by the 100 largest banks worldwide in 1976, and far higher than the value of entire world trade in 1990. The extent of concentration in banking can also be seen from the fact that the 31 banks in the Top 200 (corporations) have combined assets of $10.4 trillion and sales of more than $800 billion.17

On a countrywise basis, we find Japan has risen as the dominant financial power in the world (their Banks though, have been the worst hit by the present slump in the economy). Yet, historically if we look at the development of banking, we find that in 1976, of the six largest banks worldwide, three were US, two French and one German – by far the largest being Bank of America and Citi Bank (both US). The Japanese were then absent from this club of superbankers. Ten years later, in 1986, five of the six biggest banks were Japanese, with Citibank occupying sixth place. A year later, all six were Japanese – and owned assets worth $2.4 trillion. This was the situation a year back. The gigantic bank mergers in America and Europe in the last year would have somewhat altered the rankings. Yet Japan continues to be the biggest financial power. Japan has accumulated some $12 trillion in savings.... it now supplies roughly half the net savings used by the world’s borrowers, of which some $270 billion was funneled into US treasuries (Newsweek February 2, ’98).

Such gigantic monopolies have served to concentrate enormous funds in their hands. For example, US pension funds, which exceed $4 trillion, and account for a third of all corporate equities and 40% of corporate bonds, are mainly managed by the trust departments of these giant banks, thus giving them unprecedented financial power.

But besides commercial banks there are two more exceedingly powerful financial institutions. These are the insurance companies and investment (or merchant) banks. These too are dominated by giant monopolies.

The giant insurance companies, like Prudential, use money made by selling insurance for investment in enterprises. While banks use people’s deposits, the insurance companies utilise their savings through insurance schemes. Here too vast sums of money find their way into the giant TNCs. As in banking so also in insurance it is Japan that leads. In Japan’s life-insurance industry, premiums account for 40% of the world total. The eight biggest companies have assets of $1.3 trillion (145 trillion Yen). The industry employs some four lakh salespeople. Nippon Life alone, Japan’s and the world’s biggest life insurance company, employs 76,000 of them.18 In Europe too, mergers of the European giant insurance companies are creating monoliths. Two years back, two big French Insurance groups, A & A and UAP, merged to form the biggest insurance conglomerate in Europe. But late 1997 the German insurance giant Allianz tookover the French insurance giant AGF (Assurances Génerales de France) to become the number one insurance company in Europe with a yearly premium income of $64 billion.19

The investment banks are dominated by American giants. Often they are mere arms of the main Banks, who have fund-management wings. For example, Deutche Bank has Deutche Morgan Grenfell (DMG), Britain’s NatWest bank has NatWest Markets (NWM) as its investment bank. These investment banks ‘manage’ huge funds and by reason of their strategically placed shareholdings, are powerful forces in a large number of enterprises. It is they who stride the market of speculative capital, organise mergers and acquisitions, trade in bonds and currency markets and reap in huge profits. For example, Merrill Lynch, the largest investment bank in the world, earned a 28% return on capital in 1996/97. Here too it is the top 10 investment banks that dominate this sector. With a spate of mergers and acquisitions, the monopolies are growing larger and larger. In 1990 the top 10 accounted for 41% of the business of the 25 largest investment banks, by 1996 this had increased to 62%. Of the top ten, eight are American. The following is a picture of the percentage market share of the biggest investment banks : Merrill Lynch - 10%; Chase Manhattan - 8%; J.P. Morgan - 9.5%; Goldman Sachs- 9.3%; Morgan Stanley - 9%; CS First Boston - 6%; Salomon Brothers 5.5%; Lehman Brothers - 5% UBS - 4%; Bear Stearns -3%, Citicorp - 3%; Deutche Morgan Grenfell - 3%.20

The creation of a financial oligarchy can be seen by the interlinking on the board of directors of these banks and financial institutions with the industrial conglomerates. Also, on these boards are top bureaucrats and politicians indicating the close links with the State. This is best shown by taking a few examples. Take just the British/Dutch Oil giant, Shell. Some of the names on its boards of directors are : Robert Mc Namara (former US Defence Secretary, former president of Ford Motors, former president of the World Bank); also on the board are directors from Rothschild, Lazards, Hong Kong and Shanghai Bank, Sun Life Insurance, RTZ.... On the board of Unilever is the president of the Bank of England, and members of the boards of Barclays Bank, Citibank, Bank of Ireland..... Also its board comprises several former heads of the civil service from the foreign office. On the board of British Petroleum, there are directors from the boards of Deutsche Bank, Barclays Bank, Allied Irish Banks.... and also a former Commander-in-Chief of the British Land forces and a former head of the Diplomatic services. Deutsche Bank has a sizable stake in Daimler-Chrysler. And in Japan, banking and industrial capital are completely interwoven in the big conglomerates.

Finally it must be said that the crisis in the economy has hit the banks and financial institutions the worst — in both, the third world and the developed countries. Morris Goldstein of the Institute of International economics, estimated that three-fourths of the world’s economies have been hit by banking crises over the past 15 years. He estimates that the under-developed countries alone have spent $250 billion bailing out their banks. Also, some of the major banks in USA, France, Germany, Britain collapsed and had to be bailed out by their respective governments involving billions of dollars. Now a series of giant Japanese banks and financial institutions have crashed. And even after those crashes the situation is getting worse with estimated bad debts amounting to a gigantic $600 billion (nearly twice India’s GDP). Earlier last year the Japanese government (the Diet) decided to spend $230 billion to rescue the banking system.21 Also, the first casualty of the present crisis in South East Asia has been the banks and financial institutions with a large number of them crashing – including the largest bank in the region, the Hong Kong based Peregrine Investment Bank with a one billion dollar debt.

This crisis in the banking and financial system only indicates the extreme fragility of this system where, in the era of ‘globalisation’ speculative capital has come to dominate the money markets. And in each bankruptcy the losers are the people while the magnates and leaders siphon off their huge profits to safe havens. If the bankruptcy is allowed, it is the ordinary depositors who lose their money, and if the government spends billions to rescue a bankrupt bank, again it is people’s tax money which is used to prop up private enterprise. Both ways, the people lose, while the business magnates gain.

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