Standardisation,disequilibrium,and crisis: The division of labour and financialisation

The machine process and business enterprise: Twin features of financialisation

To understand how groups gain strategic control, it is useful to analyse Veblen’s (2013) ‘machine process’ and ‘business enterprise’. By machine process, he means the technical division of labour. The business enterprise implies strategic control of corporations/industries through intangible assets – especially, but not simply, financial investment/divestment. The business enterprise enables the concentration of ownership and control dedicated to extracting value via rent-seeking, arbitrage and differential advantage (Veblen, 1908b: 107–108, 115–120; (Veblen, 2013: 68–86). Importantly, machine processes build on standardisation. Standardisation occurs so that parts are uniform across goods and services, e.g. electrical products and USB sticks or scripted call service centres. This does not occur in isolated organisations, but necessarily entails an inter-related spreading of consistency – a chain (Veblen, 2013: 10). Contingency, irregularity and craft are anathema to machine processes (Veblen, 2013: 11). Standardisation grows because producers seek it within their internal systems and from suppliers. But also they, as suppliers, supply to a standard which ensures standardisation penetrates labour processes and economies.

Central to Veblen’s (1908a, 1908b, 2013: 16–37) machine process is its relationship to the business enterprise. He argued capitalism created ever larger firms which generated an increasing separation between machine processes and business enterprises ((Veblen, 1908a: 533–534). Crucially, the business enterprise focused on strategic control and intangible assets rather than the direct surveillance of labour. Through intangible assets and liquidity, business enterprises separate strategy from day to day production management and favour value extraction e.g. rent-seeking (Veblen, 2013). For Veblen business enterprise intangible assets are an important, but unproductive, means of distributing surplus away from labour. Thus, even if firms operate in their traditional markets, they develop intangible assets (cost accounting techniques, marketing, intellectual property rights), and centralise knowledge via standardisation to squeeze value from labour, suppliers and customers. For example, Singer Sewing Machine used its standardised labour processes to create a contractual production network with the Providence Tool Company. The contract, to make cheaper Singer machines without the Singer brand, allowed Singer to squeeze value through intellectual property rights and standardisation (Hounshell, 1984: 96–97). Similarly, Ford, perhaps the pinnacle of standardised labour processes, increasingly relied on intangible assets like innovation and marketing in the 1920s. Despite Henry Ford’s resistance, the Model T was regularly modified. By 1926–1927, innovation and marketing were fundamental to automobiles and their lack of centrality to Ford lost it market share so the firm reoriented to embrace ‘flexible mass production’ (Hounshell, 1984: 261).

In contemporary economies, these intangible assets are more important. The private equity firm perhaps epitomises the relationship between machine processes and the business enterprise. Today, the business enterprise demands returns of 10% in ‘foundational’ sectors of the economy, such as privatised rail or power utilities (Foundational Economy Collective, 2018: 65), and in other sectors it sets a goal of 20% (Rossman and Greenfield, 2006: 2). These strategies drive corporations towards financialised models located in deskilling, undermining routinised working conditions, loading corporations with debt, extracting value via share buy-backs, etc. The employment importance of private equity firms is significant; e.g. in 2006 the private equity firm Blackstone Group International exercised control over workplaces employing upwards of 300,000 people, although it refused responsibility for their management (Rossman and Greenfield, 2006: 3). However, not just private equity firms exploit intangible assets. Adidas used its brand and intellectual property rights to close its manufacturing plants in Germany (keeping one as a technology centre) and sub-contracted its manufacturing to cheaper regions. Similarly, Nike offloaded its production to Yue Yuen International whose 111,000 employees in its Dongguan factory produce a million shoes a month for a variety of western firms (Freeman, 2018: 273). Firms use their intangible assets to dictate the terms of business (investment) to these suppliers or to divest themselves of the relationship for more profitable and/or controllable ones. As such, the deployment of business enterprise intangible assets is increasing through global value chains and this operational financialisation has enabled the Top 100 firms to increase their percentage of profits through rent extraction from 16% in 1995–2000 to 40% between 2009 and 2015 (UNCTAD, 2017: Fig. 6.1). Between 1996–2000 and 2011–2015, the leading 2000 firms have used these assets to increase their net sales/revenues from US$12.8 trillion to US$36.8 trillion and their rate of profit has risen from 5.7% to 7.0% despite the great recession (UNCTAD, 2018). Operational financialisation through the machine process appears both more portable and more tied to the business enterprise than in Veblen’s time.

Historically, such a closeness generated political fear about new financial elites e.g. expressed by Woodrow Wilson and the Progressive Movement (Veblen, 2013). Examples are Congressman Lindbergh’s declaration that a ‘money trust’ dominated finance and industry, and the 1912 Pujo Committee which reported that ‘an inner group’ controlled over 100 corporations (Bellamy Foster and Holleman, 2010). Prior to the New Deal, financialisation, as the rise of strategic control and capacity for large-scale financial investment/divestment, was present and growing. JP Morgan’s US Steel encapsulates this new role of finance and strategic control (Brody, 1987: 19). Morgan sought control of the circuit of capital through wage and price stability, not competition. US Steel sought oligopoly and rising profits (Brody, 1987: 24). As Charles Schwab, a leading actor in its creation, suggested it ‘would banish forever the need for wasteful competition and ensure monumental profits at prices that would bankrupt any foolhardy interlopers’ (Standiford, 2005: 277). This emphasis on gaining strategic control of whole industries increased capacities to extract value.

Galbraith (1954: 182–210) argues this power generated sharp increases in profits while keeping wages subdued. He suggests output per worker rose by 43% in the 1920s, but that corporations used their new-found strategic control to ensure wages failed to keep pace (an important element of the current financialisation). Indeed, controlling concentrated assets ensured the ‘Gilded Age’ was economically strikingly unequal (Piketty, 2014: Fig. 88.7). This diversion of value from labour encouraged a process whereby profits were invested in capital goods in order to maintain demand because labour’s consumer spending could not bridge the shortfall between production and consumption (Galbraith, 1954: 192–194). As time passed, this dominance meant rising profits were ploughed back into capital goods and more production and, from there, into speculation in industries like property, insurance, etc. These developments encouraged poor corporate governance because producing firms saw profits siphoned off to pay for (speculative) investments made by their business enterprise holding companies upstream. ² Strategic control links growing production-based profits with finance and liquidity to enable the deployment of profits in investments. Galbraith argues the finish of this accumulation was the Great Crash. Veblen (2013) suggested such accumulation increased economic instability because, in a financialised economy, ‘vested interests’ come to increasingly rely on such strategies. Thus, as industry becomes dominated by financialised activities, market rules or regulations are geared towards vested interests who often seek out crisis and disequilibrium to threaten regulation as a ‘public good’ (Űlgen, 2017). As such, operational financialisation feeds into other financialisation forms.

The machine process is pivotal to financialised economies because its uniformity enables financialisation to distribute wealth away from labour. In short, mass production facilitates the concentrating of ownership and control (Veblen, 1908b) and the searching for differentials and diversity within, and across, standardising processes. Veblen (2013: 14) argued standardisation meant production became embedded in a uniform comprehensive mechanical system which implies that when disequilibrium sets into the concatenation, e.g. improved communications, it enables the exploitation of cheaper labour in new locations (as standardised containerisation has done, Freeman, 2018). The business enterprise leverages disequilibrium to invest where the greatest imbalance and most profitable opportunity lies. For example, having standardised production in steel, the industry could and did exploit race, e.g. the 1915 steel strike (Brody, 1987: 162), to weaken the power of, and rewards to, labour. This was possible because production had standardised and the industry, as a strategically controlled oligopoly, encouraged interchangeability of labour. Anticipating contemporary ‘supply chain capitalism’ (Baud and Durand, 2012; Danyluk, 2018; Tsing, 2009), machine processes enabled the business enterprise to use suppliers, communications and labour diversity, e.g. gender, class, ethnicity or immigrant status, to squeeze value (Veblen, 1908b: 135).

In contemporary ways (Rossman and Greenfield, 2006), Veblen (2013: 19) argued capitalists were interested in disequilibrium and crisis within economies. Disequilibrium and crisis encourage a declining direct interest in labour management ³ and even an interest in restricting production and productivity (Veblen, 1908b: 107–109). As with the present day, wherein power dynamics between firms structure GVCs (Baud and Durand, 2012; Froud et al., 2012; Starosta, 2010: 548–550; Starrs, 2013; Thompson, 2003: 367), Veblen (2013) argued business relations between capitalist groups, not the direct management of labour or competition, grow in importance to further divorce the business enterprise from direct production. For example, holding companies receive profits from operating companies (Galbraith, 1954), or, as Henry Clay Frick said in 1905, ‘the whole fabric of American industry, commerce and finance, has grown into inter-supporting relationships’ (Standiford, 2005: 281). Central here was the merger wave itself. It recast ownership, ensuring owner-managers became a thing of the past and ownership emerged as control through investment or divestment in a variety of corporations/opportunities – ‘vendible capital’ (Veblen, 1908a: 533–535; Veblen, 1908b, (2013: 18–20). Capitalists move from production to financialisation in the manner of ‘Captains of Industry’ (Veblen, 2013: 20) such as Rockefeller, Frick or Morgan. This world is shaped by churn because businesspeople search for higher profitability and so shift resources, unlike the passive small shareholder who ‘holds permanently to a given enterprise’ (Veblen, 2013: 192 n7). During this period, the strategic control of concentrated assets ensured that the upper decile of the US population claimed 45–50 per cent of national income, within which capital gains were an important element (see Piketty, 2014: Figs 1.1 and 8.5).

Craft, the inside contract and standardisation

If standardisation and financialisation are interrelated then we should appreciate the relationship. Standardisation traces its origins to the military pursuit of inter-changeable components (Chandler, 1981: 156). From the 1760s, France sought to rationalise munitions production with standardised parts. This quest would ensure weapons were replaceable or restorable with standardised parts and so enhance military effort. These ideas reverberated in the USA. Thomas Jefferson sponsored them, distributed texts and communicated with officials on inter-changeability. With different levels of determination, post-1800 the US military pursued standardised inter-changeable parts for 50 years (Hounshell, 1984). While initially seeking efficiencies of repair on battlefields (Ferguson, 1981: 3), standardisation became a struggle over knowledge between craft workers and capitalists seeking control of labour processes, reduced costs and the capacity to benchmark employees against one another (Braverman, 1974; Hanlon, 2016; Montgomery, 1987). ⁴ This antagonism over standardisation, and who controls production, was a key battleground in the restructuring of the 19th century (Negri, 1996; Wilentz, 2004).

Furthermore, standardisation is central to mass production (Hounshell, 1984). Standardisation, labour control and benchmarking must penetrate organisations for mass production economies to emerge. For example, in the 1880s Singer used craft labour to mass-produce 500,000 sewing machines annually (Hounshell, 1984: 89). However, standardisation was necessary for Singer’s products to be inter-changeable, benchmarked, and hence regularised. Singer’s building of a globally branded corporation led it to standardise its European machine tools, gauges and other devices along its US lines (Hounshell, 1984: 97). This was not simply driven by labour costs (which were cheaper in Scotland than the USA) – it was about deploying intangible assets and corporate power to extract value via the brand. Strategic control allowed the firm to benchmark ‘quality’ and productivity, and to gain further control over its market. Rather than being a singular focus on the management of labour, the machine process enabled better control of the circuit of capital. Importantly, Veblen (2013: 14) argued such standardising processes increase as economies develop. This is because standardisation enhances accumulation and corporate power (globalisation entails benchmarking systems like SAP or Six Sigma (Sklair, 2001: 113–148) and standardised infrastructure projects such as Export Processing Zones (Easterling, 2016)). In this view, early 20th-century globalisation is (partially) the internationalisation of the machine process and business enterprise –a precursor to contemporary international divisions of labour which allow corporations to coordinate value extraction processes in a ‘new imperial system’ (Baud and Durand, 2012; Hymer, 1970: 446; Nolan, 2012; Tsing, 2009). Here capitalist standardisation appears inevitable. However, this is an appearance because its development emerged as one outcome of political conflicts with a key labour group of the time – craft workers (Negri, 1994: 25.5). As a group, craft workers were favourable to markets, but not necessarily supportive of standardisation or profit maximisation i.e. to capitalism’s development, and hence they were reduced.

Capitalism’s development made craft power problematic because it halted standardised benchmarking and strategic control. Hence craft workers needed managing. The route to this was to standardise, undermine skill (Brody, 1987; Montgomery, 1987; Stone, 1973) and reorganise work by ‘exerting pressures for change that would benefit management’ (Ferguson, 1981: 10). The end of craft relations of production is located within the division of labour and the desire to redistribute value away from production, intensify production processes, standardise, benchmark and measure. What informs Taylorisation is labour’s knowledge, power, (limited) refusal of capitalist development and its capacity to guide value towards labour – organisational change is driven by these wider social forces. In this reading, the struggle to standardise helps lay the foundation for conflicts around what we call financialisation because, as we will see, without standardisation Veblen’s business enterprise is impossible.

The pursuit of standardisation, the bureaucratic organisational form and monopoly capitalism

Bureaucracy is key to understanding standardisation and mass production (Clawson, 1980; Hounshell, 1984: 270–275). Creating gauges, tolerances, machines and systems so precise to repeatedly produce the same cut, joint or product requires bureaucratic forms: ‘The goal of inter-changeability, still very elusive, Lee believed, became an exacting exercise that imposed a bureaucratic system upon the armoury [in 1820] in its attempt to prevent any deviation from the standard pattern’ (Hounshell, 1984: 35 – date not in original). Anticipating assembly lines, superintendent Roswell Lee’s pursuit of aligned machines facilitated sequential production and created a flow that virtually eliminated hand labour at Springfield Armory. Thus, standardisation brought with it bureaucratic order – one sees this at US Steel. US Steel emerged after the 1892 Carnegie Steel Homestead strike that reshaped the industry in favour of owners – Carnegie Steel was a central component of US Steel because it dominated the market (Montgomery, 1987). This reshaping of relations occurred because standardised production had ‘so simplified steel making that untrained men could successfully replace the strikers. That key fact, evident to both sides, determined the course of the Homestead strike’ (Brody, 1987: 18). Thus, while the business enterprise enriched and detached leading capitalists – like Carnegie and Morgan – from production, machine processes simultaneously ensured labour was subjected to measurement-based, cost-cutting and bureaucratic management practices designed to enhance strategic control and increase comparability of (and extraction from) individuals (and later factories and industries).

The Homestead strike was not simply about the greed of leading capitalists. The immediate amounts involved were relatively trivial. At the time, the profits of Carnegie Steel were US$5m per annum. The added costs of maintaining the existing employee agreement would have dented this by US$20,000 per annum (Standiford, 2005: 117). The 1889 agreement, with the Amalgamated Association of Iron and Steel Workers of the United States, included a sliding scale linking skilled workers’ wages to the tonnage market price of steel. In the agreement, as steel prices rose so too did wages, but as steel prices fell a floor of US$25 per ton was set below which wages could not decline. This effectively insulated workers from downward shifts in the price of steel (Standiford, 2005: 109–126). Carnegie Steel wanted to alter this and push risk away from owners in the 1892 renewal. During the earlier agreement period, steel prices fell by 19% thereby increasing unpredictability in two ways – one, market prices for steel fluctuated and two, wages were uncertain. While the firm viewed profits as cyclical and unknowable, it sought uniform costs. It felt costs should be controllable, fixed and standardised (Standiford, 2005: 69–83); that is, to operationally financialise routine transactions by treating wages as fixed costs (to be driven down) in order to redistribute value upwards (on the importance of wage struggles to wider labour–capital power relations, see Marx, 1994: 182–184; Negri, 1988). ⁵ Standardisation and calculability allowed better management of capital’s circuit.

Post 1892, Stone (1973) describes how steel created modern bureaucratic forms. So dominant did this model become, Chandler (1981: 161) has suggested, that since 1910 the ‘basic organizational structure and the basic techniques of coordinating and controlling their operation have changed little’. At its organisational heart is the demise of craft; the transferring of knowledge to management; its concentration in intangible bureaucratic systems; the ever-growing importance of measurement, benchmarking and comparability; and the emergence of semi-skilled workers. The struggle over steel between 1892 and 1920 is key to modern corporations and to operational financialisation. Post Homestead, the industry transformed through a minute division of labour, use of new technology to alter production and job structures, comparing and disciplining of labour forces no longer capable of self-organising production and embedding of control – at a distance – over the entire labour process (Stone, 1973); in short, modern corporations.

Within this transition, and despite increasing productivity per worker, the rewards of labour (especially skilled workers) declined. For example, a Roller at Homestead in 1889–1892 was paid US$14 per tonnage, yet by 1908 a Roller received US$4.75. Steel broke the connection between market price, productivity and wages (Brody, 1987: 15). In 1892, Carnegie Steel paid out US$7.3m in wages, and profits were US$4m. However, post standardisation, 1899 profits were roughly US$22m and wages were US$10.9m (Standiford, 2005: 239–240, 250). Thus, in the seven-year post-strike period, wages went from being twice the size of profits to less than 50% as value was skewed away from labour. ⁶ Within this seemingly technical transition, labour force composition changed through accessing labour’s diversity. From 1890 to 1910 the labour force grew by 129%. However, native-born skilled white workers only grew by 55% and immigrants from Germany and the British Isles (where overseas skilled workers generally originated) declined by 18%. In contrast, Afro-Americans grew by 165% and, most notably, Southern and Eastern Europeans grew by 227%; so, whereas in 1890 they made up less than 10% of the workforce, by 1910 they were nearly half of it (Montgomery, 1987: 42). Anticipating today’s operational financialisation, capital looked to arbitrage labour’s diversity within ever-homogenising production processes. As a result, profits rose exponentially and value was distributed away from labour (Brody, 1987; Standiford, 2005 – on similar contemporary but now global occurrences, see Baldwin, 2016; Starosta, 2010; Tsing, 2009). Industry shifted from skilled and unskilled to semi-skilled labour, creating the mass industrial working class (Negri, 1996). However, despite the exploitation of labour’s diversity, in the US context deskilling had an unforeseen consequence in that it meant workers became increasingly homogenised to see themselves as a class rather than, for example, members of a craft (Brody, 1987; Wilentz, 2004). As such, they collectively resisted this financialisation.

Class (re)composition and the realignment of the machine process and business enterprise

Without rehearsing Taylorism (Hanlon, 2016: 89–124), deskilling is a reaction to labour’s knowledge, its resistance to comparability, measurement and benchmarking and its capacity to direct value towards itself. It is in this light that we should understand standardisation and financialisation. Making things, processes and people inter-changeable, measurable, comparable and standardised enables ease of management. It facilitates distributing value from labour via the concentration of knowledge and the capacity to measure. Taylorism is the capitalist tendency towards an operational financialisation, more and greater standardisation, bureaucracy, measure, comparison and hence planning (Baldi, 1972; Hymer, 1970). During the Homestead strike, Frick argued management planning, not labour, improved productivity. This improvement lessened the cost of steel and expanded sales, which unjustifiably increased labour’s wages because the increase resulted from management’s capacity to increase sales. As such, Frick demanded wages be de-linked from market prices and value be legitimately shifted away from labour (Standiford, 2005: 112–113). By making wages a fixed cost and breaking the link between wages and product markets, Frick used greater direct control of machine processes to achieve more strategic control of the business enterprise. This strategic control was located in the bureaucratic organisation of production. This allowed capital to drive down wages as a share of value and force labour to compete with labour. These processes grow as economies become more complex and comparable. Today, Nike does likewise and uses its intangible assets to, more or less, avoid production while choosing cheaper producers so it can reduce labour costs. Nike claims the improved value creation is achieved through managing its brand and so redirects value upwards (on the distribution effect of the intangible, see Veblen, 2013: 14 – today, see Danyluk, 2018; Rossman and Greenfield, 2006; Tsing, 2009).

Organisationally these shifts necessitate planning. Planning increases as machine processes expand within firms, but it also emerges as strategic control and organising by ‘coordinating firms’ (Veblen, 1908b, 2013: 14 – Nolan (2012) refers to these as ‘systems integrators’, see later). Both developments – within the single firm or within coordinated firms – deploy bureaucracy, science and technology to create planned comparable hierarchical organisations and coordinated hierarchical networks. Planning allows machine processes to expand comparable production systems so business enterprises can act through strategic investment/divestment, contracts and/or operational policies to extract value (Veblen, 1908a – today, see Baud and Durand, 2012; Nolan, 2012; Palpacuer, 2006; Thompson, 2003). The machine process and business enterprise are de-coupled, but remain tied through private planning (Veblen, 2013). They are conjoined twins: separate entities within a mutually dependent whole. As planning and standardisation grow, (lead) capital revolutionises its own machine process and/or chooses the highest rate of return from machine processes external to it (smaller capitals/suppliers), but within its coordinated network. Put another way, it can pressure labour internally or it can pressure weaker capital within its orbit and hence make this capital’s labour compete ever more intensely (Baud and Durand, 2012; Froud et al., 2012; Starosta, 2010). Once standardisation emerges as an achieved and powerful corporate force, the business enterprise ensures that measuring, comparing, planning and crisis are increasingly deployed in the search for profit – operational financialisation enacted. However, standardisation also altered the technical composition of labour by replacing craft knowledge and self-organisation with a Taylorised production process of semi-skilled ‘mass workers’ (Negri, 1996). This altered division of labour, within reasonably national economies, shifted labour’s political composition away from an emphasis on control of production to one based on the distribution of the ensuing accumulation (Meiskins Wood, 2016: 19–49; Negri, 1996). Hence strikes were no longer about who organised production, but became strikes over the distribution of value – something increasingly viewed as a political, rather than simply a market or economic, problem (Montgomery, 1987; Negri, 1988).

Having deliberately weakened craft capacity to self-organise production (Negri, 1994: 25.5), capital was forced to plan production for a new semi-skilled and massified working class. In so doing, the transition to monopoly capitalism (1890–1920) generated two problems (Edwards, 1979: 37). First, the process of massification created the industrial working class on a larger scale that afforded it some autonomy (Baldi, 1972; Negri, 1994). Second, mass production brought impressive productivity and profit/accumulation increases that altered the social composition of monopoly capitalism. This alteration created a new centrality for production and consumption as the working class became the motor of development (Baran and Sweezy, 1966; Gramsci, 1971; Negri, 1994: 38.9). This centrality was highlighted by the importance of the sit-down strike, first used in General Electric in 1918 (Montgomery, 1987: 445) and later to enforce (some) US and French worker demands for major socio-economic changes in the 1930s (Torigian, 1999). The sit-down strike enabled labour in key nodes of the division of labour and organisational supply chains to undermine strategic control. It allowed labour to use machine processes to de-stabilise control, tie up capital, halt production and undermine consumption and profit (Montgomery, 1987).

The Great Crash made the centrality of mass production/consumption evident and ushered in the destruction of laissez-faire capitalism. Perhaps more than most, Keynes recognised this shift. He rejected the Versailles Treaty’s undermining of vanquished economies because it weakened demand and potentially pushed Germany towards the Soviet Union. Writing in 1925, Keynes saw shifting social forces as evidence of working class and others’ (e.g. women) capacity to challenge capitalism and/or preserve it through consumer demand. He questioned whether or not ‘wages should be fixed by the forces of supply and demand in accordance with orthodox theories of laissez-faire or whether we should begin to limit the freedom of these forces by reference to what is “fair” and “reasonable”’ (Keynes, 2009: 181) – or should politics decide wages? This implied that new levels of accumulation had to be ‘productively’ invested, not speculated away or squandered by a ‘leisure class’. These shifting political relations made the working class the threat to, and the source of, capitalism’s development (Negri, 1994). Intervention, not laissez-faire, was the future of capitalism because the state itself had to plan how to reinvest accumulation gains.

State intervention had occurred before, e.g. Bismarck intervened to weaken the German left. However, this intervention was different because it acknowledged working-class capacity to develop economies (Negri, 1996) (central here is the creation of ‘national’ economies which were supposedly self-contained, Christophers, 2013: 244–292; Rodrik, 2011). Within this environment, labour became a high cost for capital and simultaneously the point of demand and profit. An important feature of Keynesianism was the belief that crisis and disequilibrium – mainstays of ‘finance capitalism’ (Davis, 2009) – were no longer viable as motors of economic development (Negri, 1988, 1994: 36.7–44.5). ⁷ Echoing Veblen (2013), Keynes (2009: 172–173) pointed to disequilibrium as ‘enabling great inequalities of wealth to come about’. This threatened capitalism because it limited working-class consumption (Negri, 1996). Hence, Keynes called for states to direct (national) economies. Because of its importance to consumption and its ability to disrupt production (Montgomery, 1987; Torigian, 1999), working-class power shifted social forces. It could demand the business enterprise be subordinated to society – to challenge the untrammelled rights of property (Tawney, 1921), to reinstate the link between wages and productivity (Aglietta, 2000) and to ‘demand that the modern corporation serve not alone owners or the control but all society’ (Berle and Means, 1991: 312).

Equilibrium, not disequilibrium, was to be society’s lodestar (although we should not assume a virtuous cohesion or the inclusion of everyone, Martin, 2010; Thompson, 2003). Thus, both the growing autonomy and the role of the emergent industrial working class, an outcome of the changing division of labour, force a redistribution of value towards labour. As stated, this autonomy turns the distribution of value into a ‘political’ rather than a ‘market’ issue (Negri, 1988: 26). Thus, the working class demands new forms of corporate and state governance to limit financialisation. Keynesianism ensured that the massive productive capacity of monopoly capitalism’s machine process was invested in industry, welfare, warfare, etc. This was done to stave off what 1930s economists such as Alvin Hansen called ‘secular stagnation’ (Magdoff and Bellamy Foster, 2014). Within this process, financialisation itself altered – strategic control and planning remained, but these are guided by states, not private enterprise. The role of finance was both diminished and redirected to state national development goals e.g. the military industrial complex. Finally, there was a curtailing of operational financialisation to inhibit shareholder value maximisation.

The New Deal/Keynesianism recognised changed forces precisely to pursue equilibrium located in the new primary economic actor – the reformed state. Social forces located in labour were driving strategic control over economies. In light of this, New Deal legislation was directed at banks (blamed for the crash and malfeasance) – for example, the House of Morgan was divided into Morgan Stanley and Morgan Guaranty. The New Deal split investment from commercial banking, enabled the Federal Reserve Bank to regulate loans and limit investing (speculating) in securities and introduced interest ceilings on time and savings deposits via Regulation Q (this generated cheap finance for depository institutions and allowed the state leverage to guide excess capital to investments like Treasury Bills and from speculation in property markets). All of this provided stability by restricting boom and bust speculation (Krippner, 2011: 60–63). From the 1930s onwards, finance was stripped of some of its power, and became less international and more ‘boring banking’ (Krugman quoted in Bellamy Foster and Holleman, 2010; Christophers, 2013). Emerging social forces (Edwards, 1979) – labour, homeowners and small business – limited the earlier financialisation. Equilibrium was achieved through increasingly secure employment with pensions, permanency, health care and other benefits, by maintaining sufficient demand, higher average incomes and working-class consumption. This operated against business enterprise financialisation and disequilibrium. Changes in the division of labour rebalanced social forces and politics against the (private) business enterprise. The alteration of production processes, their massive productive and accumulation capacities and subsequent determining of new political compositions first encouraged financialisation, but then undermined it to avoid political crisis and secure economic growth (Galbraith, 1954).

Recent social (re)composition: Subordinating the machine process to the business enterprise anew

As is well known (Aglietta, 2000), by the 1960s the USA was unravelling the New Deal. Internal rigidities (workplace conflict, lower productivity growth) and external shocks (new competition) undermined it (Thompson, 2003: 362). Although they underestimated its significance, Baran and Sweezy (1966: 139–141) highlighted the growth of financialisation. In their argument, high levels of existing fixed capital capacity meant capital could no longer reap sufficient profit from domestic machine processes (Streeck (2014) suggests that in the West, capital went on ‘strike’ in the 1970s). As a result, in the 1960s and 1970s capital developed a new international division of labour to increase profit, weaken labour, deploy technologies, pit smaller capitals against each other and globalise production and markets (Danyluk, 2018; Hymer, 1970). In the West, globalisation allowed capital to (re)financialise its operations and transactions with suppliers and differentiated labour groups (Baud and Durand, 2012; Froud et al., 2012; Tsing, 2009). This enabled the weakening of (national) ‘politics’ of distribution in favour of global labour ‘markets’ (this assumes markets are not political). The altered division of labour led to the decreasing of labour’s share of value, rises in inequality, increasing dependence of large swathes of the population on cheap credit, growing reliance on rising property prices as a means of gaining ‘stable’ prosperity and an increasing divide of populations into the ‘risk capable’ and ‘risk incapable’ in a new accumulation regime built on financialising everyday life (Martin, 2002, 2010: 423–428). Accompanying this were capital-driven changes in other parts of the globe that led to a huge increase in deskilled manufacturing labour directly or indirectly controlled by large corporations (Freeman, 2018; Starrs, 2013). For example, between 1994 and 2006 the percentage of the world’s labour force working in manufacturing shifted from 22% to 30% (Freeman, 2018: xiii).

The machine process is central here. As Veblen’s (2013: 11) analysis anticipates, by the 1970s capital restructured through an international machine process. This allowed corporations to re-route divisions of labour and plan across larger organisational and spatial terrains to pursue cheap labour, weaker capitals, new markets, pliable states and value extraction (Harvey, 1989). This process was intensified by communications improvements. New technologies enhanced comparability, centralised management, hollowed out middle management discretion and made spatial and temporal distance easier to control (Baldwin, 2016; Danyluk, 2018). Most especially, containerisation made it possible for firms like Nike to subcontract and concentrate the production of their goods in a limited number of regions or even within single factories. This changed division of labour allowed firms to eradicate inventories, use just-in-time production techniques, etc. because standardised machine processes ensured huge numbers of subcontracted employees were brought on-stream at short notice to produce enormous amounts of goods. For example, in 2007 just before its iPhone launch, Apple switched from plastic to glass screens, which led to 8000 migrant Chinese workers being awakened in their dormitories and put to work when the glass screens arrived. The plant was soon producing 10,000 phones daily (Freeman, 2018: 297). Alone, China has approximately 270 million migrant workers (more than the total number of workers in the USA), so the standardised division of labour’s capacity is now monumental. This is especially so among dormitory workforces where the working day and absolute surplus value is extended and greater control of the production (and reproduction) of labour is exercised (Freeman, 2018; Pun and Smith, 2007). Industrial urban factories also avoid social welfare payment, and because Chinese social welfare is tied to your place of origin not your workplace these factories are essentially subsidised by rural local governments (Freeman, 2018: 296).

As such, major corporations coordinated GVCs to allow them to act as the ‘systems integrators’ or ‘organizing brains’ of spatially far flung ‘coordinated firms’ (Nolan, 2012: 17; see also Baldwin, 2016). This enabled capital to refresh its access to labour’s diversity and weaken labour in its core heartlands through operational financialisation. Most obviously, corporate America used its expansion and control of GVCs to exert further dominance in at least six of the leading 25 industrial sectors (including finance), improve its position in a further four, grow its foreign assets and/or control of foreign firms and dominate all the most lucrative industrial sectors (Starrs, 2013: Table 1). Corporations exerted such pressure by operationally squeezing GVCs and degrading labour conditions, extending absolute surplus value extraction and controlling social reproduction more tightly (Freeman, 2018; Mezzadri, 2019; Pun and Smith, 2007; Tsing, 2009). Furthermore, corporations also tightly controlled suppliers through routine transactions and activities (Baud and Durand, 2012; Froud et al., 2012; Nolan, 2012). Standardisation of production processes in an international division of labour ensured corporations leveraged their business enterprise capacity by threatening investment/divestment (or the use of intangible assets). Indeed, globalisation, or a spatially more extensive financialisation (Fine, 2013: 55), has rendered the old way of assessing an economy’s strength via national accounts as being of dubious accuracy (Starrs, 2013). These alterations highlighted ‘the central paradox: the less important spatial barriers, the greater the sensitivities of capital to the variations of place within space, and the greater the incentive for places to be differentiated in ways to attract capital’ (Harvey, 1989: 295–296). In a manner that shares continuities with the beginning of the 20th century, the new international division of labour allowed capital to globalise standardised production processes and play diverse labour groups and weaker capitals off each other (Baldwin, 2016; Freeman, 2018; Tsing, 2009). For these reasons, UNCTAD (2017) suggests that the Top 100 global corporations can extract 40% of their profits from rentier-activities.

In light of these events, simultaneously towards (e.g. globalisation) and away (share of value) from labour, capital sought out new financialised investment opportunities. US corporate capacity utilisation declined from 85% in the 1970s to 75% today and thereby undermined the opportunities for investment in onshore production. Yet at the same time, operating surpluses of US enterprises were 24% as technology and global production system revenues came on stream. The international division of labour enabled capital to intensify the measurement and comparability of labour (often housed in weaker capitals) to increase profit, and distribute it away from labour. For example, Apple’s financialised business model allowed it to accumulate US$253bn in offshore cash. This excess is retained as overseas cash, so that today US firms, who do not wish to pay taxes on profits, have an estimated US$5 trillion in offshore cash (Magdoff and Bellamy Foster, 2014). Similarly, UK non-financial firms increased their cash reserves from £220bn in 2000 to £646bn in 2007 (Christophers, 2011: Fig. 7). These changes in the division of labour explain why the Japanese firm Uniqlo – Asia’s largest clothing company – is a highly profitable business enterprise R&D and market research firm with strategic control of its producers/suppliers, that ‘produces nothing’ (Baldwin, 2016: 174), or why Nike too, is not a manufacturer (Tsing, 2009). Such strategic control and financialised activities in operations and the pursuit of shareholder value are far from rare. Indeed, so widespread are they that Nolan (2012) and Starrs (2013) question whether China can challenge the USA.

Importantly, such corporate behaviour reshapes the state’s capacity to act. In the contemporary economy, rather than being driven by state investment, these profits are invested in private sector financialisation – property bubbles, share buy-backs, mergers and acquisitions, squeezing labour and suppliers, etc. Furthermore, today, and in contrast to the 1920s, US corporate profit from finance peaked at 44% as a total of domestic corporate profits (up from 17% in the 1960s) so that financialisation replaced production as the source of profit even as global production’s operational financialisation grew (Krippner, 2011; Magdoff and Bellamy Foster, 2014). Within this, the state’s role has altered because the international division of labour enabled capital to escape (parts of) the national economy and its role as the planner of the economy. The production push overseas, global accumulation and a lack of profitable (western) productive investment opportunities shape the current financialisation period by creating a new role for the state in this period of financialisation. The state is now the ‘lender of last resort’ rather than the primary economic planner. Its task shifts from preventing crises to one of repairing the damage of financialisation bubbles (market crash 1987; Japanese asset/price bubble 1992; UK ERM crisis 1992; Mexican financial crisis 1994; Asian financial crisis late 1990s; dot.com crash 2000; financial crisis 2008). Here, the state socialises risk and loss to facilitate the (now global) business enterprise in its search for disequilibrium and crisis.

Conclusion

This article demonstrates how financialisation and social (re)composition located in the division of labour intertwine. These relations centralise and subordinate labour to standardisation, disequilibrium and crisis and thereby intensify pressure on labour (and smaller capitals) to improve its ‘competitive capacity to produce surplus value’ (Bryan et al., 2009: 467). Within this, labour is controlled at arm’s length, by the business enterprise. However, without the standardised division of labour and labour’s diversity, business enterprise financialisation cannot succeed because it feeds off disequilibrium and crises generated through the capacity to measure, benchmark and compare inherent within machine processes. Capitalists want to say ‘we can get a return of X here but of X+1 there and hence we will move unless labour is further squeezed’. Rather than financialisation being completely new, we are re-financialising the economy, but with 21st-century characteristics. Financialisation is the enacting of the longstanding tendency to extract and redistribute upwards.

In this rendition, financialisation’s growth is related to a social (re)composition located within the division of labour and it is this which allows corporations and states to alter priorities. Furthermore, the (re)composition of social forces in the old and new industrial heartlands suggests that the end of contemporary financialisation will not come any time soon. Indeed, what we have witnessed with recent crises, unlike the Great Crash, has been an intensification of financialisation rather than its abandonment, and the emergence of the state as a lender of last resort (Nolan, 2012). However, a change of state or management priorities cannot come about unless social forces located within the division of labour are recomposed to demand it. Hence the solution to financialisation and instability must be, like the production process itself, global. This appears some way off and hence social, economic and political instability will most likely remain with us in the medium term.