That’s how Gerald Epstein defines financialisation in his book, “Financialization and the World Economy”.
Of course, financialisation is not something new. Speculation is as old as capitalism. But today’s financialisation devours everything in its path.
Financialisation and the road to the 2008 economic crisis
Financialisation took off in the 1970s with the deregulation of financial markets. It got a boost in the 1980s under Ronald Reagan in the USA and Margaret Thatcher in the UK. The emergence of collateralised debt obligations and credit default swaps, that magically seemed to eliminate risk, ensured the financial melt down that started in 2008.
But the global economic crisis that resulted did not stop financialisation. Far from it. Trading money, risk, derivatives, securities, and innovative financial products remains more profitable and far larger than the trade in goods and services.
Rolling Stone journalist Matt Taibbi describes the result of financialisation in the USA:
“What has taken place over the last generation is a highly complicated merger of crime and policy, of stealing and government…. The financial leaders of America and their political servants have seemingly reached the cynical conclusion that our society is not worth saving and have taken on a new mission that involves not creating wealth for all, but simply absconding with whatever wealth remains in our hollowed-out economy. They don’t feed us, we feed them.”
Fibria Celulose: Pulp financialisation
Financialisation is not limited to the USA. In Brazil, Fibria Celulose provides a good example of how financialisation has taken over a company whose primary means of turning a profit appears, at a first glance, to be producing and selling pulp and paper.
In December 2008, when the company was called Aracruz Celulose, the company shocked its shareholders by posting a loss of US$2.13 billion.
The loss had nothing whatsoever to do with pulp and paper markets, or the vast areas of monoculture tree plantations that Aracruz relies on to manufacture pulp. It turned out that the loss was a result of Aracruz betting that the value of Brazil’s currency would continue going up. The bet went sour when the real fell by 34% against the US dollar between August and December 2008.
Instead of reinvesting its profits from sales of pulp in order to expand production and make more profit, Aracruz was betting its profits on currency-derivatives.
In 2009, Aracruz merged with Votorantim Celulose e Papel and changed its name to Fibria Celulose.
In 2013, Fibria sold 210,000 hectares of tree plantations to a company called Parkia Participações for US$695 million. Fibria used the money to repay its debts.
But this was far from a straightforward transfer of land in exchange for money, as World Rainforest Movement’s Winnie Overbeek has documented.
Fibria created four new special purpose companies to own the land, and Parkia bought 100% of the shares in these companies. Parkia was founded in 2012, and has an address in Rio de Janeiro, but no website. Under Brazilian law, foreign companies cannot own large areas of land. Although Parkia is a Brazilian company, its money comes in part from foreign pension funds.
There’s some interesting background about the people behind Parkia here.
Under a 24 year contract signed with Parkia, Fibria will continue to run the plantations on the land. Parkia will get 40% of the timber harvested and 60% will go to Fibria. Under the deal, Fibria also has the right to buy Parkia’s timber at a predetermined price.
Fibria gains tax benefits from the deal. Fibria’s land tax payments become “deductable expenses”, adding to the considerable tax subsidies that Fibria already receives. Parkia meanwhile will receive income from the sale of timber to Fibria and is presumably speculating that the value of the land will increase.
What is financialisation of nature?
Friends of the Earth International explains that,
“The financialization of nature involves segregating the natural elements from each other, including water, air, biodiversity, landscapes, and even their cultural and spiritual value. Once segregated, new property titles are issued on each one of them, or their parts – no longer associated with land ownership, collective rights over the territory or the social function of land.”
The new property titles that are created through this process are referred to as “natural capital”.
Geoffrey Heal, a professor at Columbia Business School, is one of the brains behind REDD. He was a founder of the Coalition for Rainforest Nations and since 2012 has been the Chairman of the Board. Heal was Kevin Conrad’s MBA supervisor. From 2007 to 2009, Heal was a director of Petromin Holdings PNG Ltd, an oil, gas and mining company in Papua New Guinea.
“So capital is essentially any form of asset, something that’s valuable and inherently valuable because it generates a flow of services over time. So that’s the standard economic definition of capital.”
“Natural capital is capital which nature created, not us. So the climate system is natural capital. There are trees out there behind you, they are natural capital, because they provide services. They photosynthesise, they take carbon dioxide out of the atmosphere and produce oxygen. That’s important to us, and valuable to us. So trees, watersheds, they are all natural capital. Fisheries are natural capital. More complicated things are natural capital too. So biodiversity is a form of natural capital.”
That, in case you didn’t notice, covers just about everything on the planet. This, in UK-based journalist George Monbiot’s words, is “The Pricing of Everything“. And once everything has a price, the rich can buy anything they might want to destroy. Or preserve. For local communities the latter can be as devastating as the former, if they are kicked off their lands and deprived of their livelihoods.
Back in 2005, Geoffrey Heal and Kevin Conrad wrote a piece in the Financial Times promoting the idea of REDD. They suggested a price of US$25 for REDD credits:
Such a price is high enough to transform the economic incentives to conserve forests and is quite competitive with the lumber prices currently received by local communities from logging companies. Recognising carbon credits from avoiding deforestation makes standing timber an income-earning asset worthy of conservation.
Heal and Conrad could not predict the financial crisis. Neither could they predict that the World Bank’s Carbon Fund would come up with a US$5 maximum price for REDD credits. Nor could they predict the commodities boom that is now driving deforestation through oil drilling, mining and expanding cropland in Latin America.
Neither could Heal and Conrad predict that countries, investors and speculators would start buying up vast areas of land. Journalist Fred Pearce, the author of “The Landgrabbers”, argues that, “Land grabbing is having more of an impact on the lives of poor people than climate change.”
The impacts on communities and Indigenous Peoples
In a 2011 presentation at a conference about the financialisation of natural resources in Paris, Antonio Tricarico of Re:Common explained the dangers of the financialisation of nature:
“When applied to natural resources and commodities through financialisation, this ‘turbo-capitalism’ has serious implications because it does not simply promote the commodification of nature and the commons in general, but it puts the management of the commons into the hands of financial markets for years to come.”
For many years local communities and Indigenous Peoples have been struggling to regain their land from companies like Fibria Celulose.
That struggle becomes far more difficult when the owner of the land isn’t a foul-smelling pulp mill in Espirito Santo, but a company hundreds of kilometres away in Rio de Janeiro.
Once the commons are enclosed and under the control of anonymous unaccountable financial markets, the political space for protest is massively reduced.
The financialisation of nature is not about conserving biodiversity. It is not about respecting indigenous peoples’ rights. It is not about land rights or human rights. It is not about protecting forests, rivers or seas. It is not about preventing climate change.
Of course all of these are brought up in the defence of the financialisation of nature, but it’s a smoke screen.
The financialisation of nature is about the need to create new assets. It’s about expanding financial speculation. And it’s about some people becoming fantastically rich, while poverty, landlessness, and inequality increase.