When we think of profits, we think of successful companies that employ people to produce goods and services that other people want to buy; for instance, the proverbial ‘widget’ factory. Ideally, a profitable company employs people on good wages and conditions, invests in expansion (to keep up those profits and increase market share), and pays a competitive return on capital.
With the onset of financialisation, financial companies have come to over-ride traditional markets such as industry. They don’t actually produce much, but they make a lot of money and with that comes political power to dominate decision-making in the economy. If you have any doubts about that just remember our own bubble, crash and bondholder rescue. The productive economy takes second place.
One measure of the extent to which financial institutions can dominate the productive economy is to compare profit levels between the two. In a productive economy, profits from non-financial companies should be strong. In a financialised economy, profits from financial institutions will be stronger.
Where does the Irish economy stand? With the financial boys and girls.
Yes, if you’re a financial company and you happen to be in Ireland, you’re in heaven. Even the UK, with the power of The City, doesn’t match Ireland in this measurement.
Yes, some people might say, but financial companies bring their own benefit to the economy. Oh? Not according to the latest Central Bank Quarterly Report – thanks to Ben (aka Conor McCabe) from Dublin Opinion for spotting this:
‘Financial sector developments, which are for the most part unrelated to the domestic economy, account for a significant portion of the rise in GNP. To the extent that these persist in contributing to growth in net factor income in the coming year, they would further support GNP growth unrelated to domestic consumption, investment or export activity.’
Ah, yes, they are in this economy but not of this economy.
Latest posts by Michael Taft (see all)
- Trailing Behind Europe in Employment Growth - November 26, 2014
- Make the Economy Better – Abolish Zero-Hour Contracts - November 25, 2014
- The Government U-turns itself into a Home Tax - November 18, 2014
- The Government Should now Come Clean on Water Charges - November 5, 2014
- Squeezing the ‘Public’ Out of the Economy and Society - November 3, 2014