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CONFIDENTIAL: for peer review only

CONFIDENTIAL: for peer review only

Standardization, Disequilibrium, and Crisis: The division of labour and

Journal: Human Relations

Manuscript ID HR-2018-0651.R2

Manuscript Type: Standard Manuscript

Financialization, Division of Labor, Social re)composition, Labor Process, Keywords: Standardization, Diversity of Labor, Benchmarking

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1 2 3 4 5 6 7 CONFIDENTIAL: for peer review only 8 9 Standardization, Disequilibrium, and Crisis: The division of labour and financialization 10 11 12 13 14 15 How does financialisation interact with the wider division of labour? One could be excused 16 17 for thinking the connection was tangential as most papers connect it to shareholder 18 19 20 strategies, growth of finance, changing nature of states, and so on. In contrast, this paper 21 22 centralises the relationship. It argues financialisation is not new and that it is a tendency 23 24 within supported or hindered by social re-composition connected to the division of 25 26 27 labour. The changing nature of this relationship facilitates regimes of accumulation that are 28 29 more or indeed less financialised. 30 31 32 33 34 Keywords: Financialization, Division of Labour, Social (re)composition, Labour Process, 35 36 Standardization, Diversity of Labour, Benchmarking. 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

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1 2 3 Recently, much has been written about financialisation. It has been analysed as the 4 5 6 increasing penetration of finance into everyday life, the intensification of shareholder value 7 CONFIDENTIAL: for peer review only 8 models, the dominance of financial institutions, , and commodity markets 9 10 within the economy, and the associated decline of and manufacturing as a source 11 12 of , etc. What is secondary, indeed often absent, within discussions of financialisation 13 14 15 is its relationship to the wider division of labour – a division of labour often characterised by 16 17 standardisation and deskilled work. In contrast, what follows concentrates on this 18 19 relationship. Whilst the focus is historical, this is not to say there has been no change in the 20 21 22 economy, nor that finance itself is not more important in some economies than in the past 23 24 (Sawyer, 2013). Rather, this analysis suggests changes in the division of labour recompose 25 26 societies in ways that favour (or hinder) what today we term financialisation. Christophers 27 28 29 (2013) challenges financialization as a structural change on geographic grounds – what 30 31 follows suggests it should also be challenged temporally. 32 33 34 35 36 37 The basic argument is standardisation within the division of labour allows to replace 38 39 expensive with cheaper labour and/or secure labour with precarious labour to extract value 40 41 and increase profitability. When this is combined with mobile capital which views its role as 42 43 44 turning production units into ‘financial products’ (rather than as places of production and/or 45 46 employment, Rossman and Greenfield, 2006; 4), then the economy of production can be 47 48 financialised. As we will see, in this reading financialisation equates with the strategic 49 50 51 control of organisations through intangible assets to extract value. Following others (Chester 52 53 and Newman 2014, Baud and Durand 2011, Palpacuer 2006, Thompson, 2003), the paper 54 55 responds to calls asking that financialization be linked to production processes in order to 56 57 58 provide a systemic historical examination of the relationship between the two. In so doing, it 59 60 concentrates on the rise of standardisation and deskilled labour forces and the emergence of

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1 2 3 an earlier financialisation in the early twentieth century. Post the Great Crash national labour 4 5 6 movements curtailed this financialisation via ‘Keynesianism’. In the US (and later 7 CONFIDENTIAL: for peer review only 8 elsewhere), the standardised division of labour generated the class politics needed to 9 10 implement a Keynesian reversal of aspects of this early twentieth century financialisation 11 12 (Negri 1994, Rodrik, 2011, Sawyer 2013; 6, Streeck 2014). Importantly, the reversal of state 13 14 15 Keynesianism engendered by the current period of financialisation is connected to a new 16 17 international division of labour. Here (western) labour’s power was both weakened within 18 19 the division of labour and weakened politically because the capacity of nation-states to resist 20 21 22 capital mobility policies is limited by the free movement of capital - or globalisation (Hayek 23 24 1946, Rodrik 2011, Streeck 2014)1. Whilst making this case of financialisation as a returning 25 26 force, we stress that financialisation differs across time and space (Sawyer 2013; 16) – for 27 28 29 example, unlike today, financial firms in the 1920s were not on average more profitable than 30 31 manufacturing firms (Fabricant, 1934; Table 3). 32 33 34 Other analyses of financialisation and the division of labour focus on three features of the 35 36 relationship. One, the creation of corporate objectives driven by maximisation of shareholder 37 38 value. Two, the financialisation of so that non-financial firms increasingly own 39 40 41 financial assets e.g. Tesco the retailer owns Tesco Bank. Three, the financialisation of 42 43 operations so that routine transactions and processes with suppliers and labour are 44 45 systematically cheapened and/or controlled to extract value via intangible assets (Baud and 46 47 48 Durand, 2011; 243). In different ways, all three represent the distribution of value away 49 50 from labour to those who own and control assets however, this paper concentrates on this last 51 52 feature and to a lesser extent the first. 53 54 55 56 57 58 59 60

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1 2 3 What follows suggests financialization is a longstanding possibility within capitalism because 4 5 6 of its relationship to labour processes (Bryan et al., 2009: 459; Baran and Sweezy, 1960: 139- 7 CONFIDENTIAL: for peer review only 8 41, Palpacuer 2006, Baud and Durand 2011). It argues before financialization becomes 9 10 widespread, the technical division of labour must be standardised because standardisation 11 12 makes labour inter-changeable and allows capital the leverage, to increase profits and, 13 14 15 crucially, increase its share of value – even if wages are rising. With this increased power, 16 17 productive units become ‘new financial products’ (Rossman and Greenfield 2006; 4) whose 18 19 purpose is to extract value rather than act as ‘social institutions’ (Berle and Means, 1991) 20 21 22 which ‘retain and invest’ value within firms (Lazonick, 2010). In making this case, the paper 23 24 adds to the literature in two ways: 25 26 27 1. It highlights connections between financialization and standardising transformations 28 29 in the labour process such as Taylorism, global value chains (GVCs) and logistics, to 30 31 32 argue financialization occurs in tandem with standardization because standardisation 33 34 allows organizations deploy their power against other capitals and diverse labour 35 36 groups. 37 38 2. By providing a historical analysis of the labour process-financialization relationship, 39 40 41 the paper supplements current explanations e.g. those located in the pursuit of 42 43 shareholder value (Lazonick 2010), changes in states (Krippner, 2011), or a structural 44 45 shift in economies (Sawyer, 2013) by extending the timeframe of financialization and 46 47 48 tying it to labour – a neglected area in the literature (Baud and Durand, 2011; 241). 49 50 51 Veblen’s (2013, 1908a, 1908b) work, conducted in the slipstream of the 1898-1902 merger 52 53 wave which produced modern and capitalism (Baran and Sweezy, 54 55 1960), influences this paper. This analysis of standardisation and the ‘machine process’ 56 57 58 enables us link financialisation and the politics of distribution to management processes in 59 60 order to suggest contemporary financialisation, whilst different, is a continuation of earlier

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1 2 3 processes. Following Veblen (2013), elements of financialization, e.g. financialisation of 4 5 6 routine activities become possible through the increasing capacity to compare and benchmark 7 CONFIDENTIAL: for peer review only 8 suppliers and labour and to direct value away from both. This enables a financialised 9 10 economy anchored in concentrated strategic control and capacities to invest/divest. One 11 12 element of this benchmarking is the exploitation of new, non-traditional labour groups, e.g. 13 14 15 GVCs help arbitrage established labour (Freeman 2018). In short, important parts of 16 17 financialisation require comparison of labour and/or smaller capitals/suppliers - predicated on 18 19 the capacity to standardise. For example, major firms like Carrefour or Wal-Mart took 20 21 22 advantage of globalized supply chains and labour processes to squeeze value from labour and 23 24 smaller capitals and then used this enhanced power to financialise routine operations through 25 26 cost plus accounting, holding less tangible inventory, delaying payments to increase their 27 28 29 liquid capital, etc. In so doing, they increased the liabilities held by stakeholders and lessened 30 31 their own (Baud and Durand, 2011; 256-8). Equally, Apple uses its largely standardised 32 33 GVC to financialise operations, exert cost control, transfer risk, and invest heavily in 34 35 branding and tactical innovation to satisfy financial markets and shareholders (Froud et al 36 37 38 2012). 39 40 41 42 43 44 The power to implement such practises has alerted the division of labour. Today, it is 45 46 difficult to think of the division of labour as simply, for example, ‘flexible specialisation’ or 47 48 traditional Taylorist-Fordist work processes of dominant production firms (Pun and Smith, 49 50 51 2007). As much as any society can be encapsulated in one mode of production, today it is 52 53 more accurate perhaps to think of the division of labour as (significantly) made up of ‘non- 54 55 producer’ firms sub-contracting their production needs to ‘dormitory labour regimes’ (Pun 56 57 58 and Smith, 2007); global factories of concentrated production capacity built for the logistical 59 60 purposes of buyers not manufacturers (Apple’s iPad is made in one factory and its IPhone

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1 2 3 just two, Freeman, 2018; 290); standardised and deskilled industrial districts (a third of the 4 5 6 world’s socks were recently made in the Datang industrial district of China, Freeman, 2018; 7 CONFIDENTIAL: for peer review only 8 295, Mezzadri 2018); the concentration of key suppliers in ‘cascade effects’ (Nolan 2012), 9 10 etc. Thus old divisions of labour, such as Fordism, are modified to allow tighter 11 12 strategic control of economies and enable financialisation. 13 14 15 The Machine Process and Business Enterprise – twin features of financialization 16 17 18 To understand how groups gain strategic control it is useful to analyse Veblen’s (2013) 19 20 21 ‘machine process’ and ‘business enterprise’. By machine process, he means the technical 22 23 division of labour. The business enterprise implies strategic control of corporations/industries 24 25 through intangible assets – especially, but not simply, financial investment/divestment. The 26 27 28 business enterprise enables the concentration of ownership and control dedicated to extracting 29 30 value via rent-seeking, arbitrage, and differential advantage (Veblen, 2013: 68-86; 1908b: 107- 31 32 8: 115-20). Importantly, machine processes build on standardisation. Standardization occurs 33 34 35 so that parts are uniform across e.g. electrical products and USB sticks or 36 37 scripted call service centres. This does not occur in isolated organisations, but necessarily 38 39 entails an inter-related spreading of consistency – a chain (Veblen, 2013: 10). Contingency, 40 41 irregularity, craft are anathema to machine processes (Veblen, 2013: 11). Standardisation 42 43 44 grows because producers seek it within their internal systems and from suppliers. But also 45 46 they, as suppliers, supply to a standard which ensures standardization penetrates labour 47 48 processes and economies. 49 50 51 52 53 54 Central to Veblen’s (2013; 16-37; 1908a; 1908b) machine process is its relationship to the 55 56 business enterprise. He (1908a: 533-4) argued capitalism created ever larger firms which 57 58 59 generated an increasing separation between machine processes and business enterprises. 60

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1 2 3 Crucially, the business enterprise focused on strategic control and intangible assets rather than 4 5 6 the direct surveillance of labour. Through intangible assets and liquidity, business enterprises 7 CONFIDENTIAL: for peer review only 8 separate strategy from day to day production management and favour value extraction e.g. rent- 9 10 seeking (Veblen, 2013). For Veblen business enterprise intangible assets are an important, but 11 12 unproductive, means of distributing surplus away from labour. Thus even if firms operate in 13 14 15 their traditional markets they develop intangible assets, (cost accounting techniques, 16 17 marketing, intellectual property rights) and centralise knowledge via standardisation to squeeze 18 19 value from labour, suppliers, and customers. For example, Singer Sewing Machine used its 20 21 22 standardised labour processes to create a contractual production network with the Providence 23 24 Tool . The contract, to make cheaper Singer machines without the Singer brand, 25 26 allowed Singer squeeze value through intellectual property rights and standardisation 27 28 29 (Hounshell, 1984; 96-7). Similarly, Ford, perhaps the pinnacle of standardised labour 30 31 processes, increasingly relied on intangible assets like innovation and marketing in the 1920s. 32 33 Despite Henry Ford’s resistance, the Model T was regularly modified. By 1926-7, innovation 34 35 and marketing were fundamental to automobiles and their lack of centrality to Ford lost it 36 37 38 market share so the firm reoriented to embrace ‘flexible mass production’ (Hounshell, 1984; 39 40 261). 41 42 43 44 45 46 In contemporary economies, these intangible assets are more important. The private equity 47 48 firm perhaps epitomises the relationship between machine processes and the business 49 50 enterprise. Today, the business enterprise demands returns of 10 per cent in ‘foundational’ 51 52 53 sectors of the economy, such as privatised rail or power utilities (Foundational Economy 54 55 Collective, 2018; 65), and in other sectors it sets a goal of 20 per cent (Rossman and Greenfield 56 57 2006; 2). These strategies drive corporations towards financialised models located in 58 59 deskilling, undermining routinized working conditions, loading corporations with debt, 60

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1 2 3 extracting value via share buy backs, etc. The employment importance of private equity firms 4 5 6 is significant e.g. in 2006 the private equity firm Blackstone Group International exercised 7 CONFIDENTIAL: for peer review only 8 control over workplaces employing upwards of 300 000 people, although it refused 9 10 responsibility for their management (Rossman and Greenfield; 2006; 3). However, not just 11 12 private equity firms exploit intangible assets. Adidas used its brand and intellectual property 13 14 15 rights to close its manufacturing plants in Germany (keeping one as a technology centre) and 16 17 sub-contracted its manufacturing to cheaper regions. Similarly, Nike offloaded its production 18 19 to Yue Yuen International whose 111 000 employees in its Dongguan factory produce a million 20 21 22 shoes a month for a variety of Western firms (Freeman 2018; 273). Firms use their intangible 23 24 assets to dictate the terms of business (investment) to these suppliers or to divest themselves of 25 26 the relationship for more profitable and/or controllable ones. As such, the deployment of 27 28 29 business enterprise intangible assets is increasing through global value chains and this 30 31 operational financialisation has enabled the Top 100 firms increase their percentage of profits 32 33 through rent extraction from 16 per cent in 1995-2000 to 40 per cent between 2009-15 34 35 (UNCTAD 2017; Fig. 6.1). Between 1996-2000 and 2011-15, the leading 2000 firms have 36 37 38 used these assets to increase their net sales/revenues from $12.8 trillion to $36.8 trillion and 39 40 their rate of profit has risen from 5.7 per cent to 7.0 per cent despite the 41 42 (UNCTAD 2018). Operational financialisation through the machine process appears both 43 44 45 more portable and more tied to the business enterprise than in Veblen’s time. 46 47 48 49 50 Historically, such a closeness generated political fear about new financial elites e.g. expressed 51 52 53 by Woodrow Wilson and the Progressive Movement (Veblen 2013). Examples are 54 55 Congressman Lindbergh’s declaration a ‘ trust’ dominated finance and industry and the 56 57 1912 Pujo Committee which reported ‘an inner group’ controlled over one hundred 58 59 corporations (Bellamy Foster and Holleman, 2010). Prior to the New Deal, financialization, 60

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1 2 3 as the rise of strategic control and capacity for large-scale financial investment/divestment, was 4 5 6 present and growing. J. P. Morgan’s US Steel encapsulates this new role of finance and 7 CONFIDENTIAL: for peer review only 8 strategic control (Brody (1987: 19). Morgan sought control of the circuit of capital through 9 10 wage and price stability, not . US Steel sought oligopoly and rising profits (Brody, 11 12 1987: 24). As Charles Schwab, a leading actor in its creation, suggested it ‘would banish 13 14 15 forever the need for wasteful competition and ensure monumental profits at prices that would 16 17 bankrupt any foolhardy interlopers’ (Standiford, 2005: 277). This emphasis on gaining 18 19 strategic control of whole industries increased capacities to extract value. 20 21 22 23 24 25 Galbraith (1954: 182-210) argues this power generated sharp increases in profits whilst keeping 26 27 wages subdued. He suggests output per worker rose by 43 per cent in the 1920s, but that 28 29 30 corporations used their new found strategic control to ensure wages failed to keep pace (an 31 32 important element of the current financialisation). Indeed, controlling concentrated assets 33 34 ensured the ‘Gilded Age’ was economically strikingly unequal (Piketty, 2014; Fig. 88.7). This 35 36 diversion of value from labour encouraged a process whereby profits were invested in capital 37 38 39 goods in order to maintain demand because labour’s consumer spending could not bridge the 40 41 shortfall between production and consumption (Galbraith; 1954; 192-4). As time passed, this 42 43 dominance meant rising profits were ploughed back into capital goods and more production 44 45 46 and, from there, into in industries like property, insurance, etc. These developments 47 48 encouraged poor corporate governance because producing firms saw profits siphoned off to 49 50 pay for (speculative) made by their business enterprise holding 51 52 2 53 upstream. Strategic control links growing production based profits with finance and liquidity 54 55 to enable the deployment of profits in investments. Galbraith argues the finish of this 56 57 accumulation was the Great Crash. Veblen (2013) suggested such accumulation increased 58 59 economic instability because, in a financialised economy, ‘vested interests’ come to 60

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1 2 3 increasingly rely on such strategies. Thus as industry becomes dominated by financialised 4 5 6 activities, market rules or regulations are geared towards vested interests who often seek out 7 CONFIDENTIAL: for peer review only 8 crisis and disequilibrium to threaten regulation as a ‘public good’ (Űlgen, 2017). As such, 9 10 operational financialisation feeds into other financialisation forms. 11 12 13 14 15 16 The machine process is pivotal to financialised economies because its uniformity enables 17 18 financialization to distribute wealth away from labour. In short, mass production facilitates 19 20 21 the concentrating of ownership and control (Veblen 1908b) and the searching for differentials 22 23 and diversity within, and across, standardising processes. Veblen (2013; 14) argued 24 25 standardization meant production became embedded in a uniform comprehensive mechanical 26 27 system which implies that when disequilibrium sets into the concatenation, e.g. improved 28 29 30 communications, it enables the exploitation of cheaper labour in new locations (as 31 32 standardised containerisation has done, Freeman 2018). The business enterprise leverages 33 34 disequilibrium to invest where the greatest imbalance and most profitable opportunity lies. 35 36 37 For example, having standardised production in steel, the industry could and did exploit race, 38 39 e.g. the 1915 steel strike (Brody, 1987: 162), to weaken the power of, and rewards to, labour. 40 41 This was possible because production had standardised and the industry, as a strategically 42 43 44 controlled oligopoly, encouraged interchangeability of labour. Anticipating contemporary 45 46 ‘supply chain capitalism’ (Tsing, 2009; Baud and Durand 2011, Danyluk 2017), machine 47 48 processes enabled the business enterprise use suppliers, communications, and labour diversity 49 50 e.g. gender, class, ethnicity, or immigrant status, to squeeze value (Veblen, 1908b: 135). 51 52 53 54 55 56 In contemporary ways (Rossman and Greenfield, 2006), Veblen (2013: 19) argued capitalists 57 58 59 were interested in disequilibrium and crisis within economies. Disequilibrium and crisis 60

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1 2 3 encourage a declining direct interest in labour management3 and even an interest in restricting 4 5 6 production and productivity (Veblen 1908b: 107-9). As with the present-day, wherein power 7 CONFIDENTIAL: for peer review only 8 dynamics between firms structure GVCs (Thompson, 2003: 367; Starosta, 2010: 548-50, 9 10 Baud and Durand 2011, Froud et al 2012, Starrs 2013), Veblen (2013) argued business 11 12 relations between capitalist groups, not the direct management of labour or competition, grow 13 14 15 in importance to further divorce the business enterprise from direct production. For example, 16 17 holding companies receive profits from operating companies (Galbraith, 1954), or, as Henry 18 19 Clay Frick said in 1905, ‘the whole fabric of American industry, commerce and finance, has 20 21 22 grown into inter-supporting relationships’ (Standiford, 2005: 281). Central here was the 23 24 merger wave itself. It recast ownership ensuring owner-managers became a thing of the past 25 26 and ownership emerged as control through investment or divestment in a variety of 27 28 29 corporations/opportunities – ‘vendible capital’ (Veblen, 2013: 18-20; 1908a: 533-5, 1908b). 30 31 Capitalists move from production to financialization in the manner of ‘Captains of Industry’ 32 33 (Veblen, 2013: 20) such as Rockefeller, Frick, or Morgan. This world is shaped by churn 34 35 because businessmen search for higher profitability and so shift resources, unlike passive 36 37 38 small shareholders who ‘hold(s) permanently to a given enterprise’ (Veblen, 2013: 192 n7). 39 40 During this period, the strategic control of concentrated assets ensured that the upper decile 41 42 of the US population claimed 45-50% of national income within which capital gains were an 43 44 45 important element (see Piketty 2014; Fig. 1.1 and Fig. 8.5). 46 47 48 49 50 51 Craft, the Inside Contract and Standardization 52 53 54 If standardization and financialization are interrelated then we should appreciate the 55 56 relationship. Standardization traces its origins to the military pursuit of inter-changeable 57 58 components (Chandler, 1981: 156). From the 1760s, France sought to rationalise munitions 59 60

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1 2 3 production with standardised parts. This quest would ensure weapons were replaceable or 4 5 6 restorable with standardised parts and so enhance military effort. These ideas reverberated in 7 CONFIDENTIAL: for peer review only 8 America. Thomas Jefferson sponsored them, distributed texts and communicated with 9 10 officials on inter-changeability. With different levels of determination, post 1800 the US 11 12 military pursued standardised inter-changeable parts for fifty years (Hounshell, 1984). 13 14 15 Whilst initially seeking efficiencies of repair on battlefields (Ferguson, 1981: 3), 16 17 standardization became a struggle over knowledge between craft workers and capitalists 18 19 seeking control of labour processes, reduced costs, and the capacity to benchmark employees 20 21 4 22 against one another (Hanlon, 2016; Montgomery, 1987; Braverman 1974) . This antagonism 23 24 over standardization, and who controls production, was a key battleground in the 25 26 restructuring of the nineteenth century (Wilentz, 2004; Negri, 1996). 27 28 29 30 31 32 Furthermore, standardization is central to mass production (Hounshell 1984). 33 34 35 Standardization, labour control, and benchmarking must penetrate organizations for mass 36 37 production economies to emerge. For example, in the 1880s Singer used craft labour to 38 39 mass-produce 500 000 sewing machines annually (Hounshell, 1984: 89). However, 40 41 standardization was necessary for Singer’s products to be inter-changeable, benchmarked, 42 43 44 and hence regularised. Singer’s building of a globally branded led it to 45 46 standardise its European machine tools, gauges, and other devices along its US lines 47 48 (Hounshell, 1984: 97). This was not simply driven by labour costs (which were cheaper in 49 50 51 Scotland than the US) - it was about deploying intangible assets and corporate power to 52 53 extract value via the brand. Strategic control allowed the firm benchmark ‘quality’, 54 55 productivity, and gain further control over its market. Rather than being a singular focus on 56 57 58 the management of labour, the machine process enabled better control of the circuit of 59 60 capital. Importantly, Veblen (2013: 14) argued such standardizing processes increase as

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1 2 3 economies develop. This is because standardization enhances accumulation and corporate 4 5 6 power ( entails benchmarking systems like SAP or Six Sigma, Sklair, 2001: 113- 7 CONFIDENTIAL: for peer review only 8 48 and standardised infrastructure projects such as Export Processing Zones, Easterling 9 10 2016). In this view, early twentieth century globalisation is (partially) the internationalisation 11 12 of the machine process and business enterprise – a precursor to contemporary international 13 14 15 divisions of labour which allow corporations to coordinate value extraction processes in a 16 17 ‘new imperial system’ (Hymer, 1970: 446, Tsing, 2009; Baud and Durand 2011, Nolan, 18 19 2012). Here capitalist standardization appears inevitable. However, this is an appearance 20 21 22 because its development emerged as one outcome of political conflicts with a key labour 23 24 group of the time - craft workers (Negri, 1994, 25.5). As a group, craft workers were 25 26 favourable to markets, but not necessarily supportive of standardization or profit 27 28 29 maximisation i.e. to capitalism’s development, and hence they were reduced. 30 31 32 33 34 35 Capitalism’s development made craft power problematic because it halted standardised 36 37 benchmarking and strategic control. Hence craft workers needed managing. The route to this 38 39 was to standardise, undermine skill (Stone, 1973; Montgomery, 1987; Brody, 1987), and 40 41 reorganise work by ‘exerting pressures for change that would benefit management’ 42 43 44 (Ferguson, 1981: 10). The end of craft relations of production is located within the division 45 46 of labour and the desire to redistribute value away from production, intensify production 47 48 processes, standardise, benchmark, and measure. What informs Taylorisation is labour’s 49 50 51 knowledge, power, (limited) refusal of capitalist development, and its capacity to guide value 52 53 towards labour – organizational change is driven by these wider social forces. In this reading, 54 55 the struggle to standardise helps lay the foundation for conflicts around what we call 56 57 58 financialization because, as we will see, without standardization Veblen’s business enterprise 59 60 is impossible.

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1 2 3 The pursuit of standardization, the bureaucratic organizational form, and monopoly 4 5 6 capitalism 7 CONFIDENTIAL: for peer review only 8 9 Bureaucracy is key to understanding standardization and mass production (Clawson, 1980, 10 11 Hounshell 1984, 270-75). Creating gauges, tolerances, machines, and systems so precise to 12 13 repeatedly produce the same cut, joint, or product requires bureaucratic forms. 14 15 16 ‘The goal of inter-changeability, still very elusive, Lee believed, became an exacting 17 18 exercise that imposed a bureaucratic system upon the armoury [in 1820] in its attempt 19 20 21 to prevent any deviation from the standard pattern.’ (Hounshell, 1984: 35 – date not in 22 23 original) 24 25 26 Anticipating assembly lines, superintendent Roswell Lee’s pursuit of aligned machines 27 28 29 facilitated sequential production and created a flow that virtually eliminated hand labour at 30 31 Springfield Armory. Thus standardization brought with it bureaucratic order - one sees this at 32 33 US Steel. US Steel emerges after the 1892 Carnegie Steel Homestead strike that reshaped the 34 35 36 industry in favour of owners – Carnegie Steel was a central component of US Steel because it 37 38 dominated the market (Montgomery, 1987). This reshaping of relations occurred because 39 40 standardised production had ‘so simplified steel making that untrained men could 41 42 successfully replace the strikers. That key fact, evident to both sides, determined the course 43 44 45 of the Homestead strike’ (Brody, 1987: 18). Thus while the business enterprise enriched and 46 47 detached leading capitalists – like Carnegie and Morgan - from production, machine 48 49 processes simultaneously ensured labour was subjected to measurement based, cost-cutting, 50 51 52 and bureaucratic management practises designed to enhance strategic control and increase 53 54 comparability of (and extraction from) individuals (and later factories and industries). 55 56 57 58 59 60

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1 2 3 The Homestead strike was not simply about the greed of leading capitalists. The immediate 4 5 6 amounts involved were relatively trivial. At the time the profits of Carnegie Steel were $5m 7 CONFIDENTIAL: for peer review only 8 per annum. The added costs of maintaining the existing employee agreement would have 9 10 dented this by $20 000 per annum (Standiford, 2005: 117). The 1889 agreement, with the 11 12 Amalgamated Association of Iron and Steel Workers of the United States, included a sliding 13 14 15 scale linking skilled workers’ wages to the tonnage market price of steel. In the agreement as 16 17 steel prices rose so too did wages, but as steel prices fell, a floor of $25 per ton was set below 18 19 which wages could not decline. This effectively insulated workers from downward shifts in 20 21 22 the price of steel (Standiford, 2005: 109-26). Carnegie Steel wanted to alter this and push 23 24 risk away from owners in the 1892 renewal. During the earlier agreement period steel prices 25 26 fell by 19 per cent thereby increasing unpredictability in two ways – one, market prices for 27 28 29 steel fluctuated and two, wages were uncertain. Whilst the firm viewed profits as cyclical 30 31 and unknowable, it sought uniform costs. It felt costs should be controllable, fixed, and 32 33 standardised (Standiford, 2005, p69-83). That is, to operationally financialise routine 34 35 transactions by treating wages as fixed costs (to be driven down) in order to redistribute value 36 37 38 upwards (on the importance of wage struggles to wider labour-capital power relations see 39 40 Marx, 1994; 182-4; Negri 1988)5. Standardization and calculability allowed better 41 42 management of capital’s circuit. 43 44 45 46 Post 1892, Stone (1973) describes how steel created modern bureaucratic forms. So 47 48 dominant did this model become, Chandler (1981: 161) suggested that since 1910 the ‘basic 49 50 organizational structure and the basic techniques of coordinating and controlling their 51 52 53 operation have changed little’. At its organizational heart is the demise of craft, the 54 55 transferring of knowledge to management, its concentration in intangible bureaucratic 56 57 systems, the ever-growing importance of measurement, benchmarking and comparability, and 58 59 the emergence of semi-skilled workers. The struggle over steel between 1892 and 1920 is 60

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1 2 3 key to modern corporations and to operational financialization. Post-Homestead, the industry 4 5 6 transformed through a minute division of labour, use of new technology to alter production 7 CONFIDENTIAL: for peer review only 8 and job structures, comparing and disciplining of labour forces no longer capable of self- 9 10 organising production, and embedding of control – at a distance - over the entire labour 11 12 process (Stone, 1973). In short, modern corporations. 13 14 15 16 17 18 19 Within this transition, and despite increasing productivity per worker, the rewards of labour 20 21 (especially skilled workers) declined. For example, a Roller at Homestead in 1889-1892 was 22 23 24 paid $14 per tonnage, yet by 1908 a Roller received $4.75. Steel broke the connection 25 26 between market price, productivity, and wages (Brody, 1987: 15). In 1892, Carnegie Steel 27 28 paid out $7.3m in wages and profits were $4m. However, post standardization, 1899 profits 29 30 31 were roughly $22m and wages were $10.9m (Standiford, 2005: 239-40: 250). Thus, in the 32 33 seven year post-strike period wages went from being twice the size of profits to less than 50 34 35 per cent as value was skewed away from labour6. Within this seemingly technical transition, 36 37 labour force composition changed through accessing labour’s diversity. From 1890-1910 the 38 39 40 labour force grew by 129 per cent. However, native-born skilled white workers only grew by 41 42 55 per cent and immigrants from Germany and the British Isles (where overseas skilled 43 44 workers generally originated) declined by 18 per cent. In contrast, Afro-Americans grew by 45 46 47 165 per cent and, most notably, Southern and Eastern Europeans grew by 227 per cent; so 48 49 whereas in 1890 they made up less than 10 per cent of the workforce, by 1910 they were 50 51 nearly half of it (Montgomery, 1987: 42). Anticipating today’s operational financialisation, 52 53 54 capital looked to arbitrage labour’s diversity within ever-homogenising production processes. 55 56 As a result, profits rose exponentially and value was distributed away from labour (Brody, 57 58 1987; Standiford, 2005 - on similar contemporary but now global occurrences see Tsing, 59 60

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1 2 3 2009; Starosta, 2010; Baldwin, 2016). Industry shifted from skilled and unskilled to semi- 4 5 6 skilled labour creating the mass industrial working class (Negri, 1996). However, despite the 7 CONFIDENTIAL: for peer review only 8 ’s diversity, in the US context deskilling had an unforeseen 9 10 consequence in that it meant workers became increasingly homogenised to see themselves as 11 12 a class rather than, for example, members of a craft (Wilentz, 2004; Brody, 1987). As such, 13 14 15 they collectively resisted this financialisation. 16 17 18 Class (re)composition and the realignment of the machine process and business enterprise 19 20 21 Without rehearsing Taylorism (Hanlon, 2016: 89-124), deskilling is a reaction to labour’s 22 23 knowledge, its resistance to comparability, measurement, benchmarking, and its capacity to 24 25 direct value towards itself. It is in this light we should understand standardization and 26 27 28 financialization. Making things, processes, and people inter-changeable, measurable, 29 30 comparable, and standardised enables ease of management. It facilitates distributing value 31 32 from labour via the concentration of knowledge and the capacity to measure. Taylorism is 33 34 35 the capitalist tendency towards an operational financialisation, more and greater 36 37 standardization, bureaucracy, measure, comparison, and hence planning (Hymer, 1970; Baldi, 38 39 1972). During the Homestead strike, Frick argued management planning, not labour, 40 41 improved productivity. This improvement lessened the cost of steel and expanded sales, 42 43 44 which unjustifiably increased labour’s wages because the increase resulted from 45 46 management’s capacity to increase sales. As such, Frick demanded wages be de-linked from 47 48 market prices and value be legitimately shifted away from labour (Standiford, 2005: 112-3). 49 50 51 By making wages a fixed costs and breaking the link between wages and product markets, 52 53 Frick used greater direct control of machine processes to achieve more strategic control of the 54 55 business enterprise. This strategic control was located in the bureaucratic organisation of 56 57 58 production. This allowed capital drive down wages as a share of value and force labour to 59 60 compete with labour. These processes grow as economies become more complex and

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1 2 3 comparable. Today, Nike does likewise and uses its intangible assets to, more or less, avoid 4 5 6 production whilst choosing cheaper producers so it can reduce labour costs. Nike claims the 7 CONFIDENTIAL: for peer review only 8 improved value creation is achieved through managing its brand and so redirects value 9 10 upwards (on the distribution effect of the intangible see Veblen, 2013: 14 – today, see 11 12 Rossman and Greenfield 2006, Tsing, 2009; Danyluk 2017). 13 14 15 16 17 18 Organizationally these shifts necessitate planning. Planning increases as machine processes 19 20 21 expand within firms, but it also emerges as strategic control and organising by ‘coordinating 22 23 firms’ (Veblen, 2013: 14, 1908b – Nolan (2012) refers to these as ‘systems integrators’, see 24 25 later). Both developments – within the single firm or within coordinated firms – deploy 26 27 28 bureaucracy, science, and technology to create planned comparable hierarchical organizations 29 30 and coordinated hierarchical networks. Planning allows machine processes expand 31 32 comparable production systems so business enterprises can act through strategic 33 34 35 investment/divestment, contracts and/or operational policies to extract value (Veblen, 1908a, 36 37 today see Thompson, 2003; Palpacuer 2006; Baud and Durand 2011, Nolan, 2012). The 38 39 machine process and business enterprise are de-coupled, but remain tied through private 40 41 planning (Veblen, 2013). They are conjoined twins: separate entities within a mutually 42 43 44 dependent whole. As planning and standardization grow, (lead) capital revolutionizes its own 45 46 machine process and/or chooses the highest rate of return from machine processes external to 47 48 it (smaller capitals/suppliers), but within its coordinated network. Put another way, it can 49 50 51 pressure labour internally or it can pressure weaker capital within its orbit and hence make 52 53 this capital’s labour compete evermore intensely (Starosta, 2010, Baud and Durand 2011, 54 55 Froud et al 2012). Once standardization emerges as an achieved and powerful corporate 56 57 58 force, the business enterprise ensures measuring, comparing, planning and crisis are 59 60 increasingly deployed in the search for profit – operational financialisation enacted.

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1 2 3 However, standardization also altered the technical composition of labour by replacing craft 4 5 6 knowledge and self-organization with a Taylorized production process of semi-skilled ‘mass 7 CONFIDENTIAL: for peer review only 8 workers’ (Negri, 1996). This altered division of labour, within reasonably national 9 10 economies, shifted labour’s political composition away from an emphasis on control of 11 12 production to one based on the distribution of the ensuing accumulation (Negri, 1996; 13 14 15 Meiskins Wood, 2016: 19-49). Hence strikes were no longer about who organised 16 17 production, but became strikes over the distribution of value – something increasingly viewed 18 19 as a political, rather than simply a market or economic, problem (Montgomery 1987, Negri 20 21 22 1988). 23 24 25 Having deliberately weakened craft capacity to self-organise production (Negri, 1994: 25.5) 26 27 capital was forced to plan production for a new semi-skilled and massified working class. In 28 29 so doing, the transition to monopoly capitalism (1890-1920) generated two problems 30 31 32 (Edwards, 1979; 37). Firstly, the process of massification created the industrial working class 33 34 on a larger scale that afforded it some autonomy (Negri, 1994; Baldi, 1972). Secondly, mass 35 36 production brought impressive productivity and profit/accumulation increases that altered the 37 38 social composition of monopoly capitalism. This alteration created a new centrality for 39 40 41 production and consumption as the working class became the motor of development (Baran 42 43 and Sweezy, 1960, Negri, 1994: 38.9; Gramsci, 1971). This centrality was highlighted by the 44 45 importance of the sit down strike, first used in General Electric in 1918 (Montgomery, 1987; 46 47 48 445) and later, in its use to enforce (some) US and French worker demands for major socio- 49 50 economic changes in the 1930s (Torigian 1990). The sit down strike, enabled labour in key 51 52 nodes of the division of labour and organizational supply chains, undermine strategic control. 53 54 55 It allowed labour use machine processes to de-stabilise control, tie up capital, halt production, 56 57 undermine consumption, and profit (Montgomery, 1987). 58 59 60

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1 2 3 The Great Crash made the centrality of mass production/consumption evident and ushered in 4 5 6 the destruction of laissez-faire capitalism. Perhaps more than most Keynes recognised this 7 CONFIDENTIAL: for peer review only 8 shift. He rejected the Versailles Treaty’s undermining of vanquished economies because it 9 10 weakened demand and potentially pushed Germany towards the Soviet Union. Writing in 11 12 1925, Keynes saw shifting social forces as evidence of working class and others e.g. women, 13 14 15 capacity to challenge capitalism and/or preserve it through consumer demand. He questioned 16 17 whether or not ‘wages should be fixed by the forces of in accordance 18 19 with orthodox theories of laissez-faire or whether we should begin to limit the freedom of 20 21 22 these forces by reference to what is “fair” and “reasonable”’ (Keynes, 2009; 181) - or should 23 24 politics decide wages? This implied new levels of accumulation had to be ‘productively’ 25 26 invested not speculated away or squandered by a ‘leisure class’. These shifting political 27 28 29 relations made the working class the threat to, and the source of, capitalism’s development 30 31 (Negri, 1994). Intervention, not laissez-faire, was the future of capitalism because the state 32 33 itself had to plan how to reinvest accumulation gains. 34 35 36 37 38 39 State intervention occurred before e.g. Bismarck intervened to weaken the German left. 40 41 However, this intervention was different because it acknowledged working class capacity to 42 43 44 develop economies (Negri 1996) – (central here is the creation of ‘national’ economies which 45 46 were supposedly self-contained, Christophers, 2013: 244-92, Rodrik 2011). Within this 47 48 environment, labour became a high cost for capital and simultaneously the point of demand 49 50 51 and profit. An important feature of Keynesianism was the belief that crisis and 52 53 disequilibrium – mainstays of ‘finance capitalism’ (Davis, 2009) – were no longer viable as 54 55 motors of economic development (Negri, 1994: 36.7-44.5, Negri 1988)7. Echoing Veblen 56 57 58 (2013), Keynes (2009: 172-3) pointed to disequilibrium as ‘enabling great inequalities of 59 60 wealth to come about’. This threatened capitalism because it limited working class

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1 2 3 consumption (Negri, 1996). Hence, Keynes called for states to direct (national) economies. 4 5 6 Because of its importance to consumption and its ability to disrupt production (Torigian, 7 CONFIDENTIAL: for peer review only 8 1999; Montgomery, 1987), working class power shifted social forces. It could demand the 9 10 business enterprise be subordinated to society – to challenge the untrammelled rights of 11 12 property (Tawney, 1921), to reinstate the link between wages and productivity (Aglietta 13 14 15 2000), and to ‘demand that the modern corporation serve not alone owners or the control but 16 17 all society’ (Bearle and Means, 1991: 312). 18 19 20 21 22 23 Equilibrium, not disequilibrium, was to be society’s lodestar (although we should not assume 24 25 a virtuous cohesion or the inclusion of everyone, Thompson, 2003, Martin 2010). Thus both 26 27 28 the growing autonomy and role of the emergent industrial working class, an outcome of the 29 30 changing division of labour, forces a redistribution of value towards labour. As stated, this 31 32 autonomy turns the distribution of value into a ‘political’ rather than a ‘market’ issue (Negri 33 34 35 1988; 26). Thus, the working class demands new forms of corporate and state governance to 36 37 limit financialization. Keynesianism ensured the massive productive capacity of monopoly 38 39 capitalism’s machine process was invested in industry, welfare, warfare, etc. This was done 40 41 to stave off what 1930s economists such as Alvin Hansen called ‘secular stagnation’ 42 43 44 (Magdoff and Bellamy Foster, 2010). Within this process, financialization itself altered - 45 46 strategic control and planning remained, but these are guided by states, not private enterprise. 47 48 The role of finance was both diminished and redirected to state national development goals 49 50 51 e.g. the military industrial complex. Finally, there was a curtailing of operational 52 53 financialisation to inhibit shareholder value maximisation. 54 55 56 57 58 59 60

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1 2 3 The New Deal/Keynesianism recognised changed forces precisely to pursue equilibrium 4 5 6 located in the new primary economic actor – the reformed state. Social forces located in 7 CONFIDENTIAL: for peer review only 8 labour were driving strategic control over economies. In light of this, New Deal legislation 9 10 was directed at banks (blamed for the crash and malfeasance) – for example, the House of 11 12 Morgan was divided into Morgan Stanley and Morgan Guaranty. The New Deal split 13 14 15 investment from commercial banking, enabled the Federal Reserve Bank regulate loans and 16 17 limit investing (speculating) in securities, introduced interest ceilings on time and savings 18 19 deposits via Regulation Q (this generated cheap finance for depository institutions and 20 21 22 allowed the state leverage to guide excess capital to investments like Treasury Bills and from 23 24 speculation in property markets). All of this provided stability by restricting boom and bust 25 26 speculation (Krippner, 2011: 60-3). From the 1930s onwards, finance was stripped of some 27 28 29 of its power, became less international, and more ‘boring banking’ (Krugman quoted in 30 31 Bellamy Foster and Holleman, 2010, Christophers, 2013). Emerging social forces (Edwards, 32 33 1979) - labour, homeowners, and small business - limited the earlier financialization. 34 35 Equilibrium was achieved through increasingly secure employment with pensions, 36 37 38 permanency, healthcare and other benefits, by maintaining sufficient demand, higher average 39 40 incomes, and working class consumption. This operated against business enterprise 41 42 financialisation and disequilibrium. Changes in the division of labour rebalanced social 43 44 45 forces and politics against the (private) business enterprise. The alteration of production 46 47 processes, their massive productive and accumulation capacities, and subsequent determining 48 49 of new political compositions, first encouraged financialization, but then undermined it to 50 51 52 avoid political crisis and secure economic growth (Galbraith, 1954). 53 54 55 56 57 58 Recent social (re)composition: subordinating the machine process to the business enterprise 59 60 anew

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1 2 3 As is well known (Aglietta, 2000), by the 1960s America was unravelling the New Deal. 4 5 6 Internal rigidities (workplace conflict, lower productivity growth) and external shocks (new 7 CONFIDENTIAL: for peer review only 8 competition) undermined it (Thompson, 2003; 362). Although they underestimated its 9 10 significance, Baran and Sweezy (1960: 139-41) highlighted the growth of financialization. In 11 12 their argument, high levels of existing fixed capital capacity meant capital could no longer 13 14 15 reap sufficient profit from domestic machine processes (Streeck 2014 suggests in the west, 16 17 capital went on ‘strike’ in the 1970s). As a result, in the 1960s and 1970s capital developed a 18 19 new international division of labour to increase profit, weaken labour, deploy technologies, 20 21 22 pit smaller capitals against each other, and globalise production and markets (Hymer, 1970; 23 24 Danyluk 2017). In the west, globalisation allowed capital to (re)financialise its operations and 25 26 transactions with suppliers and differentiated labour groups (Tsing 2009, Baud and Durand 27 28 29 2011, Froud et al 2012). This enabled the weakening of (national) ‘politics’ of distribution in 30 31 favour of global labour ‘markets’ (this assumes markets are not political). The altered 32 33 division of labour led to the decreasing of labour’s share of value, rises in inequality, 34 35 increasing dependence of large swathes of the population on cheap credit, growing reliance 36 37 38 on rising property prices as a means of gaining ‘stable’ prosperity, and an increasing divide of 39 40 populations into the ‘risk capable’ and ‘risk incapable’ in a new accumulation regime built on 41 42 financialising everyday life (Martin 2010; 423-8, Martin 2002). Accompanying this were 43 44 45 capital driven changes in other parts of the globe that led to a huge increase in deskilled 46 47 manufacturing labour directly or indirectly controlled by large corporations (Freeman 2018, 48 49 Starrs 2013). For example, between 1994 and 2006 the percentage of the world’s labour force 50 51 52 working in manufacturing shifted from 22 percent to 30 percent (Freeman 2018; xiii). 53 54 55 56 57 58 The machine process is central here. As Veblen’s analysis (2013: 11) anticipates, by the 59 60 1970s capital restructured through an international machine process. This allowed

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1 2 3 corporations re-route divisions of labour and plan across larger organizational and spatial 4 5 6 terrains to pursue cheap labour, weaker capitals, new markets, pliable states, and value 7 CONFIDENTIAL: for peer review only 8 extraction (Harvey 1989). This process was intensified by communications improvements. 9 10 New technologies enhanced comparability, centralised management, hollowed out middle 11 12 management discretion, and made spatial and temporal distance easier to control (Baldwin, 13 14 15 2016: Danyluk 2017). Most especially, containerisation made it possible for firms like Nike 16 17 to subcontract and concentrate the production of their goods in a limited number of regions or 18 19 even within single factories. This changed division of labour allowed firms eradicate 20 21 22 inventories, use just-in-time production techniques, etc. because standardised machine 23 24 processes ensured huge numbers of subcontracted employees were brought on stream at short 25 26 notice to produce enormous amounts of goods. For example, in 2007 just before its iPhone 27 28 29 launch, Apple switched from plastic to glass screens, which led to eight thousand migrant 30 31 Chinese workers been awakened in their dormitories and put to work when the glass screens 32 33 arrived. The plant was soon producing ten thousand phones daily (Freeman, 2018; 297). 34 35 Alone, China has approximately 270 million migrant workers (more than the total number of 36 37 38 workers in the US), so the standardised division of labour’s capacity is now monumental. 39 40 This is especially so amongst dormitory workforces where the working day and absolute 41 42 is extended and greater control of the production (and reproduction) of labour is 43 44 45 exercised (Pun and Smith 2007, Freeman 2018). Industrial urban factories also avoid social 46 47 welfare payment and because Chinese social welfare is tied your place of origin not your 48 49 workplace, these factories are essentially subsidised by rural local governments (Freeman, 50 51 52 2018; 296). 53 54 55 56 57 58 As such, major corporations coordinated GVCs to allow them act as the ‘systems integrators’ 59 60 or ‘organizing brains’ of spatially far flung ‘coordinated firms’ (Nolan, 2012: 17; Baldwin,

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1 2 3 2016). This enabled capital refresh its access to labour’s diversity and weaken labour in its 4 5 6 core heartlands through operational financialisation. Most obviously, corporate America 7 CONFIDENTIAL: for peer review only 8 used its expansion and control of GVCs to exert further dominance in at least six of the 9 10 leading twenty five industrial sectors (including finance), improved its position in a further 11 12 four, grew its foreign assets and/or control of foreign firms, and dominated all the most 13 14 15 lucrative industrial sectors (Starrs, 2013; Table 1). Corporations exerted such pressure by 16 17 operationally squeezing GVCs and degrading labour conditions, extending absolute surplus 18 19 value extraction, and controlling social reproduction more tightly (Freeman 2018, Mezzadri 20 21 22 2018, Tsing, 2009, Pun and Smith 2007). Furthermore, corporations also tightly controlled 23 24 suppliers through routine transactions and activities (Baud and Durand, 2011, Froud et al 25 26 2011, Nolan 2012). Standardisation of production processes in an international division of 27 28 29 labour ensured corporations leveraged their business enterprise capacity by threatening 30 31 investment/divestment (or the use of intangible assets). Indeed, globalisation, or a spatially 32 33 more extensive financialisation (Fine 2013, 55), has rendered the old way of assessing an 34 35 economy’s strength via national accounts as being of dubious accuracy (Starrs, 2013). These 36 37 38 alterations highlighted ‘the central paradox: the less important spatial barriers, the greater the 39 40 sensitivities of capital to the variations of place within space, and the greater the incentive for 41 42 places to be differentiated in ways to attract capital’ (Harvey, 1989: 295-6). In a manner that 43 44 45 shares continuities with the beginning of the twentieth century, the new international division 46 47 of labour allowed capital globalize standardized production processes and play diverse labour 48 49 groups and weaker capitals off each other (Tsing, 2009; Baldwin, 2016, Freeman 2018). For 50 51 52 these reasons, UNCTAD (2017) suggest the Top 100 global corporations can extract 40 per 53 54 cent of their profits from rentier like activities. 55 56 57 58 59 60

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1 2 3 In light of these events, simultaneously towards (e.g. globalisation) and away (share of value) 4 5 6 from labour, capital sought out new financialised investment opportunities. US corporate 7 CONFIDENTIAL: for peer review only 8 capacity utilisation declined from 85 per cent in the 1970s to 75 per cent today and thereby 9 10 undermined the opportunities for investment in onshore production. Yet at the same time, 11 12 operating surpluses of US enterprises were 24 per cent as technology and global production 13 14 15 system revenues came on stream. The international division of labour enabled capital 16 17 intensify the measurement and comparability of labour (often housed in weaker capitals) to 18 19 increase profit, and distribute it away from labour. For example, Apple’s financialised 20 21 22 business model allowed it accumulate $253 billion in offshore cash. This excess is retained 23 24 as overseas cash, so that today US firms, who do not wish to pay taxes on profits, have an 25 26 estimated $5 trillion in offshore cash (Magdoff and Bellamy Foster, 2010). Similarly, UK 27 28 29 non-financial firms increased their cash reserves from £220bn in 2000 to £646bn in 2007 30 31 (Christophers, 2011; Fig 7). These changes in the division of labour explain why the 32 33 Japanese firm Uniqlo - Asia’s largest clothing company - is a highly profitable business 34 35 enterprise R&D and market research firm with strategic control of its producers/suppliers, 36 37 38 that ‘produces nothing’ (Baldwin, 2016: 174), or why Nike too, is not a manufacturer (Tsing, 39 40 2009). Such strategic control and financialised activities in operations and the pursuit of 41 42 shareholder value are far from rare. Indeed, so widespread are they that Starrs (2013) and 43 44 45 Nolan (2012) question whether China can challenge the USA. 46 47 48 49 50 51 Importantly, such corporate behaviour reshapes the state’s capacity to act. In the 52 53 contemporary economy, rather than being driven by state investment, these profits are 54 55 invested in private sector financialization – property bubbles, share buy backs, mergers and 56 57 58 acquisitions, squeezing labour and suppliers, etc. Furthermore, today, and in contrast to the 59 60 1920s, US corporate profit from finance peaked at 44 per cent as a total of domestic corporate

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1 2 3 profits (up from 17 per cent in the 1960s) so that financialization replaced production as the 4 5 6 source of profit even as global production’s operational financialisation grew (Krippner 7 CONFIDENTIAL: for peer review only 8 2011; Magdoff and Bellamy Foster, 2010). Within this, the state’s role has altered because 9 10 the international division of labour enabled capital escape (parts of) the national economy and 11 12 its role as the planner of the economy. The production push overseas, global accumulation, 13 14 15 and a lack of profitable (western) productive investment opportunities shapes the current 16 17 financialisation period by creating a new role for the state in this period of financialisation. 18 19 The state is now the ‘lender of last resort’ rather than the primary economic planner. Its task 20 21 22 shifts from preventing crises to one of repairing the damage of financialization bubbles 23 24 (market crash 1987; Japanese asset/price bubble 1992; UK ERM crisis 1992; Mexican 25 26 financial crisis 1994; Asian financial crisis late 1990s; dot.com crash 2000; financial crisis 27 28 29 2008). Here, the state socialises risk and loss to facilitate the (now global) business 30 31 enterprise in its search for disequilibrium and crisis. 32 33 34 35 36 37 38 39 40 Conclusion 41 42 43 This paper demonstrates how financialisation and social (re)composition located in the 44 45 division of labour intertwine. These relations centralise and subordinate labour to 46 47 standardization, disequilibrium, and crisis and thereby intensify pressure on labour (and 48 49 50 smaller capitals) to improve its ‘competitive capacity to produce surplus value’ (Bryan et al., 51 52 2009, 467). Within this, labour is controlled at arm’s length, by the business enterprise. 53 54 However, without the standardised division of labour and labour’s diversity, business 55 56 57 enterprise financialization cannot succeed because it feeds off disequilibrium and crises 58 59 generated through the capacity to measure, benchmark, and compare inherent within machine 60

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1 2 3 processes. Capitalists want to say “we can get a return of X here but of X+1 there and hence 4 5 6 we will move unless labour is further squeezed”. Rather than financialisation being 7 CONFIDENTIAL: for peer review only 8 completely new, we are re-financialising the economy, but with twenty-first century 9 10 characteristics. Financialization is the enacting of the longstanding tendency to extract and 11 12 redistribute upwards. 13 14 15 16 17 18 In this rendition, financialization’s growth is related to a social (re)composition located 19 20 21 within the division of labour and it is this which allows corporations and states alter priorities. 22 23 Furthermore, the (re)composition of social forces in the old and new industrial heartlands 24 25 suggests the end of contemporary financialization will not come any time soon. Indeed what 26 27 28 we have witnessed with recent crises, unlike the Great Crash, has been an intensification of 29 30 financialization rather than its abandonment, and the emergence of the state as a lender of last 31 32 resort (Nolan, 2012). However, a change of state or management priorities cannot come 33 34 35 about unless social forces located within the division of labour are recomposed to demand it. 36 37 Hence the solution to financialization and instability must be, like the production process 38 39 itself, global. This appears some way off and hence social, economic, and political instability 40 41 will most likely remain with us in the medium term. 42 43 44 45 46 47 References 48 49 50 Aglietta, M. (2000) A Theory of Capitalist Regulation: The US Experience, London, Verso. 51 52 53 Baldi, G. (1972) ‘Theses on Mass Worker &Social Capital’, Radical America 6(3): 3-21. 54 55 56 Baldwin, R. (2016) The Great Convergence – Information Technology &the New 57 58 Globalization, London, The Belknap Press of Harvard University Press. 59 60

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1 2 3 Baran, P. & Sweey, P. (1966) Monopoly Capital: an essay on the American economy and 4 5 6 social order. New York, Monthly Review Press. 7 CONFIDENTIAL: for peer review only 8 9 Baud, C and Durand, C. (2012) ‘Financialization, Globalization, and the Making of Profits by 10 11 Leading Retailers’, Socio-Economic Review, 10: 241-66. 12 13 14 Bellamy Foster, J. & Holleman, H. (2010) ‘The Financial Power Elite’. Monthly Review 62, 15 16 1-19. 17 18 19 Berle, A.A. and Means, G. C. (1991) The Modern Corporation and , 20 21 Transaction Books, New Brunswick. 22 23 24 Braverman, H. (1974) Labor &Monopoly Capital: The degradation of work in the twentieth 25 26 27 century, New York, Monthly Review Press. 28 29 30 Brody, D. (1965) Labor in Crisis – The Steel Strike of 1919. Chicago University of Illinois 31 32 Press. 33 34 35 Bryan, D., Martin, R., & Rafferty, M. (2009) ‘Financialization and Marx: Giving Labor 36 37 &Capital a Financial Makeover’, Review of Radical Political Economics, 41(4): 458-72. 38 39 40 Chandler, A. D. (1981) ‘The American System &Modern Management’ in Mayr, O. &Post, 41 42 R. C. (eds.) Yankee Enterprise: The Rise of the American System of Manufactures, 43 44 45 Washington D. C., Smithsonian Institution Press: 153-70. 46 47 48 Chester, L. and Newman, S. (2014)’Analysing Finance and Production in the Contemporary 49 50 Capitalist Era’ 51 52 http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.886.2464&rep=rep1&type=pdf, 53 54 55 Christophers, B (2011) ‘Revisiting the Urbanization of Capital’, Annals of the Association of 56 57 58 American Geographers, 101:6, 13347-64. 59 60

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1 2 3 Christophers, B (2013) Banking Across Boundaries; Placing Finance in Capitalism, Sussex, 4 5 6 John Wiley and Sons. 7 CONFIDENTIAL: for peer review only 8 9 Clawson, D. (1980) Bureaucracy &the Labor Process: The Transformation of US Industry, 10 11 1860-1920. New York, Monthly Review Press. 12 13 14 Danyluk, M (2017) ‘Capital’s Logistical Fix: Accumulation, globalisation and the survival of 15 16 capitalism’, Environment and Planning D: Society and Space, 17 18 http://journals.sagepub.com/doi/10.1177/0263775817703663 Accessed April 2018 19 20 21 Davis, G. F. (2009) Managed by Markets; How Finance Reshaped America, Oxford, Oxford 22 23 24 University Press. 25 26 27 Easterling, K (2016) Extrastatecraft: The Power of Infrastructure Space. London, Verso. 28 29 30 Edwards, R. (1979) Contested Terrain: The Transformation of the Workplace in the 31 32 Twentieth Century. New York, Basic Books. 33 34 35 Fabricant, S. (1934) ‘Recent Corporate Profits in the United States’. Retrieved From 36 37 http://www.nber.org/chapters/c2313.pdf 38 39 40 Ferguson, E. S. (1981) ‘History &Historiography’ in Mayr, O. & Post, R. C. (eds.) Yankee 41 42 Enterprise: The Rise of the American System of Manufactures, Washington D. C., 43 44 45 Smithsonian Institution Press, 1-23. 46 47 48 Fine, B (2013) ‘Financialization from a Marxist Perspective’ International Journal of 49 50 Political Economy, 42:4, 47-66. 51 52 53 Foundational Economy Collective (2018) Foundational Economy: The Infrastructure of 54 55 Everyday Life, Manchester, Manchester University Press. 56 57 58 59 60

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1 2 3 Freeman, J. B. (2018) Behemoth: A History of the Factory and the Making of the Moddern 4 5 6 World. WW Norton & Company, New York. 7 CONFIDENTIAL: for peer review only 8 9 Froud J, Johal, S. Leaver, A., and Williams K (2012) ‘Apple Business Model: 10 11 Financialization across the Pacific’ 12 13 http://hummedia.manchester.ac.uk/institutes/cresc/workingpapers/wp111.pdf 14 15 16 Galbraith, J. K. (1954) The Great Crash 1929, London, Penguin Books. 17 18 19 Gramsci, A. (1971) Selections from Prison Notebooks, London, Lawrence &Wishart, 20 21 22 Haldane, A. G. (2015) ’Who Owns a Company’. Speech given to University of Edinburgh 23 24 Corporate Finance Conference, 22 May. 25 26 27 Hanlon, G. (2016) The Dark Side of Management: A Secret History of Management Theory, 28 29 30 London, Routledge. 31 32 33 Harvey, D. (1989) The Condition of , Oxford, Basil Blackwell. 34 35 36 Hymer, S. (1970) ‘The Efficiency (Contradictions) of Multinational Corporations’, American 37 38 Economic Review, 60(2): 441-8. 39 40 41 Keynes, J. M. (2009) Essays in Persuasion, New York, Classic House Books. 42 43 44 Krippner, G. R. (2005) ‘The Financialization of the American Economy’, Socio-Economic 45 46 Review, 3: 173-208. 47 48 49 Krippner, G. R. (2011) Capitalizing on Crisis: The Political Origins of the Rise of Finance, 50 51 Cambridge, Harvard University Press. 52 53 54 Lazonick, W. & O’Sullivan, M. (2000) ‘Maximising Shareholder Value: A New Ideology for 55 56 57 Corporate Governance’, Economy &Society, 29(1): 13-35. 58 59 60

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1 2 3 Lazonick, W. (2010) ‘Innovative Business Models &Varieties of Capitalism: Financialisation 4 5 6 of the U.S. Corporation’, Business History Review, 84: 675-702. 7 CONFIDENTIAL: for peer review only 8 9 Magdoff, F. & Bellamy Foster, J. (2014) ‘Stagnation and Financialization’. Monthly Review, 10 11 66. Retrieved From https://monthlyreview.org/2014/05/01/stagnation-and-financialization/ 12 13 Martin, R. (2002) The Financialization of Daily Life, Philadelphia, Temple University Press. 14 15 16 Martin, R (2010) ‘The Good, The Bad, and the Ugly: Economies of Parable’ Cultural 17 18 Studies, 24:3, 418-30. 19 20 21 Marx, K. (1976) Capital: A critique of Political Economy, Volume One, London, Penguin. 22 23 24 Meiskins Wood, E. (2016) Democracy Against Capitalism Renewing Historical Materialism. 25 26 27 London, Verso. 28 29 30 Mezzadri, A. (2019) ‘On the Value of Social Reproduction: informal labour, the majority 31 32 world and the need for inclusive theories and politics’, Radical Philosophy 2.04 September, 33 34 33-41. 35 36 37 Montgomery, D. (1987) The Fall of the House of Labor, New York, Cambridge University 38 39 Press. 40 41 42 Negri, A. (1988) ‘Marx on Cycle and Crisis’ in Revolution Retrieved: Writings on Marx, 43 44 45 Keynes, Capitalist Crisis and New Social subjects (1967-83), Red Notes, London, 43-91. 46 47 48 Negri, A. (1994) ‘Keynes and the Capitalist Theory of the State’ in Hardt, M. &Negri, A. 49 50 (eds.) Labor of Dionysus: A Critique of the State-Form. Minneapolis, University of 51 52 Minnesota Press: 23-52. 53 54 55 Negri, A. (1996) ‘Twenty Theses on Marx: Interpretation of the Class Situation Today’, in 56 57 58 Makdisi, S., Casarino, C., &Karl, R. E., (eds.) Beyond Marxism, Routledge, 59 60 London: 149-80.

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1 2 3 Nolan, P. (2012) Is China Buying the World?, London, Polity Press. 4 5 6 Palpacuer, F (2006) ‘The Global Sourcing Patterns of French Clothing Retailers’, 7 CONFIDENTIAL: for peer review only 8 9 Environment and Planning A 38, 2271-83. 10 11 12 Perrow, C. (2002) Organizing America: Wealth, power, &the origins of . 13 14 Princeton, Princeton University Press. 15 16 17 Piketty, T (2014) Capital in the Twenty First Century. Cambridge, The Belnap Press of 18 19 Harvard University Press. 20 21 22 Pun, N and Smith, C. (2007) ‘Putting Transnational Labour Process In Its Place: the 23 24 dormitory labour regime in post-Socialist China’, Work, Employment and Society, 21(1), 27- 25 26 27 45. 28 29 30 Rodrik, D. (2011) The Globalisation Paradox: Democracy and the Future of the World 31 32 Economy, London, WW Norton. 33 34 35 Rossman, P. & Greenfield, G. (2006). ‘Financialization: New Routes to Profit, New 36 37 Challenges for Trade Unions’, Labor Education, the quarterly review of the ILO Bureau for 38 39 Workers’ Activities, 1/2004 (No.142): 1-10. 40 41 42 Sawyer, M. (2013) ‘What is Financialization?’ International Journal of Political Economy, 43 44 45 42:4, 5-18. 46 47 48 Sklair, L. (2001) The Transnational Capitalist Class, Oxford, Blackwell. 49 50 51 Standiford, L. (2005) Meet You in Hell: Andrew Carnegie, Henry Clay Frick and the Bitter 52 53 Partnership that Transformed America. New York, Three Rivers Press. 54 55 56 57 58 59 60

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1 2 3 Starosta, G. (2010) ‘The Outsourcing of Manufacturing &the Rise of the Giant Global 4 5 6 Contractors: A Marxian Approach to Some Recent Transformations of Global Value Chains’, 7 CONFIDENTIAL: for peer review only 8 New Political Economy 15:4, 543-63. 9 10 11 Starrs, S. (2013) ‘American Economic Power Hasn’t Decl,ined- It Globalized! Summoning 12 13 the data and Taking Globalization Seriously’, International Studies Quarterly, 57, 817-30. 14 15 16 Stone, K. (1973) ‘The Origin of Job Structures in the Steel Industry’, Radical America 7(6): 17 18 19-66. 19 20 21 Streeck, W. (2014) Buying Time: The delayed Crisis of . Verso, 22 23 24 London. 25 26 27 Sweezy, P (1958) ‘Veblen on American capitalism’ in D. F. Dowd (eds.) : A 28 29 Critical Reappraisal. Ithaca New York, Cornell University Press, 177-98. 30 31 32 Tawney, R. H. (1921). The Acquisitive Society, London, Bell and Sons 33 34 35 Thompson, P. (2003) ‘Disconnected Capitalism: or why employers can’t keep their side of 36 37 the bargain’, Work, Employment and Society, 17: 359-78. 38 39 40 Torigian, M. (1999) ‘The Occupation of the Factories: Paris 1936, Flint 1937’ Comparative 41 42 Studies in Society &History, 41(2): 324-347 43 44 45 Tsing, A. (2009) ‘Supply Chains &the Human Condition’, Rethinking Marxism; A Journal of 46 47 48 Economics, Culture &Society, 21:2, 148-76. 49 50 51 Űlgen, F (2017) ‘Financialisation and Vested Interests: Self-Regulation vs. Financial Stability 52 53 as a Public Good’, Journal of Economic Issues, 51:2, 332-40. 54 55 56 UNCTAD 2017, Trade and Development Report 2017 – Beyond Austerity: Towards A 57 58 Global New Deal, Geneva: UNCTAD 59 60

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1 2 3 UNCTAD 2018, Trade and Development Report 2018: Power, Platforms and The Free 4 5 6 Trade Delusion, Geneva: UNCTAD 7 CONFIDENTIAL: for peer review only 8 9 10 11 Veblen, T. (1908a) ‘On the Nature of Capital;’ The Productivity of Capital Goods’, The 12 13 Quarterly Journal of Economics, 22(4): 517-42. 14 15 16 Veblen, T. (1908b) ‘On the Nature of Capital: Investment, Intangible Assets, &the Pecuniary 17 18 Magnate’, The Quarterly Journal of Economics, 23(1): 104-36. 19 20 21 Veblen, T. (2013) The Theory of the Business Enterprise, CT, Martino Publishing. 22 23 24 Wilentz, S. (2004) Chants Democratic: New York City & the Rise of the American Working 25 26 Class, 1788-1850, Twentieth Anniversary Edition, New York, Oxford University Press. 27 28 29 30 1 This appears to be a circular argument – national labour movements encouraged nation-states to reject early 31 financialisation, whereas today nation-states do not want to, or cannot, resist financialisation. However, the 32 paper demonstrates how this emerges due to shifting social forces. 33 2 Today the Foundational Economy Collective (2018; 72) refer to this transfer of value from the operational 34 process to the holding company as ‘extraction at “point value”’ and suggest it is rife in major privatised 35 industrial sectors of what they call the foundational economy. 36 3 The labour problem had not disappeared (Brody, 1987, Montgomery, 1987). But this unrest was a day to day 37 managerial problem to ensure a firm or unit was competitive and hence a survivor/gainer of disequilibrium. We 38 should think of this as management rather than ownership/control. Like today, financialization means pressure 39 is exerted on labour to ‘deliver competitive rates of surplus value’ (Bryan et al., 2009,:p 467) 40 4 Although it generated new skilled roles e.g. craftsmen had to make the machines used in standardised 41 production processes, it destroyed more skilled jobs than it created (Freeman, 2018; 120). 42 5 Carnegie Steel also controlled costs through strategic (but not full legal) ownership of other firms e.g. HCF 43 Coke Company. It used this control to purchase the coke necessary and produce steel at $1.35 per ton when 44 rivals paid $3.25 per ton (Standiford, 2005, 260-1) 45 6 A similar process can be seen in the railway industry where union led efficiency drives, new production 46 processes, and the creation of a two tiered labour market of secure and temporary workers with different rights, 47 led to profit increases that were not passed on to labour (Montgomery, 1987; 423) 7 48 Whilst not a central focus of this paper, the emergence of labour as a national force (with international 49 overtones) perhaps acted as a driver for the Keynesian need to establish national economies in the manner 50 Christophers (2013) highlights. 51 52 53 54 55 56 57 58 59 60

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