Financialisation, profitability and the rise of household debt in the United Kingdom, 1971-2015

Abstract

Over the last fifty year, the trajectory of household debt has undergone several transformations in some jurisdictions, especially in advanced capitalist countries such as the United States and the United Kingdom, where household debt has risen to historically high levels. This phenomenon appeared in tandem with the end of Fordist salaries and the unresolved crisis of over-accumulation, leading to massive losses of profitability in manufacturing. The central argument put forth in this thesis is that the rise of household debt has not been a spontaneous balancing act of the markets in general, but a concrete political strategy of capital to restore the collapsing rate of profit in the real economy by way of financial speculation, especially household debt speculation. In this context, the study examines, in a historically and theoretically informed manner, the unequal relationship of capital-labour relations and how this has intensified since the collapse of the Bretton Woods system in 1971. This period saw the liberalisation of the exchange rate and credit was unleashed, empowering financial capital at the expense of labour, thereby placing financial services and banks at the centre of national and global political economies. The analysis provides both a concrete historical and contemporary perspective into underlying factors, causes and consequences that surround the growth of household debt in the United Kingdom and the fictitious levels of debt-led economic growth experienced, not just in the United Kingdom, but in many other countries in the world. Lastly, the empirical analysis into the rise of household debt reveals that the housing market and the financial market have often been identified to be the causal agents at the root of most financial crises. The ARDL method was employed to investigate the presence of cointegrating relationships between the individual regressor. The evidence confirms that declining rate of profit, end of high Fordist wages and house price movements contributed significantly to the rise of household debt in the United Kingdom. The operation of financial institutions to extract rent and profits from over-indebted households, especially in the 1990s and 2000s, eventually blew up during the global financial crisis of 2007-08, the consequences of which are felt to the present day.