What is Financialisation?

When was the term conceived

 Financialisation as a term first appeared in 1990 thanks to Kevin Philips

 “A prolonged split between the divergent real and financial economies”
 The problem arises in 1960, the focus shifted to financial services.
 Financialisation means the increasing role of financial motives, financial
markets, financial actors and financial institutions in the operation of the
domestic and international economies. Epstein
 Its a pattern of accumulation in which profits accrue primarily through
financial channels rather than through trade and commodity production.
Krippner
 Sawyer, the author, views financialisation as a set of ongoing processes
throughout the years and wants to treat it without limits of space and time
Financialisation Economy Society and
Sustainable Development (FESSUD)
 Present forms of financialisation emerged in the 80s
 The consequences of financialisation are:
 Large scale expansion of the financial markets
 Deregulation in the economy
 Expansion of financial instruments and services, subprime loans and
complex instruments
 Rising inequality in incomes
 Penetration of financial markets into sectors like: Housing, pensions, health
and others.
 The speed at which this happens differs across countries.
 Objective: changing the financial sector to better serve the economy, society
and the environment
Changes in financial institutions

 Financial institutions shift from an originate and retain model to an originate

and distribute model.
 Rapid growth of ‘fictional finance’ as assets and liabilities grew rapidly
relative to GDP and measures of productive capital
 Growth of the financial sector responded to the growth of personal savings
and was associated with the growth of private wealth before, now the
relationship is not that close.
 Increasing growth of household debt.
 Dominance of financial institutions over the industries.
Consequences of financialisation
according to Sawyer
 Reduce overall levels and efficacy of real investment as financial
instruments and activities expand at its expense.
 Prioritize shareholder value, or financial worth, over other economic, social,
and environmental values and goals.
 Push policies towards acceptance of the operation of market forces and
commercialization in all areas of economic and social life.
 Extend influence more broadly, both directly and indirectly, over economic
and social policy
 Place more aspects of economic and social life at the risk of volatility from
financial instability and, conversely, places the economy and social life at
risk of crisis from triggers within particular markets
 Encourage particular forms of culture and corresponding governance that
shapes what policies can be formulated and implemented
Economic growth and financialisation

 Financial phenomena have become increasingly important in much of the

world economy
 Some of the effects of financialisation have been highly detrimental to
significant numbers of people around the globe
 Different studies show that there is a strong link between a proper and
functional financial system and long term economic growth
 Better developed financial systems ease external financing constraints
facing firms.
 After some point further growth of the financial sector has a negative effect
on growth.
 Financial system size, especially non-intermediation services, has a positive
relationship with volatility in high-income countries over the medium-term
Neo-liberalism
 The role of government has diminished while that of markets has increased:
economic transactions between countries have substantially risen.
 The shift in gravity of economic activity from production to finance is a key
issue.
 It has a neoliberal approach to economy:
 Removal of barriers to free movement of goods, services, and
especially capital, throughout the global economy
 Withdrawal by the state from the role of guiding and regulating
economic activity
 Privatization of state enterprises and public services; the slashing of state
social programs
 A shift to regressive forms of taxation
 A shift from cooperation between capital and labor to a drive by
capital, with aid from the state, to fully dominate labor
 The replacement of co-respective behavior among large corporations
by unrestrained competition
Other definitions
 Lapavitas views financialisation as a systemic transformation of mature
capitalist economies that comprises three fundamental elements:
 Large non-financial corporations have reduced their reliance on bank
loans and have acquired financial capacities.
 Banks have expanded their mediating activities in financial markets as
well as lending to households
 Households have become increasingly involved in the realm of finance
both as debtors and as asset holders
 The quantitative and qualitative evolution of the financial sector and the
role of finance. The forms which financialisation (and sometimes de-
financialisation) take vary over time and space, and care must be taken to
specify to which time and space any particular analysis refers.
Thanks