Financialization
What It Is and Why It Matters
Financialization is a process whereby financial markets, financial institutions,
and financial elites gain greater influence over economic policy and economic
outcomes. Financialization transforms the functioning of economic systems at
both the macro and micro levels.
Its principal impacts are to (1) elevate the significance of the financial
sector relative to the real sector, (2) transfer income from the real sector
to the financial sector, and (3) increase income inequality and contribute
to wage stagnation. Additionally, there are reasons to believe that financialization
may put the economy at risk of debt deflation and prolonged recession.
Financialization operates through three different conduits: changes in the
structure and operation of financial markets, changes in the behavior of nonfinancial
corporations, and changes in economic policy.
Countering financialization calls for a multifaceted agenda that (1) restores
policy control over financial markets, (2) challenges the neoliberal economic
policy paradigm encouraged by financialization, (3) makes corporations responsive
to interests of stakeholders other than just financial markets, and (4) reforms
the political process so as to diminish the influence of corporations and wealthy
elites.