Financialization and Economic Development: A Debate on the Social Efficiency of Modern Finance

Abstract

The shift in financial intermediation from banks to financial markets, and the introduction of financial market logic into areas and domains where it was previously absent, have not just led to negative developmental impacts, but also changed the ‘rules of the game’ and facilitated rent‐seeking practices of a self‐serving global elite. Establishment (financial) economics has helped to depoliticize and legitimize this financialized mode of social regulation by invoking Hayek's epistemological claim that (financial) markets are the only legitimate, reliably welfare‐enhancing foundation for a stable social order and economic progress. This article forms the Introduction to a set of 10 articles which assess the logic and consequences of ‘financialization’ across a range of geographic, economic and social scales, and confront Hayek's grotesque claim — deep down, at the level of ‘ideas’, but also by providing ‘knock‐out evidence’ on the social inefficiency of a capitalism ‘without compulsions’ for finance. The authors in the Debate challenge the ‘ruling ideas’ and expose how establishment economics has been hiding its reactionary political agenda behind the pretence of scientific neutrality. The financial emperor wears no clothes.

Deconstructing the Financialization of Healthcare

“…Financialization in its broadest sense is the ‘increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’ (Epstein, : 3). Financialization creates new patterns of capital accumulation (Fine, ; Krippner, ) and shapes social institutions and subjectivities (Davis and Kim, ; van der Zwan, ), leading to new forms of social regulation (Storm, ), and resistance (Davis and Kim, ).…”

“…The financialization–development nexus has come under scrutiny by critical social science researchers in the last few years (Mawdsley, ). They have pointed to a dissociation of financial returns from the productive economy (Fine, ), the cannibalization of the latter to serve the interests of finance (Storm, ), and the elevation of shareholder concerns over and above other issues such as social impact. Work on the financialization of food production associated with land grabbing (Brooks, ; Clapp and Isakson, ) shows how, in linking the productive economy to the ebbs and flows of finance capital, basic needs like food are subjected to instability while entire sectors and regions are subordinated to the needs of financial markets.…”

“…As observed by Fine (), it is not merely the expansion and proliferation of financial markets over the last 30 years that has been so striking but also the penetration of such financing into widening areas of social reproduction including housing, pensions and health. A recent Development and Change Forum Debate on financialization (introduced by Storm, ) explored a number of important aspects of this penetration and its consequences in social protection and personal finance. We aim to add to this with a close analysis of the healthcare sector.…”

“…Inspiration for further scholarly contribution can be drawn from the burgeoning body of social science studies on financialization (Bayliss et al., ; Davis and Kim, ; Storm, ), and we see opportunities for interdisciplinary research to generate critical insights through detailed analysis of processes for identifying investment targets and engaging investors. Processes of financialization have permeated social reproduction worldwide, driving public policy and providing lucrative returns for finance capital.…”

How Financialization Undermines Democracy

“…While some academics seem stuck on debating what financialization is or fixated on proving that it exists, Tooze gets on with the job and details how financialization has emerged, the processes at its core, and how it has changed society and, importantly, democracy in major rich and emerging economies over the past two decades. His exposition is firmly grounded in the insights of financialization research — especially about the impact of deregulation on what we euphemistically call ‘financial innovation’ and that of financial liberalization on international capital flows and the volatility they introduce (Engelen et al., ; Fligstein and Goldstein, ; Krippner, ; Streeck, ; see also Epstein, ; Storm, ). In that way, Crashed tells a familiar story to those who have been critical of the finance industry for a while now — especially heterodox economists influenced by the thinking of Hyman P. Minsky and other Post‐Keynesians.…”