Towards (de-)financialisation: the role of the state

Abstract

Understanding the nature of state financialisation is crucial to ensure de-financialisation efforts are successful. Therefore, this article provides a structured overview of the emerging literature on financialisation and the state. We define financialisation of the state broadly as the changed relationship between the state, understood as sovereign with duties and accountable towards its citizens, and financial markets and practices, in ways that can diminish those duties and reduce accountability. We then argue that there are four ways in which financialisation works in and through public institutions and policies: adoption of financial logics, advancing financial innovation, embracing financial accumulation strategies and directly financialising the lives of their citizens. Organising our review around the two main policy fields of fiscal and monetary policy, four definitions of financialisation in the context of public policy and institutions emerge. When dealing with public expenditure on social provisions, financialisation most often refers to the transformation of public services into the basis for actively traded financial assets. In the context of public revenue, financialisation describes the process of creating and deepening secondary markets for public debt, with the state turning into a financial market player. Finally, in the realm of monetary policy, financial deregulation is perceived to have paved the way for financialisation, while inflation targeting and the encouragement, or outright pursuit, of market-based short-term liquidity management among financial institutions constitute financialised policies.

How Financialization Undermines Democracy

“…The way in which we organize our economic activity and distribute wealth has little to do with the democratic dictum that every citizen is equal before the law. However, this contradiction is further exaggerated through financialization (Jessop, ; Karwowski, forthcoming). The large size, networked character and complexity of the financial sector undermine democratic control processes and outcomes (Nölke, forthcoming).…”

“…What Tooze does not stress is that this political project is highly lucrative for those close to the political elites. Budget cuts opened avenues for outsourcing projects, privatization and the creation of new financial assets (Froud et al., ; Karwowski, forthcoming). Particularly in the UK, public provision, be it infrastructure or programmes tackling homelessness, has been increasingly turned into questionable financial instruments such as social impact bonds.…”

“…The fallout from rising financial vulnerabilities in EMEs is unlikely to be limited to their economies. Reforms favouring finance tend to undermine democratic processes and accountability (see Karwowski, forthcoming), making a discussion on EME financialization an even more pressing political issue.…”

“…Therefore, this article will put Tooze's insights into the context of the broader research agenda, focusing on three main aspects: (1) how changes to financial regulation and monetary policy pioneered by the US and UK fuelled the gathering storm of the global crisis; (2) how a fixation on secondary markets for public debt, meaning the promotion of these markets as part of sovereign debt financialization and wooing of financial investors by governments, choked off the recovery, transforming the GFC into a European crisis; and finally (3) how austerity policies are quietly transforming public provision into the basis for a new financial asset class, while leading democratic societies into a political crisis. These three dimensions map broadly onto the four parts in which Tooze presents his account, while capturing the major dimensions of financialization in the realm of monetary and fiscal policy (see Karwowski, forthcoming, for a typology). Crashed documents the powerful influence that finance has on the political system, undermining democratic accountability by eroding regulatory control and narrowing policy makers’ options.…”

The Strategic Logics of State Investment Funds in Asia: Beyond Financialisation

“…In adding to burgeoning debates on state financialisation (see, for example, Fastenrath, Schwan, and Trampusch 2017;Karwowski 2019), embodied in this case through various forms of sovereign fund, this article argues that while a shareholdervalue logic is employed increasingly by the state through new investment institutions, it is underwritten and preceded by other more fundamental political logics. In unpacking this political foundation, the article advances three strategic logics: a developmental logic, a logic of regime maintenance, and a geo-political legitimacy logic.…”