Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, labor, households and daily life. Essentially it has significant implications for the broader patterns and functioning of an (inter)national economy, transforming its fabrics and modificating the mutual embeddedness of state-economy-society. As well as neoliberalism, financialization is substantially a state project.
Financialization was already widely discussed in our previous posts. It is impossible to have a comprehensive account and profound understanding of financialization without scrutinizing the role of the state in its evolution and development.
In this interesting and illuminating (open access) paper “The Role of the State in the Financialisation of the UK Economy“, Aeron Davis and Catherine Walsh analyze what role did the UK state agencies play in the rise of financialization in Britain? and what were the institutional mechanisms by which financialization came to be supported?
Based on evidence from a mix of interviews with central actors, published insider accounts and an analysis of budget statements in the period 1976–2010, the researchers make two arguments. First, the UK state has had a rather more active role here than most observers have acknowledged. Successive governments and civil servants since the 1970s have not merely abandoned manufacturing and industry, they have handed much of their control to the financial sector and in favour of local and international finance.
Second, as Davis and Walsh stress, at the heart of this pro-finance institutional shift was a changing balance of power between the Treasury and the Department of Trade and Industry. In the late 1970s, both departments went through a series of dramatic changes that left the Treasury far stronger relative to the DTI. The Treasury then attempted to remake the DTI in its own image (by making appointments with City and Treasury links), subjugating its alternative economic outlook to that of its own. This both boosted the City and disadvantaged industry, thus propelling the UK towards financialisation at a faster pace.
The contemporary societies are enslaved by finance and capital; it is the time to bring the real economy back in for the benefit of all, and not only for a handful of (political) financiers.
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“The contemporary societies are enslaved by finance and capital; it is the time to bring the real economy back in for the benefit of all, and not only for a handful of (political) financiers.”
That is not going to happen of course, the Chinese PFI contracts (the Chinese building nuclear power stations for us) is of course all about financialisation of profits. UK banks will be financing the Chinese but want an indemnity from the government to do so.
That makes it vastly more expensive than either using direct government financing or using People’s Quantitative Easing.
The Chinese are cleverer, there is not yet a financialisation (where private capital makes all the money) of incustry. State banks provide finance to state run enterprises, which is vastly different, as all profits (and losses, in case of bad debts) will fall to the state.
https://radicaleconomicthought.wordpress.com/2015/10/19/karl-marx-henry-george-and-china/
Prof. R. A. Werner believes that the ‘man-made problem’ was the issuing of the ‘wrong’ type of credit. There is ‘productive’ and ‘unproductive’ credit.
“Importantly for our disaggregated quantity equation, credit creation can be disaggregated, as we can obtain and analyse information about who obtains loans and what use they are put to. Sectoral loan data provide us with information about the direction of purchasing power – something deposit aggregates cannot tell us. By institutional analysis and the use of such disaggregated credit data it can be determined, at least approximately, what share of purchasing power is primarily spent on ‘real’ transactions that are part of GDP and which part is primarily used for financial transactions. Further, transactions contributing to GDP can be divided into ‘productive’ ones that have a lower risk, as they generate income streams to service them (they can thus be referred to as sustainable or productive), and those that do not increase productivity or the stock of goods and services. Data availability is dependent on central bank publication of such data. The identification of transactions that are part of GDP and those that are not is more straight-forward, simply following the NIA rules.”
Click to access Werner_IRFA_QTC_2012.pdf
[…] size and importance of financial markets, institutions, and activities—often labeled as “financialization”—is one of the key economic developments of recent decades. The rise of finance coincides with […]