6 Financialization

Braun

Financialization in the United States has been explained as the result of the exhaustion on the Fordist growth model. Competition in interna- tional trade, de-industrialization, and disinfla- tionary policies all put pressure on political actors to liberalize finance so that newly cre- ated credit could substitute for stagnating wage income and sustain aggregated demand. 11 However, as historians Fernand Braudel and Giovanni Arrighi have argued, financialization has been a recurring feature of capitalist devel- opment. It tends to be driven by a slowdown of accumulation that makes reinvesting profits in immobile productive capital relatively less attractive to capitalists, who instead seek returns from liquid financial claims.

Braun (2021) Fueling Financialization: The Economic Consequences of Funded Pensions (pdf)

6.1 Washington Consensus

Copley

Financialization Was a Response to Capitalism’s Failings

Popular critiques of financial deregulation often blame the City of London’s excessive political influence. But financialization wasn’t imposed on capitalism by elite plotting — it was a political response to its inherent crisis tendencies.

Financialization refers to the growing size and importance of financial markets in global capitalism since the 1970s. Credit bubbles have inflated, colossal banking institutions have swallowed up smaller ones, and complex financial instruments have proliferated. Many industrial corporations have also become financialized, earning increasing revenues from financial ventures and reinvesting them in short-term schemes to boost share prices. Everyday life, too, has been transfigured. We are increasingly pressured to approach our lives like balance sheets, making prudent investments, managing risk, and acquiring financial assets (chiefly housing) to insulate ourselves against economic uncertainty.

This process of expanding financial logics has been accompanied by another development, referred to as “secular stagnation” or the “long downturn.” Global capitalism’s dynamism has waned following the end of the post–World War II economic boom. Since the 1970s, profitability, investment, and GDP growth have remained relatively stagnant. What paltry growth the world economy has enjoyed in recent years has depended on continuous interventions by central banks, which have channeled vast quantities of money into financial markets in an attempt to stimulate a boom.

The era of financialization has thus witnessed both financial expansion and economic stagnation. Ours is a world in which stories of record-breaking stock market rallies share the news cycle with gloomy growth projections and spectacular images of revolts by the poor and policed.

How did we arrive at this point? It’s important to understand that financialization was not, in fact, a spontaneous market development — rather, it was deeply political. This phenomenon was engineered by advanced capitalist states through policies of financial liberalization during the 1970s and 1980s, and then it was exported around the world under the banner of the Washington Consensus.

Britain lies at the heart of this story. Margaret Thatcher’s radical liberalization of the UK’s banking sector was instrumental in forging a global financial order in which the City of London is a crucial hub. Indeed, some of the worst practices revealed by the 2008 crash were conducted by the London branches of global banks. As Peter Gowan observed, the City became for Wall Street “something akin to what Guantánamo Bay would become for Washington: the place where you could do abroad what you could not do back home.”

The key UK policies that propelled financialization were not primarily driven by financial lobbying or neoliberal doctrine, nor were they part of a larger political blueprint. Instead, these liberalizations were messy, ad hoc attempts to address the political quandaries churned up by the “stagflation” crisis of the 1970s and early 1980s — itself generated by capitalism’s inherent crisis tendencies.

These liberalizations were not designed to cater to City elites. Indeed, they endangered the guaranteed profits of many London bankers, exposing them to competition from foreign conglomerates that dwarfed them in scale and sophistication. These policies often found greater support from the Confederation of British Industry than from financial lobbies. Neither were they straightforward enactments of neoliberal dogma. First, they began in 1971, before the so-called “neoliberal revolution.” Second, they were geared to address more mundane governing problems. Far from a cunning blueprint, these policies were “a leap in the dark,” as Thatcher’s financial secretary (and future chancellor) Nigel Lawson called them.

The British liberalizations that propelled financialization were desperate, pragmatic attempts to navigate the contradictory imperatives of global capitalism and domestic politics in a moment of deep crisis.

It is unclear whether our conquest of the state, to which so much energy has recently been devoted, could put the financial genie back in the bottle — at least not without generating equally objectionable side effects. Financialization was the result of politicians struggling with the real contradictions of governing capitalism. Socialists today, were they to win office, would face these same contradictions. Chief among them is that the capitalist state’s very capacity to act depends upon profitable labor exploitation within its territory. Policymakers are not dominated by conniving financiers but by this impersonal compulsion to achieve profitability, which emanates from capitalism’s marketized social relations.

Financial liberalizations represented one strategy to negotiate this ugly reality. If a leftist government reversed these liberalizations, it would need to offer an alternative plan to marry popular legitimacy with the lucrative exploitation of its citizenry. For this reason, no matter who signs the executive orders, the state cannot simply “build a new society just as well as a new railway,” as Marx once remarked. It cannot legislate for a just world when injustice sustains it. This is the confounding strategic terrain that confronts us as we seek to wrestle with capitalism’s out-of-control financial logics.

Copley (2021) Financialization Was a Response to Capitalism’s Failings