What is financialization?
Financialization is the way that financial motives, markets, and sectors have an increasingly important and powerful role in the global economic system and individual economies in a way previously unprecedented. Market players intersect with all parts of the economy and the transactions they enact are increasingly diverse. This broad reach only widens the scope of their power.
The wide reach of this power is best depicted when looking at rentier capitalism. This is the practice of people (rentiers) gaining large profits without contributing to society e.g., through inheritance or ROIs. Sayer (2015) best articulates why rentiers are such a problem to the economy. Rentier capitalism produces a huge transfer of income from those who work for their income to those who already control vast amounts of wealth. Investments by such people often have wealth extraction motives rather than wealth creation motives and therefore “need not create anything new” - all they are supposed to do is provide a return for the ‘investor’. These kinds of ‘investments’ (a definition under which gambling is considered a form of investment) are extracting wealth from others and from ‘the system’ without putting anything useful back in. Sayer sees the success of the rich as reliant on wealth extraction and therefore as a form of parasitism to the economy.
Financialization and the housing market
When looking at financialization it’s impossible to critique it without looking at public services / necessities which are being negatively affected by it. Housing is a particularly clear example of this. Sayer says that the housing market has been financialized most commonly due to rich people receiving unearned income and using it to buy houses - which drives housing prices up - and then charging extortionate rent that means no one can ever afford to save while simultaneously renting, but also can’t afford to buy outright or get a mortgage when they’re first starting out. This phenomenon of the financialization of housing “occurs when housing is treated as a commodity – a vehicle for wealth and investment – rather than a social good.” (OHCHR).
Other services affected by financialization
This effect is not just seen in the housing market. Water access and healthcare are other examples. With healthcare, the shift has been more recent. Before 1993, prior to the intervention of the World Bank report Investing in Health, healthcare was a relatively un-commodified. Healthcare was most often provided by a mix of government providers, not-for-profit providers, private practitioners, and/or informal, solo, or family practitioners. The shift towards a for-profit healthcare industry in the US began as public healthcare expanded and to keep up with this, supplementary services were outsourced, and user-fee systems were introduced. As Hunter and Murray (2019) put it, this led to “Fees for healthcare [becoming] institutionalized and contributed to households’ descent into, and reproduction of, poverty… as well as human rights abuses such as forced detention in hospital for non-payment…”. Before this, the for-profit sector was reserved for high-income groups who could afford to, and more importantly chose to, seek out paid-for healthcare services.
Challenge and conclusion
But it’s not as if this shift has gone unchallenged. Some organised resistance has emerged, from academic criticism to lobbying to campaigns from groups like Oxfam (Oxfam, 2014). Critics argue that financialization is inevitably unsustainable as it’s driven by short-termism with an emphasis on short-term profits. Others critique its' promotion of specific concentrations of wealth and the perpetuation of inequalities, such as how large companies hold a lot of cash while small businesses struggle to compete. While some supporters of the concept may say financialization a key part of neoliberal expansion by promoting competition, it’s more arguable that it inherently inhibits development and innovation from the masses while protecting the exponential growth of the few.
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