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Financialization

Financialization (or financialisation in British English) is a term sometimes used to describe the development of financial capitalism during the period from 1980 to present, in which debt-to-equity ratios increased and financial services accounted for an increasing share of national income relative to other sectors. Financialization describes an economic process by which exchange is facilitated through the intermediation of financial instruments. Financialization may permit real goods, services, and risks to be readily exchangeable for currency, and thus make it easier for people to rationalize their assets and income flows. Financialization is tied to the transition from an industrial economy to a service economy, as financial services belong to the tertiary sector of the economy. Various definitions, focusing on specific aspects and interpretations, have been used: Greta Krippner of the University of Michigan writes that financialization refers to a "pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production." In the introduction to the 2005 book Financialization and the World Economy, editor Gerald A. Epstein wrote that some scholars have insisted on a much narrower use of the term: the ascendancy of shareholder value as a mode of corporate governance, or the growing dominance of capital market financial systems over bank-based financial systems. Pierre-Yves Gomez and Harry Korine, in their 2008 book Entrepreneurs and Democracy: A Political Theory of Corporate Governance, have identified a long-term trend in the evolution of corporate governance of large corporations and have shown that financialization is one step in this process. Thomas Marois, looking at the big emerging markets, defines "emerging finance capitalism" as the current phase of accumulation, characterized by "the fusion of the interests of domestic and foreign financial capital in the state apparatus as the institutionalized priorities and overarching social logic guiding the actions of state managers and government elites, often to the detriment of labor.

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