Financialization

Financialization refers to the increasing dominance of financial institutions, financial markets, and financial motives in the economy and society. This involves the expansion of financial activities relative to real economic activities (like production and consumption), leading to a shift in power towards financial actors. It often manifests as increased profit margins in the financial sector, a rise in financial instruments and transactions, and the integration of financial logic into non-financial areas of life. It can impact areas like corporate governance, labor markets, and government policy, prioritizing financial returns above other considerations. This process can have significant social and economic consequences, including increased inequality, financial instability, and shifts in investment patterns.

Financialization meaning with examples

• The rapid financialization of the housing market, fueled by complex mortgage-backed securities, contributed significantly to the 2008 financial crisis. This system transformed housing from a basic need into a speculative asset, with devastating consequences when the market collapsed. The shift exemplified how finance can destabilize core social functions.
• Corporate strategies have been heavily influenced by financialization, with a focus on shareholder value maximization through measures like stock buybacks and mergers. This prioritizes short-term financial gains over long-term investments in research, development, and worker wages. The system pushes businesses into prioritizing their financial success.
• The financialization of healthcare, through the involvement of private equity firms and the growth of complex insurance schemes, can lead to cost-cutting measures that compromise patient care. Increased pressure on profits leads to fewer resources for care and focuses on profits rather than on patient welfare.
• Globalization and the increased flows of capital have accelerated financialization, as financial markets became more integrated and dominant. This system made national economies more vulnerable to global financial shocks. Global forces help to support the financial system.
• The proliferation of derivatives and other complex financial instruments is a hallmark of financialization, representing a massive expansion of financial transactions. This growth is driven by the search for profit and speculative opportunities and creates increased uncertainty. The system provides opportunities and risks.