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FINANCIALIZATION
Financialization is basically a process where financial markets, financial institutions and
financial elites gain a greater influence and dominance over economic market and economic
outcomes. This particular term developed over recent decades in which financial leverage
overrides equity and financial markets tends to override traditional industrial economy and
agriculture economics.
The original intent of financialization is to make it easier for the people to trade financial
instruments by reducing work product or service to currency i.e. exchangeable financial
instruments. It also makes economic rent possible.
It transforms the functioning of economy both at macro as well as micro level.
As according to Charles Hugh Smith, financialization is like a plague which needs new victims
to kill its existing hosts
[1]

The financialization lifecycle can be diagrammatically described as under:
Financialization is operated through three different channels
a) Structural and Operational changes of financial markets
b) Changes in behavior of non financial corporations
c) Deviations in economic policy
Its Principal impacts are:
a) Elevate the significance of the financial sector relative to the real sector
b) Income from the real sector to be transferred to the financial sector
c) Income inequality to be increased so as to contribute to wage stagnation
On countering financialization a multi-facetd agenda arises that includes,
a) Restoration of policies and control over financial markets,
b) The neo-liberal economic policy paradigm that was encouraged by financialization is
now challenged
c) Corporations are made responsive to the interests of stakeholders rather than just being
responsive to the financial markets,
d) In order to diminish the influence of corporations and wealthy leaders, the political
processes have been reformed.
[2]

Evidences supporting this phenomenon are mentioned hereunder:
a) As according to Gerald A. Apstin there is no doubt about the financialization all over the
world , for instance , , according to the Bank for International Settlements, the daily
volume of foreign exchange transactions amounted to more than 1.9 trillion dollars each
day in 2004, in contrast to 570 billion per day in 1989
b) Baker, Epstein and Pollin (1998) report that funds raised on international financial
markets as a percentage of world exports rose from .5 per cent in 1950 to over 20 per cent
in 1996
c) As according to James Crotty, for United States, profits for financial institutions rose
dramatically as compared to non financial institutions in 1984
d) Duménil and Lévy, extending the record to the case of France, point to one reason for the
rise of the financial profit rate: the real interest rate more than doubled in France between
the 1970s and 1990s . they also show that after 1980‟s the return to holding financial
assets as a share of total disposable income rose.
e) Epstein and Jayadev extended the research to OECD countries (Organisation for
economic co operation and development and realized that “rentier share” was
significantly higher in 1980‟s and 1990‟s as compared to 1970‟s
[3]

There are certain other authors and evidences that show the ill effects of financialization over
decades:
For instance Kripper (2005) argued that financialization was the key factor for meltdown of the
economy. He also highlighted the recent corporate scandals as dramatizing “The degree to
which financial machinations have superseded the productive enterprise in the US Economy.”
Kedrosky and Stangler (2011) specifically mention the financialization of US economy as
leading in part to the financial crisis of 2008/2009.
Freeman 2010 documented the the “huge cost to the real economy of the finance induced „Great
Recession‟, in terms of lost employment and likely reductions in public goods and economic
growth as countries re-stabilize their fiscal budgets following costly bailouts and stimulus
packages‟
Palley (2007) financialization have appeared to effect all industrial sectors of the economy, later
supported by Jayadev and Epstein (2007) and Power, Epstein and Abrena (2003) for OECD
countries.
Yeldan (2000) have conducted a detailed case study of turkey (an OECD) member where he
mentions in his material that financialization and deregulation are the key reasons for widening
of income distribution
Stockhammer (2004) and Freeman (2010) also mentioned that financialization have negatively
impacted...