Term Paper, 2014
10 Pages, Grade: 2.3
Financialization is a process by which financial markets, financial institutions and its actors have gained a major influence, or indeed Hegemony, over economic policies, economic outcomes, and the social field.
It mainly impacts the behavior between financial sector and real sector, promoting the first, through numerous phenomena: Deregulation of the financial sector and the development of new instruments, capital flow liberalization as well as exchange rate instability, the emergence of new powerful institutional investors, shareholder-Value-orientation and changes in the enterprises’ corporate governance, an easier access to credits for the underbanked social groups, a higher level of real interest rate in comparison to the post-war period.
Income transfer from the real sector to the financial sector as well as an increased debt, increasing income inequality and wage stagnation are among financialization’s consequences.
Additionally The financial process operates through changes in the operation of financial markets as well as in the behavior of non-financial corporations, and through changes in economic policy.
But where does this financialization process come from? We can argue that its roots are to be traced back in the U.S. after the collapse of the Fordist compromise in the early 1970s, but it clearly develops throughout the 1980s and 1990s. On the other hand some intellectuals argue that it has been brought by the emergence of Neoliberalism at the end of the 1970s and the beginning of the 1980s, which, by advocating free trade, deregulation, liberal economy, privatization as well as an overall reduction in government control of the economy, set the stage for Financialization’s growth.
G.A.Epstein, of the University of Massachussets, Amherst, defines Financialization as
the increasing importance of financial markets, financial motives, financial institutions and financial elites in the operation of the economy and its governing institutions, both at the national and international level.
So basically this process concerns the macroeconomic, the microeconomic levels of a state’s economy as well as the international dimension (high volatility of exchange rates due to the liberalization of international capital flows) and so reaching a financial globalization.
Eventually we can point out that financialization has brought about two different growth models: on the one hand the debt-led ( U.S., southern periphery of Europe etc.) and on the other hand the export-led (Germany, China etc.) that unfortunately proved to be unsustainable as they brought to financial crises and recession.
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