Financialization is a word used to describe the process by which a capitalist economy shifts away from investment, which increases the productivity of the real economy, to usury, which extracts wealth from the many for the benefit of the few.
My e-mail pen pal Bill Harvey sent me links to an article and interviews on financialization by a Marxist economist named Costas Lapavistas. He shows that the process of financialization is going on not just in the USA, but also in the UK, Germany and Japan.
Households are taking on debt to an extent unknown in previous generations. Business gets increasing amounts of its profits from finance rather than production; one of the most profitable parts of General Motors is GM Acceptance Corporation, which gives auto loans. At the same time, individual savings are increasingly hostage to the fluctuations of the financial markets.
What’s going on? It is not merely a new “greed is good” moral code. Industrialists and financiers were just as greedy and out of control in the U.S. Gilded Age following the Civil War as they are now, and politicians were just as corrupt, yet out of that the United States became the leading industrial power in the world.
Maybe the advanced industrial nations are reaching limits to growth. The cell phone revolution is not as big a deal as the automobile revolution, and investment in hydraulic fracturing for natural gas is not going to have the same payoff as the exploitation of the original natural gas fields.
Maybe capitalists have so much capital that there aren’t enough productive things to invest in. That would be the Marxist explanation, as I understand it, although you don’t have to be a Marxist to think that this is so.
The French economist Thomas Piketty is getting a lot of attention with his book, Capital in the Twenty-First Century, and his simple formula that a tiny elite acquire an ever-larger share of wealth and income whenever R (the average annual rate of return on investment) exceeds G (the annual growth rate of the economy overall). His extensive research documented that this has often been the case during the past two centuries, and is the case now, but he didn’t theorize as to why this is the case.
But the implications are obvious. The way to prevent a takeover by a small oligarchy of wealth is to subject a couple of percentage points from R and/or add a couple of percentage points to G. A financialized economy—an economy based on getting people into debt rather than on increasing the production of useful goods and services—will push R up and hold G down.
LINKS
Finance’s hold on our everyday life must be broken by Costas Lapavistas for The Guardian.
The Era of Financialization: An Interview With Costas Lapavistas Parts 1 and 2 by Dollars & Sense.
The Era of Financialization: An Interview With Costas Lapavistas Parts 3 and 4 by Dollars & Sense.
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