Alex Floate, a member of our Emerging Fellows program studies the nature of financialization in his second blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
Jan opened the mail from New North Bank; it included a voter guide for the upcoming 2040 state elections. “New North needs your support; without it your debt payments may increase” the top line read. It listed the candidates, some supported by New North, some by Eastern Pacific Bank or others. At the bottom was the option to ‘Vote Now’, with each choice for the New North candidate earning you points towards their coveted Platinum Earners club. Jan, needing just a few more points to reduce the rates on his student loans, enthusiastically chose the ‘All New North’ option.
One analogy of feudalism is of a political-economic system where the rentier class of Lords and Vassals, control the land holdings of the peasant class. This analogy has seen use in describing many societies outside traditional feudal Europe, such as Japan under the Shogun and India under zamindars where peasants were beholden to landowners for their homes and livelihoods. As the financialization of the economy grows and inequality increases, will we see its return?
Financialization is a system that seeks profit and wealth through financial markets and products rather than creation of new wealth and tangible products. With a short-term view it often inflates the value of existing assets instead of creating new assets such as infrastructure, goods or research and innovation. By siphoning off value through interest, speculation and fees for transactional work, profits from innovation and labor become undervalued. Ultimately it overvalues the present and undervalues the future.
Financialization rewards those who already have assets while moving capital from enterprises and activities that create assets. Social implications are a divorce from the egalitarian principal that one’s reward is the result of their effort and labor. The result of these ‘rent seeking’ activities is increasing financial inequality and concentration of wealth and power among the participating firms and individuals.
Under a default scenario of the future, the financialization of the economy will continue and grow more pervasive. Interests, both financial and political, will continue to ensure that markets for financial instruments are minimally regulated. Attempts to protect those without assets from exploitation and usury will be thwarted or become simply a façade. Many governments, forced to reduce taxation for the financial class, will have less ability to maintain infrastructure or uphold the social contract with their citizens. Access to goods, services and even currency will increasingly come in the form of subscription or require financing. A separation between the rentier class and dependent peasants will be the dominant economic and political reality.
However, there are other possible futures in which financialization becomes less of an economic and political driver. Among these are a collapse of the system that could result in even greater dystopian possibilities. Post-capitalists present a disciplined future where technology and humanitarian principles appear as the main drivers to
move away from a system that embraces financialization and the resultant inequality it produces.
The groundwork for all possible futures is being laid today by politicians and their various constituencies. Not only must they contend with the sway of the rich and powerful, but with populist and nationalist forces that will also affect the economy in dynamic ways.
© E Alex Floate 2019