What is Financialization?

Financialization is a term that is used ubiquitously to tell a specific story about the way the economy has developed over the past 35 years. In that time, it has come to refer to a number of separate (though mutually compatible) trends: the decline of the manufacturing sector and the growing importance of financial activities as a share of corporate profit, even for non-financial firms; the growth of the financial sector relative to the rest of the economy; an explosion in the volume of financial trading and innovation; the rise in levels of private and public debt; the ascendancy of “shareholder value” as a mode of corporate governance, with increased financial market pressures on public corporations and stringent investor expectations regarding short-term profitability; and wage stagnation, rising inequality (as documented by Thomas Piketty and others), and the concentration of political and economic power in the hands of a wealthy elite. As the logic of financial markets increasingly permeates social reality, financialization has re-ordered the United States into what Gerald Davis calls a “portfolio society” in which the individual’s place has been reduced to the logic of investment. What spurred the rise of “financialization?” Is it necessarily the optimal economic arrangement for 21st-century circumstances?

In this class, we’ll study the influence of finance over the economy and society at large. What is financialization, and what are the different conduits through which it operates? How has finance transformed our economic system and impacted corporate behavior, governments, and households? Has the growth of the financial sector delivered efficiency gains, or is it destabilizing? What are the links between financialization and neoliberal governance? In addressing these questions, we’ll read selections from economists and sociologists such as Gerald Epstein, Bill Lazonick, Philip Mirowski, Gerald Davis, Thomas Philippon, and Greta Krippner, among others.