By FERNANDO NOGUEIRA DA COSTA*
It is necessary to meet the hope of social mobility on their own, including with financial education, of the poorest
The most widely cited definition of “financialization” characterizes it as “the growing role of financial motives, financial markets, financial actors, and financial institutions in the functioning of domestic and international economies.” This definition highlights the centrality of finance in the contemporary economy and assumes the influence of financial agents and institutions in almost all spheres of society to an absurd extent.
This reaction against a systemic evolution of capitalism is reminiscent of Luddism. It was a movement of English workers that took place in the 19th century, during the Industrial Revolution, in which participants protested against industrialization and mechanization by destroying machines in some factories and threatening their owners.
The name of the movement came from Ned Ludd, although it is not known whether it was the name of a union leader or whether it was fictitious, used to preserve the anonymity of the participants. The name emerged in 1811, when more looms were broken and threatening letters were sent against the unstoppable adoption of technological evolution.
The Luddites abhorred machines for stealing jobs and reducing wages, just as contemporary reactionaries abhor the advance of history with the (ill)named “financialization.” Paradoxically, the exploitation of workers during the Industrial Revolution was marked by precarious working conditions, an unhealthy environment, excessively long working hours, low wages, lack of rights (to vacations, sick leave or retirement) and child labor.
Today, proposing the reversibility of time – financial capitalism returning to industrial capitalism – is not only an anachronism, but also a mistaken labor struggle strategy. “Leading so as not to be led” is a critical stance towards the idea of “financialization”, a caricature of the financial system, as I will summarize here.
The concept of “financialization,” despite its widespread use to characterize contemporary capitalism, deserves several criticisms. First, it requires being less dogmatic and practicing Positive Economics—which it is—instead of Normative Economics—which it should be—when analyzing the concept of a systemic emergence from interactions of multiple components without a central command.
It is a dynamic configuration – and not the result of state planning. It emerged gradually after the adoption of the flexible exchange rate regime, the opening up of foreign trade, the attraction of transnational companies, in short, neoliberal globalization.
This concept of “financialization” has been overextended, applied to a variety of loosely related phenomena, leading to its dilution and loss of analytical precision. Critics identify “financialization” in any recent social, economic, political, or cultural change, without clearly defining what the concept actually encompasses: the intertwined functions of personal, corporate, public, banking, and international finance.
without delimiting its scope, it does not differentiate it from other contemporary processes, such as “commodification” (transformation of goods into commodities), commodification, neoliberalization, privatization, denationalization, globalization, digitalization and precariousness – among other “ão”…
Those who denounce “financialization” place emphasis on the experience of Anglo-American capitalism, that is, on the capital market economy instead of the economy of public and bank debt, which is dominant in other countries. This limits the applicability of the concept to other realities, disregarding the diversity of trajectories and manifestations of the phenomenon in different geographical and historical contexts of predominance of fixed income instead of variable income.
The debate on the productivity of the “financial sector”, reductionism in placing it apart from the financial system, whose components are all institutional sectors – individuals, companies, governments, banks and the rest of the world –, does not clarify or make the necessary criticism of the usual “denunciation of financialization”.
While some authors rightly argue that financialization represents a change in the form of capitalist accumulation, with capitalization and receipt of profits (dividends or capital gains from sales) through financial channels, others wrongly consider it a parasitic process, extracting value from the productive economy without generating real wealth.
The (mal)named “financial sector” is considered unproductive “as it appropriates part of the value generated in the real economy without contributing to its production”. Those who say this are unaware of how financial leverage is crucial for economies of scale by increasing jobs and multiplying income through greater investments.
In reality, “financialization” contributes to economic growth by facilitating the efficient allocation of capital at a global level, including by pricing the various performances of transnational corporations through the quotations of globalized shareholdings. In addition, it offers money management for everyone and new financial instruments, such as the fundamental currency hedge to operate in this global economy.
“Financialization” is blamed for the increased concentration of income and wealth, deepening socioeconomic inequality. There is no mention of the recorded enrichment of all levels of the Wealth Pyramid in the 21st century. According to the Global Wealth Report 2024 from Crédit Suisse-UBS, in 2000, 75% of adults in the world had average wealth below US$10.000; in 2023, it fell to 39% and was surpassed by 43% having between US$10 and US$100.000.
Poverty is surmountable, although inequality is not: 1,5% of the world's 3,8 billion adults are dollar millionaires and account for 47,5% of the world's wealth of individuals. It was estimated by Global Wealth Report 2024 at US$488 trillion, with 54% of it made up of financial assets, most of which are stocks.
“Financialization” would lead to a change in income distribution, favoring capital over labor, as if this had not always been the case… The growing possibility of resorting to credit to finance housing, education and consumption, in a context of stagnant wages and precarious social welfare policies, enables social mobility, even if it increases inequality.
Therefore, the financial system, which also includes clients of “non-financial companies” (sic), in its quest for profit, exerts a strong influence on governments and international institutions. They adopt public policies to defend the interests of all holders of invested money (“third-party resources”), but does this, in fact, occur to the detriment of the social well-being of the poorest, who need social assistance such as Universal Basic Income (UBI)?
Dependence on volatile capital flows and pressure to attract foreign investment lead to the implementation of fiscal austerity policies with the side effect of deepening inequality if social spending is reduced. However, critics do not empirically verify whether the increase in IDP (Direct Investment in the Country) encourages local production of industrial goods and various services to exploit the domestic market, generating jobs and income.
They prefer to insist on the assumption that the search for quick and speculative returns in the financial market diverts resources from productive investments, harming sustainable economic growth and job creation, negatively impacting income distribution and opportunities for social advancement. This is an error of analysis in failing to distinguish between the primary markets for issuing shares and debentures and the secondary markets for quotations of market values in relation to intrinsic values.
In short, according to critics who are “unaware of the facts,” that is, of how the financial system actually works, financialization represents “everything bad” today. The “denunciators of capitalism” do not analyze the counterarguments: are the basic functions of this system not useful?
Readers of “blind criticism” literature do not understand all the mechanisms by which this systemic process unfolds. They feel the need to delve deeper into the analysis – and consider whether there are, in fact, alternatives to mitigate its negative impacts.
In the face of the financial system, all its participants (“banked” customers) should have Financial Education to take advantage of the new context of the right to financial citizenship. The left has not raised the banner of fighting for social mobility, through entrepreneurship with established rights for self-employed workers, enabling the populist right to take up… It is necessary to meet the hope of social mobility through self-employment, including through financial education, of the poorest.
*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/4dvKtBb]
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