Since the 1980s, a gradual but significant transformation in the functioning of market economies has taken place, disrupting the traditional logic of production, distribution, and corporate governance.This transformation, often referred to as financialization, is at the heart of contemporary debates about capitalism's excesses, rising social inequalities and systemic crises.
The concept of financialization refers to the emerging role of financial markets, financial actors and financial instruments in the real economy, businesses and citizen’s daily lives. As defined by Gérard Duménil, financialization is “the rise of financial capital in contemporary capitalism” (Duménil & Lévy, 2011). For his part, Epstein (2005) sees the process by which motivations, markets, actors and financial institutions become dominant in the national and international economy.
This domination of finance over other economic spheres raises many questions. We can ask ourselves whether financialization represents a modernization of capitalism or a form of deregulation?
In order to answer this question, we will first show that financialization corresponds to a structural transformation of capitalism (I), before analyzing its ambivalent effects on the real economy, businesses and social inequalities (II).
I. A structural transformation of capitalism: logics, actors and mechanisms of financialization
Financialization is not only limited to the growth of financial markets; it also means a shift in the economy at the level of the actors and mechanisms of financialization.
A. The emergence of shareholder logic
One of the main manifestations of financialization is the transition from industrial capitalism to financial capitalism, which focuses on creating value for shareholders. This phenomenon was particularly analysed by Michel Aglietta in La violence de la monnaie (1982) and then in Capitalisme: le temps des ruptures (2019), where he shows that «shareholder governance» becomes the standard of management for large listed companies, to the detriment of long-term industrial logic.
The financial profitability required by shareholders, often materialized by the return on equity (ROE), becomes the primary decision-making criterion . This leads to a preference for short-term investments, share buybacks and the payment of dividends, sometimes at the expense of employment.
B. The gradual increase of financial actors
Financialization is also accompanied by a redefinition of economic power relations, with a gradual increase in the number of financial actors, such as investment funds, hedge funds, investment banks, asset managers... They are increasingly influencing business and government through capital markets.
According to an OECD study (2011), the share of global financial assets in global GDP was multiplied by 3 or even 4 between 1980 and 2008, revealing a massive intensification of financialization on a global scale. More, financialization also affects households through derivatives, consumer loans, real estate speculation and pension capitalization. The Global Wealth Report (Credit Suisse, 2023) highlights that nearly 50% of the world’s wealth is held in the form of financial assets.
C. Financial innovation and complexity of instruments
Finally, financialization is based on a booming financial innovation, with derivatives (options, futures, swaps), securitisations and structured products being emblematic examples. This complexity makes markets more opaque, and unstable and increases information asymmetries.
The subprime crisis of 2008 highlighted the dangers of this financialization: by dissociating credit from its holder (via securitization), risk incentives were distorted, causing a systemic crisis. This is what Joseph Stiglitz points out: “financialization has not allowed a better management of risk, it has masked it, moved simplified” (Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy, 2010).
II. The ambivalent effects of financialization on the real economy, investment and inequality
Financialization not only transforms the structure of capitalism, but it also produces contrasting effects in terms of economic growth, enterprises or social relations.
A. Ambiguous effects on growth and investment
Some economists have seen financialization as a vehicle for increased efficiency: better allocation of capital, diversification of sources of financing, stimulation of innovation. For example, according to R. Levine (2005), empirical studies show that the financial sector has a major influence on economic growth
However, beyond a certain threshold, financialization becomes counterproductive. Arcand, Berkes and Panizza (2012), in an IMF study, show that excessive finance is detrimental to growth: "Beyond a certain threshold, financial development is no longer positively associated with growth. In reality, it becomes a brake.” They stress the fact that a hypertrophied financial sector diverts resources (human capital, physical capital) from productive uses such as R&D, innovation or industrial investment, in favour of short-term speculation. Short-termism increases market volatility and creates permanent uncertainty for economic actors.
B. Significant pressure on companies and employees
On the business side, financialization changes the distribution of value added. According to a study by Lazonick and O’Sullivan (2000) “Maximizing shareholder value: a new ideology for corporate governance” in the United States in the 1990s, nearly 90% of profits from listed companies are redistributed in the form of dividends or share buybacks, This limits companies ability to invest in production tools or revalue wages.
In France, Thomas Coutrot (INSEE, 2019) shows that this shareholder pressure translates into a precarization of employment, an intensification of work and an individualization of remuneration linked to financial criteria.
C. An aggravating factor of inequalities
Financialization disproportionately benefits the holders of financial capital, thus aggravating wealth inequalities. In his book, Thomas Piketty (Le Capital au XXIème siècle, 2013) shows that the return on capital is historically higher than the growth of global income, creating an unequal dynamic reinforced by financialization.
In addition, the recurring financial crises that it generates (2000, 2008, 2020) affect more vulnerable populations, while large fortunes often manage to emerge strengthened, through their concentration of liquid assets and access to strategic information.
Conclusion
Financialization thus appears as a systemic mutation of contemporary capitalism. While it has contributed to modernize aspects of the economy by diversifying financial instruments and increasing market fluidity, it has also reinforced short-term logic, weakened productive investment, and exacerbated inequalities.