The Importance Of Financialization

1255 Words6 Pages
The instability that the world financial system shows is not the only problem it poses. Its secularly increasing power over the real world economy needs examining. The cause of this increasing dominance is not just increasingly leveraged and puzzling forms of intermediation between savers and those who in the real economy need credit and insurance, but also the universal belief the maximizing “shareholder value” is the sole raison d’être of the firm and the promotion by the governments of an equity culture. Some of the consequences of financialization are intensifying inequalities, insecurity, and misdirection of talent and erosion of trust. “Financialization” is a bit like “globalization”- an easy word for a stack of more or less discrete…show more content…
Analysts have raised concerns that “short-termism” associated with financialization might be coming at the expense of investments in human capital, research and development, employment and productivity growth. In a survey, it can be seen that many chief financial managers are willing to give up longer-term investments in research and development in order to meet short-term earnings per share targets. Other studies have also shown that managers are wiling to meet trade off investments and employment for stock repurchases that will allow them to meet earnings per share…show more content…
The connection between globalization and financialization is so intertwined that for years, mainstream economists and policymakers have been referring to the current era in financial economic relations as one of “financial globalization”. The global aspect of financialization comes from the international nature of financial crises in the recent years- the most recent one being the great financial crisis of 2008. Here, the European banks in particular were greatly involved in the deals that led up to the crisis, and a number of them still paying the price. It’s not just the international banks that are involved in global aspects of financialization. Much of the MNCs have highly financialized components to them. They argue that such activities can perhaps support real investment that create jobs and enhance productivity, but that much of it can also be engaged in other, less productive activities. There have been traces of financial crisis from the late 1970s onwards, with the crisis of 2008 having the most destabilizing effects. Finance is inherently destabilizing because it is based on an assurance of the future that can be miscalculated., since, as Keynes reminded us, the future can be highly
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