Finance has been the defining characteristic of the economy since the early 1980s. Its evolution has roots in our economy, laws, politics, and cultural ideology, and it influences everything from the nature of inequality to the innovative and productive capacity of the economy as a whole to the way we approach education and investment. Experts often describe the changes in this sector as “financialization,” but that term can be confusing and complex.
This paper by Roosevelt Fellow Mike Konczal and Director of Programs Nell Abernathy aims to establish a solid definition of financialization that can serve as the foundation for future research and advocacy. That definition includes four core elements: savings, power, wealth, and society. Put another way, financialization is the growth of the financial sector, its increased power over the real economy, the explosion in the power of wealth, and the reduction of all of society to the realm of finance.
Each of these four elements is essential, and together they tell a story about the way the economy has worked, and how it hasn’t, over the past 35 years. This enables us to understand the daunting challenges involved in reforming the financial sector, document the influence of finance over society and the economy as a whole, and clarify how finance has compounded inequality and insecurity while creating an economy that works for fewer people.