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Section 1: Identifying financialisation historically

Forms of financialisation

At its most fundamental and uncontroversial, the term financialisation denotes the rapid growth in the scale and importance of financial markets within the global economy and their increasing contribution towards aggregate economic activity. This characterisation of fi a ialisatio is aptu ed ade uatel Epstei s deli e atel e o passi g defi itio as the i easi g ole of fi ancial motives, financial markets, financial actors and financial i stitutio s i the ope atio of the do esti a d i te atio al e o o ies : . This definition contrasts with a variety of other formulations which intend to identify more specific components of financialisation. Thus, Krippner offers a definition which highlights the shift in overall profit accumulation towards the financial sector (2005). Stockhammer, acknowledging the importance in this accumulation shift, gives particular focus to the progressively entrenched financial activities of non-fi a ial o po atio s NFC s he e physical investment has been superseded by financial investment (Stockhammer 2004: 719. Othe s hola s su h as Lazo ik a d O “ulli a a d F oud 6) focus upon NFC s shift i p io it to a ds the ideal of sha eholde alue, a d the i eased p e ale e of stock buybacks and dividends issuance. However, for our purposes, there is a heuristic e efit to sti ki g ith Epstei s oade defi itio , as it emphasises that which gives the financial industry political power in its collective. Additionally, by keeping the definition broad, it allows us to gradually unpack the more specific aspects of financialisation, disaggregating its internal processes, and relating them individually to the topic of financial political power. Before analysing each of these processes, I provide context to the discussion by identifying key aspects of the literature, and contrasting contemporary financialisation with the previous period of financial expansion.

The present form of financialisation can be seen as historically specific when one compares it to the late 19th/early 20th century period when financial interests also rose to prominence across leading developed economies. In this era, financial capital was also conceived as the driving force in a world economy, yet its influence was of a distinctive character from the kind prevailing within the contemporary global economy, particularly concerning the role of the a ki g se to . Hilfe di g s o ept of fi a e apital des i ed a situatio he e German industrial firms were brought under the tight surveillance and control of the large national banks in a process of cartelisation which rationalised the economic landscape and ushe ed i a pe iod of e t alised o opol apitalis . For Hilferding, this was the natural outcome of competitive pressures produced by a more aggressive form of capitalism pursued in preceding decades. Although the process seemed to unify the prerogatives of industrial and financial concerns, the relationship was very much one of banking dominance1 (1990). This dominance flowed through the ownership of controlling shareholdings – made possible by the creation of joint stock companies – and the allocation

1 Over the long run, Hilferding argued that banks would be prone to engage in more speculative practises and deprive the productive economy of credit needed for investment and expansion

of bank directors to the boards of industrial firms (1990: 118-121). Nevertheless, financial control of industry was generally perceived as bringing order and stability to an otherwise haphazard and destructive economic path characterised by overly competitive pricing strategies and industrial fragmentation. It was also seen as conducive to state-directed de elop e t pla i g hi h as e t al to Ge a s rapid economic progress during the second industrial revolution. A similar situation in terms of finance during this period prevailed in the US, whereby banks – personified by the hugely powerful J.P Morgan and company – played a crucial role in industrial planning and development. To this end, banks sought to marginalise two types of capitalist o petito s that foste ed e o o i i sta ilit : on the one hand, they sought the elimination of aggressively competitive entrepreneurs who undermined the aggregate profitability of several industries; on the other hand, they were equally opposed to the destabilizing tendencies of speculative financiers – the likes of Jay Gould – who had little interest in the continuing long-term viability of industrial capital (Kotz 2010: 16). In this regard, most of the large banks saw themselves as highly integrated managers within society, providing necessary funding and producing a stable corporate environment for long term growth and national development. A good illustration of this propensity to act in the national interest was the large banks de facto role as the central bank in 1907 in order to stem critical outflows of gold from the United States, a situation which prompted the establishment of the Federal Reserve in 1913 (Orhangazi 2008: 25). Knafo also highlights the strong suspicion that merchant bankers held towards speculative runs in the 19th century, restricting market access for new entrants who threatened their o e li ited a d a efull ala ed pla of p e- ode spe ulatio : . He contrasts this with contemporary forms of speculation which involve a greater range of fi a ial a ket pa ti ipa ts a d is o e o du i e to the dest u ti e u les that characterise modern financial activity (2009).

The i age of spe ulati e fi a ial a to s as aide s i te ested solel i the gutti g and profiteering of momentarily vulnerable - but fundamentally stable - productive enterprises eso ates ith Bla k u s lai that ode o po atio s ha e e o e the pla thi gs of modern-da apital a kets; o o e o te tiousl a a ide tal u dle of liabilities a d assets that is the e to e ea a ged to a i ize sha eholde alue : -43). While this may reflect an overly caricatured vision of the contemporary financial system, it does suggest systematic tendencies in financial practises over the last few decades which were not so prevalent in the late 19th century. One of the lessons of the 2008 financial crash is that - unlike the financial expansion in the late 19th century - the ostensible distinction between a traditionally risk-averse banking sector as opposed to the more irresponsible capital market has become increasingly redundant, as banks have succumbed to market pressures (willingly or otherwise) to compete in speculative trading activity through various off balance sheet mechanisms (Crotty 2009: 567-570). One of the reasons for this difference may lie in the nation-centred context of banking institutions in the past: as mentioned, the p e ious e a s ai a ks viewed themselves as playing a quasi-managerial role in industrial

development and economic growth, not least of all because their primary investments and commercial transactions were located within their domestic territory – a situation which contrasts g eatl ith toda s i easi gl t a s atio al a ks that do not necessarily rely on domestic growth2. Similarly, researchers contend that previous era banks were su sta tiall espo si le fo the sp ead of a age ial apitalis hi h sepa ated spheres of ownership and control, and thus rationalised industry along the lines of stable technocratic decision-making and long term viability (Orhangazi 2008: 27). Notions of fi a ial atio alisatio i the o te po a e a ofte ju tapose this oti e a d a e aligned more closely to the ideal of shareholder value: reorganising and overhauling industrial firms to the detriment of domestic employment and national development, in pursuit of short-term profitability gains. In sum, many strategic operations of large contemporary banking institutions tend to cohere with the high risk-high yield activity of investment banking – hence, while they are natural competitors, there is not the active disapproval by banking firms of speculative activity which frequently characterised financial sector relations in the late 19th century.

The origins of contemporary financialisation

Of course, the initially stabilising role played by banks this earlier period was spectacularly undermined by their role in the 1929 stock market crash and subsequent economic depression. This experience generally resulted in a more formal and state-regulated separation of capital markets and deposit taking institutions. The economic balance of power between industry and finance slowly shifted as the Keynesian model of development began to take ideological precedence across leading developed nations. The notion of eutha izi g the e tie a d the fu tio less i esto - as Keynes put it - exemplified the growing ideological consensus that finance, when left to its own devices, would eventually have a detrimental and destabilising effect on the economy (Keynes 1936). However, just as important to the constraint of financial interests was the macroeconomic monetary order that was established among leading nations. Under Pax Americana stewardship, capital controls were put in place to prevent speculative flows from disrupting the functioning of p og essi el li e alised t ade elatio s, a situatio hi h o t asts g eatl ith toda s prevailing order of auto ati it - where free and cross-border market exchange determine pricing arrangements (Watson 2007: 92).

Given the historical flux of financial sector prominence, an important contextual question concerns the origins of financialisation, and the political-economic context in which financial interests come to be more or less dominant. For their part, orthodox economists have very little to say about the specific topic of financialisation; indeed, the term itself is studiously missing from mainstream accounts of contemporary economic history. Instead they

2 Deutsche Bank provides a good example, as it turned to peripheral Eurozone lending in the face of anaemic domestic growth rates and weak investment opportunities within the German economy (Lapavitsas et al. 2010)

comprehend the renewed prevalence of financial concerns within the global economy as being determined by a series of fortuitous and relatively disconnected events, driven primarily by technical developments. Freeman exemplifies this perspective when he outlines the three primary causes behind financial expansion in the global economy: intellectual advances in financial theory, technological developments in information and communications technology (ICT), and the deregulation of financial markets (Freeman 1994: 30). While each of these developments is an important factor in and of itself, methodological individualism allows orthodox economics to divorce these occurrences from their specific historical context. The weakness of this conceptualisation is that it fails to unpack the social forces and power relations underlying these events. For instance, technological innovation, while often viewed as neutral, is always closely connected to historically-mediated and specifically defined problems (and proposed solutions) by those in ha ge of the te h i al apa ilities. As pe Co : hu a t aje to ies a ot e e plai ed si pl ith efe e e to histo ies of te h ologies a d p i es ut the so ial di e sion which mediates their emergence and specifies their application (1987: 159). Thus, while there is little question that ICT developments greatly facilitated the rise of financial services3, when detached from socio-political context the analysis provides a description of events as opposed to an explanation of social change. Neither the quiet speculative frenzy of the Eu odolla a ket i the s o That he s Big Ba g poli ithi B itish fi a ial a kets i the late s a e usefull e plai ed ith efe e e to te h ologi al determinism. Similarly, social relations that underpin intellectual shifts associated with innovative financial techniques and ideological preferences for deregulation are generally underemphasised and unexplored within orthodox economic thinking. Toporowski draws attention to this fallacy by rejecting the autonomous emergence of quantitative financial e o o i s as a pu el a ade i p o ess of dis o e u de take e olutio a academics such as Markowitz, Miller, Merton, Black, and Scholes. Instead, he emphasises their close connections with Wall Street firms, and the eager welcoming of their theories by the financial industry at a specific historical juncture (2010: 76-77). Academia, like other spheres of society, does not function in an institutional vacuum.

In contrast, critical political economists have offered a variety of socially embedded theories to understand the specific occurrence of financialisation. One of the first theorists of financialisation is Arrighi, who views financial prevalence as a recurrent phenomenon within different cycles of capitalism. For him, periods of financial expansion have occurred previously in the Italian city states of the 15th and 16th century, the Dutch empire of the 17th century, the British Empire of the 19th century, and now again in the period of United States hegemony (1994). This financial prominence represents a particular stage of crisis within the hegemonic state - and world capitalism more generally - as increased competition forces the largest producers into financial commerce in order to restore profitability. While Arrighi lays

3 Pe haps the ost salie t e a ple of this, is ho ICT e fo es the igo ous logi of pu li e aluatio of credit risk and performance indicators (Aglietta and Rebérioux 2005: 20)

out an elegant theoretical design premised upon a World Systems approach to political economy, the app oa h is a ed a se se of st u tu al igidit , hi h does t allo enough room for historical contingency and divergent paths of capitalist accumulation. A view proffered by Kotz is that financialisation is an always present tendency within capitalism due to the ever present risk involved in marketplace competition in products subject to continuous innovation. A way to insulate oneself from this risk is to shift from physical assets to financial assets in order to escape the inevitability of technological development undermining your market position. Taking this logic even further Kotz contends that even simple banking often leaves capitalists indirectly vulnerable to such risks and hence the lure of capital market focused investment banking

Holdi g, a d deali g i , a keta le se u ities p o ises still o e safet . The ideal is to hold wealth whose form can be changed instantaneously when any threat appea s : -11)

This positio a pa tiall e plai la ge NFC s de isio to o e i to i easi g o e financial transactions as part of their everyday operations. However, an important point to emphasise is that this risk calculation is simply a tendency, which may be checked by a variety of other social and historical conditions, such as state regulation, international monetary arrangements, etc. Thus, the implication is that the occurrence of financial expansion is entirely reversible given the appropriate ideological and material conditions of existing social relationships –which are of ou se, al a s ha gi g. This e e si ilit coheres closely with the Post-Keynesian perspective that the dominance of financialisation is primarily rooted in political decisions (and technocratic management) and so, the eutha izi g of the e tie is al a s a disti t possi ilit .

The most common causal understanding within the literature concerning the origins of present-day financialisation - albeit with different emphases and nuanced variations - is that it is primarily rooted the outbreak of crisis that spread across developed nations in the mid70s. In essence, as suggested at the beginning of this paper, the increasing of prevalence financial motives and markets within the global economy is intrinsically tied up with the spread of neoliberalism as a dominant ideology, and an intensified wave of globalisation. For Dumenil and Levy, financialisation represents the restoration of class power by capitalists over the working classes of the developed nations. However, they are clear that it is this new financial hegemony that drives the twin processes of internationalisation and neoliberal economic policy, and so ode apitalis is fi a e-led a d fi a e do i ated : . The oot ause of this shift to fi a e-led capitalism lays in the a u ulatio p o le s of the s a d spe ifi all , the pe siste t de li e i p ofita ilit experienced by firms. As such, Dumenil and Levy focus upon the exercise of class power which drove political decisions to take specific aim at beating back popular forces benefiting from the Keynesian compromise (2001: 587). In a similar vein, Krippner views the shift into finance as a product of the inflation crisis faced by the capitalist world throughout the s, a d sees U“ state poli as ei g a a di atio of espo si ilit leade s at the

time to deal with an emergent distributional crisis between competing social forces. She a gues that U“ politi al elites hoose to depoliti ise this o fli t lea i g the a ket decide on the winners and losers, through a process of deregulation4 (2011). Finance was the pa a ou t e efi ia of su h a poli , as the se to su stituted itself fo i flatio providing a wealth of imaginary resources through sophisticated financial engineering and an unprecedented expansion of credit. Krippner does not deny the political mobilisation of the financial sector but she is keen to stress that the literature commonly overstates their direct influence over policymakers. Instead, Krippner emphasises the short-sighted and stu li g fi es u de take politi al leade s ho e e uite u a a e of the lo g te effects that liberalizing the financial system would have. The financial crash of 2008 represents for Krippner, an inevitable reappearance of these previously deferred distributional conflicts (2011: 140-142). Magdoff and Sweezy argue that, despite the rapid and sudden emergence of fi a e i the ea l s, the e has ee o fu da e tal esolutio to the stag atio p o le fa ed apitalis to a ds the e d of the golde age . I stead, o opol apitalis is still plagued a dea th of outlets fo p ofita le investments within the real economy leaving the financial industry to fill a production void through fictitious wealth creation and illusory growth (1987). However, monopoly capitalism proponents stress that while financial expansion feeds off stagnation in real production, it is ultimately not responsible for diverting resources away from the real economy and is not the underlying cause of economic stagnation. This is the key dividing line with Keynesian commentators who contend that the rise of finance is actually preventing renewed expansion in real sectors of the global economy (Foster 2007: 4; and see for example Crotty 2002). Finally, merging Keynesian and Marxian perspectives, Tabb, Kotz, Reich, McDonough and others provide a Social Structure of Accumulation (SSA) framework which maintains that we have witnessed a fixed change in capitalist accumulation priorities which has been facilitated by a range of broadly conducive institutional and socio-political configurations to support this structure. In this regard it resembles the regulation school of capitalism, and describes the coherence that financialisation brings to globalised patterns of accumulation (McDonough et al. 2010). Furthermore the crash of 2008 signifies the inevitable crisis phase of the present SSA, implying an exhaustion of a specific cycle of capitalism and the prospect of a new structural replacement (2010: 9).

The position adopted in this paper regarding the origins of modern financialisation is broadly coherent with the views outlined by the various writers in the above paragraph. The principal argument underlying these views is that financialisation is the one of the central means by which neoliberal globalisation is carried out. Thus, financialisation can be seen as functional to the needs of disciplining popular forces and re-establishing the political and economic power of business hi h had ee slo l e oded th oughout the golde age of

4 Ho e e , d a i g upo Pola i, K ipp e otes The e a e o su h e a atio of politi s f o the e o o : .

capitalism and which was an important factor in the stagflatio isis of the s. Many of the financial dynamics driving this process are illustrated in the following section. It is important to underline that this argument is not a rigid functional one in the sense that the apitalist e o o i s ste has espo ded auto ati all to the e ui e e ts of continued accumulation; rather, following Wright (2001), explanations for this functional outcome reflect a highly mediated and historically contingent interplay between structural o st ai ts a d age tial a tio . It does ot suggest opti alit i a y sense, and furthermore, it acknowledges the existence of multiple limiting and contradictory factors in the reproduction of capitalism. Embedded within this framework, I now turn to the specific processes of financialisation and the implications of these processes for the political power of the finance industry.

Section 2: The growth of contemporary financial capitalism and implications for political power

We may conceive of financialisation as a series of more or less tightly interrelated processes which have become more pronounced over recent decades and which embody the growth of finance-related activity. Epstein (2005: 3) distils the financialisation literature into the following processes guide the present inquiry.

1. The introduction of shareholder value as the dominant paradigm in corporate governance

2. The increasing orientation of a capital-market based financial system, as opposed to a traditional bank-based system

3. The explosion of speculative trading endogenous to the financial industry and the creation of exotic and complex financial instruments

4. A general shift in the character of economic accumulation whereby profits - including those of NFC s - are increasingly derived from financial channels as opposed to those relating to physical production

5. The increased political and economic power of the financial sector

These p o esses o stitute the p i a e ha is s th ough hi h fi a ialisatio a e recognised as a transformative phenomenon within the global economy. Evidently, point 5 is unique in the sense that it is singularly political, in contrast to predominantly economic character of the other processes. As such it is the core focus of this section, and the other strands of financialisation will be examined in terms of their relationship with this process. Clearly, the relationship is an inherently reciprocal one, as the increased entrenchment of each process augments the political power of financial actors, and vice versa; as Krippner states,

One would expect that social actors occupying strategic positions vis a vis privileged sites of a u ulatio ould a ue politi al a d e o o i po e :

It is important also to draw out the distinction between these more integral processes, and the range of transformative effects that are characteristic of financialisation. These effects

include a marked rise in government, corporate and, in particular, household and consumer debt burdens; a fall in fixed asset capital investment and corresponding growth stagnation; widening wealth and income inequality; a complex interlinking of seemingly discrete national financial sectors; and a clear record of financial instability, both in terms of international currency crises and domestic level credit exposure (Palley 2007: 3).

Throughout the following analysis, most developments in financialisation will be seen to have emerged within the United States financial system, thus making it a central focus of the analysis. This is unsurprising given the leading role of the US economy in international monetary arrangements, corporate governance principles, regulatory standards, growth strategies, etc. As Strange notes the oots of i te atio al o eta a d fi a ial poli a ofte e t a ed to the domestic politics of the United States, especially inasmuch as they relate to banking a d fi a e :

While recognising this, I do not suggest that other countries have been transformed or have responded in precisely the same manner as the US in terms of their experience of financialisation, and such an assertion would gloss over significant national policy and regulatory variations (Aglietta and Reberioux 2005: 71). Nevertheless, as a phenomenon which is intrinsically tied up with globalisation, the central processes of financialisation do subject nations to extremely comparable pressures if they wish to integrate into and have access to global financial markets. Furthermore, develops in the US economy would soon be mimicked by many other advanced economies including the EU. As one of the leading scholars on financial market regulations contends:

The e is little indication of a distinctive EU approach for regulating financial se i es i dust ies…European decision-makers tried mainly to secure full market integration inside the EU rather than shape regulation to meet a common public purpose, whether at the EU or global level. The policy framework adopted by the EU was essentially modelled on pre-existing United States (US) examples, and does not reflect a transatlantic difference in underlying values. (Posner 2010: 400)

To this extent, implications for the political influence of financial actors within the US and the EU are broadly complimentary.

Shareholder Value

The concept of shareholder value denotes the conviction that the overriding goal of a company is to be accountable to and provide the maximum return possible for its shareholders. Despite the legal basis for this claim being highly questionable - and certainly not legitimised in a number of key advanced economies (Aglietta and Rebérioux 2005: 22; Stout 2012) - it has come to be a core principle of expectation among financial actors. In the manner of realigning priorities towards the benefit of the private investor, it is a quintessential feature of neoliberal economic governance. The concept may be contrasted

with Berle and Means (1933) vision of the ode o po atio i the s hi h described the progressive dispersion of share ownership across the general population, and hailed the demise of small groups of family ownership who held effective control over the company. With the eventual disintegration of any single prominent shareowner, they envisaged that corporate management had attained functional autonomy and were free to develop, plan and progress the modern corporation however they saw fit. As a result, they conceived of the corporation as a type of public utility, whose responsibility to the society, state, o u it , e plo ees, a d a a ge of othe stakeholde s e t fa e o d the narrow concerns of profit seeking owners. Similarly, in the later years of the Keynesian consensus , Galb aith dis ussed the e te h ost u tu e of top le el a age e t, whose primary goal was not the maximisation of short term value, but preserving growth and capital development of the company which maintained relatively high levels of employment and domestic consumption.

As noted in the previous section, financiers were a key driver behind the emergence of this form of managerial capitalism, as the banking sector fostered stability and continuity in contradistinction to short-term corporate strategies. B o t ast, i patie t ode financial markets expect corporate managers to shorten their time horizons and provide dispensation of company profits through stock buybacks and the issuing of dividends, perhaps at the expense of reinvesting in new infrastructure, machinery, research and development programs, etc. (Crotty 2002: 4). The occurrence of stock buybacks in particular – which buttress share prices while allowing them to be sold in a tax efficient manner – have become a more preferable form of compensation than dividends (Grullon and Michaely 2002), and demonstrate a principal function of the contemporary stock market: that is, to a t as a ashout o duit fo i esto s, athe tha the oste si le pu pose of aisi g revenue for business expansion (Crotty 2002: 16). As is well known, the overwhelming source of investment in physical assets is internally financed, as opposed to dependence on shareholders or financial markets (Corbett and Jenkinson 1997). However, levels of internal cash flow are also pressurized under the principle of shareholder value, as managers who preside over large cash reserves are expected to discharge these funds to the market. In extreme circumstances, firms with substantial cash reserves can become the target of hostile takeover bids, as potential buyers can acquire controlling shares through excessive le e age, a d the utilise the o pa s ash ese es to pa off the loa s. I fa t, the increasing frequency of stock repurchases by firms is partially motivated by the need to repel hostile takeovers (Dittmar 2000: 354), as is the tendency to ratchet up corporate debt for the purpose of making the fi a less att a ti e ta get . As a result, higher debt levels are often a key justification for wage moderation across the workforce.

A o di g to Lazo i k a d O “ulli a , these p essu es ha e esulted i a eo ie tatio i o po ate st ateg top a age s f o etai a d ei est to do size a d dist i ute . The dist i utio aspe t hi es o side a l ith Bla k u s suggestion that, from a

purely investment perspective, the modern corporation is little more than an accidental collection of various liabilities and assets (2006). The shedding of labour has been the primary effects of downsizing, along with wage cuts, which is partially responsible for income stagnation across the developed economies during the neoliberal era. Other tendencies include the preference for outsourcing, the use of flexible working arrangements, and a shift in cost pressure back onto suppliers (Crotty 2002: 21).

Implementation of these strategies have coincided with a noticeable shift in the career backgrounds of top managers, who are more often recruited from areas such as finance or accountancy as opposed to production based fields such as engineering (Crotty 2002: 20).

However, as a factor in sustaining shareholder value practises, changes in recruitment ha els a e se o da he o pa ed ith the t a sfo atio of top a age s remuneration packages in the last three decades; namely, the widespread introduction of stock options and other equity based compensation. Through these means, the successful execution of a shareholder value approach to corporate governance became directly aligned with the material wealth of top executives. Since then an entire culture shift has happened at the apex of the business world, as the ratio of corporate executive pay compared to the average worker has exponentially increased, an occurrence which is consistent with the overarching trend of rising income inequality over the period of financialisation (Stockhammer 2012: 8-9).

As managers pursue riskier strategies to buttress their levels of compensation, the other side of this coin reveals a fundamental shift of power towards a particular segment of the financial market: the institutional investor. These investors are primarily derived from areas su h as pe sio s fu ds, life i su a e a d utual fu d a age e t - areas which were subjected to continuous swath of deregulation policies throughout the decades of neoliberalism. The prominence of these investors is reflected in the fact that, by the turn of 21st century, they were responsible for roughly half of all outstanding stock in the US market, and three quarters of stock traded. Furthermore, the time horizon span on stock held has dropped dramatically, as institutional investors participate in a highly competitive marketplace to achieve rapid, industry-benchmarked returns on investment (Crotty 2002).

The era of the individual household investor who stores their savings in a small number of well-established blue-chip companies has become almost an anachronism, as professional asset managers compete to manage the portfolio arrangements of mid to high level income earners. Furthermore, while it becomes generally unfeasible for individuals to compete for returns against dedicated stock market investors, there is also a widening of separation between the beneficiary and the actual investment, resulting in the frequent engagement of high risk strategies by asset managers in search for greater yields, and which does not cohere with their risk-adverse clients (Davis and Steil 2001: 33).

The rise of the institutional investor as a key player in financial market transactions can be traced to the progressive deregulation of sectors of finance within the US economy over the

neoliberal period. While this has constituted a structural feature of the emerging global economy, financial deregulation has been carried out at a different tempo and with varying intensity across developed countries. Hence, while broad trends can certainly be identified, the active participation of certain actors, and the social and cultural context, heavily mediates this historical process. The structural condition of declining US global competitiveness – particularly in manufacturing sectors vis a vis Japan – provided the economic backdrop against which a large number of financial economists began to construct the intellectual underpinnings of shareholder value movement through the development of agency theory Lazo i k a d O “ulli a : -16). Agency theory addresses the issue of discrepancy between the goals (and means to achieve those goals) of the agent and principal in any contractual relationship. As a positivist theory premised upon eo lassi al e o o i assu ptio s, it a gues that out o e ased o t a ts a e the ost effi ie t ea s of p e e ti g a age ial oppo tu is a d thus i i ise the Age tprincipal conflict (Eisenhardt 1989: 59-60). In terms of shareholder value, the implications are clear: managers either perform the task of maximising stock prices, or the market should compel them to do so. The material interests favourable to such a practise arose from successful efforts by pension and life assurance firms to lobby US lawmakers in order to achieve competitive regulatory parity with mutual funds, allowing them to invest heavily in corporate equities and, in particular, risky assets such as junk bonds (Lazonick and O Sullivan: 17). Similarly, in the banking sector, the Garn-St. Garmain Act permitted Savings a d Loa s i stitutio s “&L s to hold the sa e high ieldi g, isk ju k o ds. E e tuall , leveraging upon these junk bonds became a customary platform for the wave of hostile takeover ids that s ept a oss o po ate A e i a i the s. This pote t a ket fo o po ate o t ol 5 provided severe structural incentives for companies to aggressively shift to short term stock maximisation strategies - precisely as Agency theorists had advocated –and, combined with the gradual normalisation of stock option compensation throughout the s, sha eholde alue e a e a all athe tha a e e of o po ate a age s across the US economy (Holmstrom and Kaplan 2001: 3).

Aligned with new ideological supports emanating from mainstream intellectual quarters, economic sluggishness during the 198 s p o ided the pe fe t o asio fo fi a ial a to s to push for deregulation and liberalised financial systems, which, in turn, established new mechanisms of power (i.e. Shareholder value) characteristic of the broader financialisation process. Hence, the initial extension of finance deregulation, buttressed the capacity of financial actors to attain further influence over markets and the political process generally. We may delineate several salient power implications bound up with the rise of shareholder value.

5 This described a situation where Institutional Investors would trade large quantities of shareholdings of a particular company which had to potential to be targeted in a takeover bid (Lazonick and O Sullivan 2000: 18)

1. Inserted into the paradigm of neoliberal globalisation, shareholder value allowed for a diversity of ways in which labour could be disciplined and the power of business – and finance in particular – was reasserted; through outsourcing, job shedding, wage cuts and flexible work practises. The corollary of these effects was a progressive burden on effective demand, which further undermined the tendency for firms to engage in physical asset investment, and drove both government and households into financial markets to engage in unprecedented levels of borrowing. These debt levels were central to the collapse of financial markets in 2008, and stagnant global economic recovery thereafter.

2. Due to the sheer volume of trading and assets under their management, institutional investors became structurally important to the health and vitality of the stock market more generally. Furthermore, because of the progressive shift to private employee-based pension plans (such as the 401k scheme in the US), much of the populations immediate material interest became tied to the continued success of asset managers6, as their savings depended on a robust stock ma kets. “i ila l , household s a ess to o su e de t a d othe loa s e e ofte fa ilitated lai s of u de l i g assets aluatio s the ealth effe t . I po ta t to ote ho e e , is that it is ot so u h the i di idual politi al a tio of institutional investors7, ut thei olle ti e po e of opi io i espo se to o po ate market performance and political events which gives them the ability to shape economic and political outcomes (Aglietta 2010: 149)

3. Due to a combination of structural market constraints and incentives, there became a fixed alignment of values and prerogatives between investors and top corporate managers which provided the basis for relative unity among leading segments of the capitalist class. Thus, the motivation for industrial and manufacturing managers to act as a bulwark against the more orthodox free-market economic prescriptions of finance was severely diminished. While Apeldoorn suggests that there potential long-term structural limits to the adoption of o e apital perspective by industrialists, the historical period of neoliberalism - even in the wake of the financial crash of 2008 – shows little evidence of any serious friction between these groups (Kotz 2008: 7)

Capital markets and financial expansion

The enormous expansion and complex integration of the global financial system over the last three decades is intimately bound up with a general shift from traditional banking activity to capital market related activities and trading, and thus, it is necessary to analyse these transformations together. Conventionally, the capital markets are largely seen as the domain of investment banks, along with a dense network of hedge funds, private equity firms, and corporate lawyers. While traditional banks take deposits and give loans to consumers and firms in order to make a profit off the interest in these transactions, investment banks and other participants usually sells their services to (large) corporate

6 After the 2008 financial crash, support for bank bailouts was often presented in terms of protecting the savings and pensions of the population

7 “o e ha e a tuall deplo ed i stitutio al i esto s la k of igo ous lo i g. “ee Diza d .

clients for a range of reasons such as; preparing Initial Public Offe i gs IPO s , gi i g te h i al a d legal ad i e o Me ge s a d A uisitio s M&A s , selli g, issui g a d u de iti g se u ities, o a ti g as fu d a age s. These apital a ket i te edia ies a e, as Folk a et al. a u atel put it, olle ti el a group in the shadows of semiisi ilit , as thei ope atio s a e ot su je t to the ki ds of egulatio s a d a ou ta ilit standards of traditional banks (as they do not keep deposits) and there is only partial evidence concerning their specific number, employment personnel, remuneration and organizational structure (2007: 557). Ostensibly their role has been to provide feegenerating activity. However, over time they have become increasingly involved in investments strategies on their own behalf, and have been at the root of several of the most complex and opaque financially engineered products as they have taken a leading role in overall financial market activity (2007: 557). A particularly dubious practise that illuminates this multifaceted character of investment bank market power is their engagement in proprietary trading, which involves banks risking their own money in relation to an intermediary deal (such as an M&A or IPO) that they are currently involved in. Exploiting their strategic informational location within the market and their formidable technological and monetary resources, there are perfectly placed to generate huge revenues through convoluted forms of arbitrage and rapid trading connected to the outcome of this event, regardless of the outcome for their client (Blackburn 2006: 38-39). Besides the very obvious questions regarding conflict of interest, these types of speculative transactions signify the high leverage-high risk nature of investment banking, which can have profound effects on markets, or even entire economies in certain contexts.

Supporters of the shift to capital based markets have argued that their depth provides far more liquidity into the global financial system while their free market emphasis makes them more efficient than traditional banks at providing capital to the right entrepreneurs. Furthermore, considering their layered and dispersed forms of securitisation, the expectation has been that capital markets would be much more effective at managing risk (Levine 2002: 2-3). However, the global financial crash of 2008 has put this contention into serious question. Crotty (2009) systematically outlines how the combination of complex financial engineering, perverse bonus incentives, compromised private rating agencies, intense competition, and thorough lack of regulation, were key traits endogenous to the capital market industry. However, it is important to point out that, while the distinction between traditional banking and capital-market banking makes stylistic sense, the reality is that so called utility/commercial banks have themselves become heavily involved in investment banking activity due to the huge opportunity for profits from fee-generating activity and speculative trading (Evans 2009: 22). Another factor behind this change has been the impact of disintermediation, a process allowing firms to borrow directly from capital markets, and thus reducing their reliance on traditional deposit-taking banks (Callinicos 2012: 67). Thus, the shift from traditional banking to capital-based markets refers more to the content and volume of financial activity, as opposed to simply a shift in

practitioners – hence, it is incorrect to say that banks have been superseded by capital market participants, considering that large banks are among some of the biggest players in this market. Nevertheless, considering that major banks are deposit holders and connected to (and explicitly insured by) central banks, they are correspondingly more regulated. In particular, they are required to maintain certain capital buffers to avoid overleveraging and maintain solvency which thus puts them at a competitive disadvantage vis-à-vis other capital market competitors. One prominent way for traditional banks to circumvent these restrictions has been through the burgeoning shadow banking system. The opacity of financial engineering gave banks this opportunity to develop structured investment vehicles “IV s hi h allo ed the to hold ast a ou ts of assets – or, as it often turned out, liabilities – off thei offi ial ala e sheet. “IV s e e u as sta d-alone entities from their parent bank, for the purpose of borrowing short term commercial paper on the money markets, and then investing in long term, highly profitable (and highly rated) collateralised de t o ligatio s CDO s a d o tgage a ked se u ities MB“ s . These p odu ts e e central to the proximate trigger of the 2008 financial crash, as banks collated streams of income-generating loans with the intention to sell them on (known as originate and distribute) to investment bankers, who would in turn repackage them as securities with multiple tranches of payments to various holders. Combined with the fact that banks had used risky subprime mortgages to sell into the securities market, the rapid transmission of these products throughout the global financial system – virtually impossible to price with any connection to an underlying market reality – ended up dispersing toxic risk, leading to a severe level of mistrust between financial entities, and ultimately, the debilitating credit freeze that initiated the global recession.

The repeal of Glass-Steagall in 1999 was a key component behind commercial banks entrenched involvement with investment banking activity, and which in many ways epitomises the modalities involved in the power of financial actors. While it is important to recognise that the Glass-Steagall act was just one piece of a long string of deregulatory acts, it was highly significant in terms of its liberalizing intent and commitment to financial expansion on the part of US authorities. The original Glass-Steagall had been enacted in the wake of the great depression in order to insulate the core activities of commercial banks from the high risk practises of investment bankers who played a substantial role in the Wall Street crash. Repeal of the act allowed commercial entities to grow exponentially in scale and tap into mu h o e p ofita le a ti it ; the a ki g e ui ale t of supe a kets , (Kregel 2010: 47). The key threat behind these developments was that, while so-called ultifu tio a ki g - entailing originate and distributional models, and off balance sheet activity described above – could be the source of crisis, the banks corresponding increase in size would also be a channel of contagion and systemic risk (2010: 50;70). Defeat of GlassSteagall had virtually full support of the financial industry - aware of the profitable opportunities that enhanced integration would provide – and the scale of active resource mobilization was immense: in the first six months of 1999, banks and insurers provided 6.6

million dollars in PAC contributions to congressional candidates, with substantial sums going to the House Banking Committee and Senate Banking Committee. As well as this the American Bankers Association and several other financial representatives groups gave their full backing to the repeal bill (Hendrickson 2001: 870-871). Furthermore, the revolving door between politics and industry was particularly strong, as newly appointed Treasury secretary Robert Rubin was a firm supporter, before directly benefitting from such deregulation several years later at Citigroup. Rubin was eventually replaced in late 1999 by Lawrence Summers who, similarly, had extremely close ties to major banks and hedge funds within Wall Street, and who oversaw the effective dissolution of Glass-Steagall. However, while the level of organisational and material commitment among leading sectors of the financial community indicate the significance of removing Glass-Steagall for their industry, a crucial factor in the deregulatory regime was the unconscious and impersonal power (i.e. structural) of market forces wielded by the collective financial markets, which had progressively begun to outgrow the confines of the act and, with the aid of US regulators, already started to circumvent restrictions over the previous decade. As noted by Hendrickson, Beginning in 1986 regulators began expanding the scope of permissible banking activity because Glass-Steagall had become too restrictive, given market dynamics. The 1998 merger between Citicorp and Travelers was simply the last and largest market development that served as evidence of market participants essentially ignoring Glass-Steagall. These market developments certainly weighed on the minds of legislato s a d e ge de ed a se se of u ge ega di g efo : Hence, because financial markets had evolved in such a manner that their smooth functioning eventually depended upon overlooking legal restrictions, the framing of the issue for politicians became one of permitting repeal in order to avoid causing harm or hindrance to key accumulation channels of the modern US economy. The same conundrum reveals itself in the aftermath of the crisis, as the prospect of reining in banking activity that depends upon access to capital markets to ensure the least costly method of business financing, threatens to further choke economic liquidity and stall a weak recovery (Kregel 2010: 71). Indeed, there is a considerable and irresistible logic to such arguments, which cannot be dismissed as simply ideological perspectives, but rather dispassionate and realistic assessments of financial market dynamics.

Nevertheless, it is an error to conceptualise, as Hendrickson does, this aspect of power as o -politi al si pl e ause it does ot ste f o a ti e o ilisatio o the pa t of financial agents or ideological commitments on the part of lawmakers (2001: 872) - a view which is premised upon a rigid (and erroneous) separation of markets and politics. By virtue of being embedded within a particular type of financialised accumulation strategy, this form of structural power heavily conditions the political action of decision-makers and punishes (automatically) any efforts to resist or uproot its prevalence. Duncan captures this political logi ell, ith his o ept of editis :

hile it ould e i e to ei i the a ke s, if ou ei the i too ha d it s goi g to blow up the whole system the banks are so worthless that the losses would be enormous, if they were actually exposed; all the savings in the world would be dest o ed as the a ki g se to failed : )

This issue is all the more prescient for leading industrialised nations that have well developed domestic financial systems which have come to provide high-earning employment for a substantial number of its workforce. Thus, policies which restrict the capacity of the financial sector to grow will no doubt affect economic growth and state revenue in a very direct manner. Relatedly, governments may be hesitant to make the first move when it comes to imposing tough regulation on their domestic financial sectors, particularly during a recession, as they risk putting themselves at a severe competitive disadvantage vis-à-vis competing financial centres. It is thus, a classic collective action problem, as countries must find a way of cooperating upon an agreed set of regulations before any decisive steps can be taken. Financial concerns in the City of London have used this circumstance to their advantage regarding a number of proposed regulations from EU authorities. Of course, none of this is to say that proposals which constrain banking firms from engaging in more risky behaviour is not desirable, or even that the immediate consequences would be as severe as sometimes perceived and propagated; but rather that, as a program of long terms restructuring, it does not resonate well with the tendency of political actors to seize upon short-term fixes, particularly in the midst of crisis and economic stagnation. Thus, the political character of structural dependency is - while disguised – always present and highly potent.

Another common form of financial political influence is derived from the inherent complexity involved in regulating the financial sector, particularly with regard to the raft of innovations that have been produced within the last twenty years. Derivatives, options, credit default swaps, short selling and a range of other exotic financial instruments are now central to the day to day running of capital markets - perhaps the most integrated market of the global economy – and are facilitated by highly sophisticated mathematical models and cutting edge ICT. Furthermore, most of the activity within capital markets takes place in the secondary market, whereby the bulk of securities and continuously traded in over the counter (OCT) transactions, and are thus not easily subject to the scrutiny of regulators and other public authorities (Evans 2009: 10). Paglia i otes that this as et of te h i al information is what typically leads to regulatory capture.

The o ple it i he e t i fi a ial egulato poli ies a d the uilt-in advantage that the financial firms targeted by specific regulation have in terms of knowledge and information vis-à-vis other stakeholders are factors that increase the depe de e o i dust fo e pe tise : Furthermore, given the esoteric nature of technical expertise behind high finance, quite often there is little or no alternative proposals put forward by different stakeholders effected by policy decisions such as consumer groups, trade unions, etc. (2012: 9). This

situation has led to an ambiguity in terms of the legal standing of many transnational regulatory authorities who often carry out technocratic tasks in semi-secret at the global level. For instance, institutions such as the International Accounting Standards Committee and International Organisation of Securities Commissioners create regulatory standards that govern financial markets on a continual basis without any input or supervision from legislati e odies. This efle ts a fo of soft la ; as oted Ta

The ge tle e s ag ee e ts the e te i to a e ot t eaties, ot legall i di g hard law. But the a e autho itati e : -180)

Given the informational constraints, while the crisis may have initiated a social and political appetite for re-regulation, the complexity and technical information required for the task may blunt these prospects.

Growing financial instability has been, in and of itself, one of the most predictable and empirically verifiable aspects of the shift into riskier financial trading. As Reinhart and Rogoff document in painstaking detail, the occurrence of financial crashes has risen sharply since the li e alisatio of i te atio al o eta a a ge e ts i the s . Though the precise mechanics of such crashes are complex and diverse, an unsurprising conclusion is that they stem from periods of excessive borrowing and debt accumulation, be it on the part of governments, corporations or households. In this regard, a salient aspect of the process of expanding capital markets and the increased prevalence of financial activity is the associated growing level of household indebtedness across developed economies in recent decades. Besides the shift of commercial banks into forms of investment banking, a second strategy of profit making has been the financialisation of household income through extended provision of mortgages, consumer credit loans, education funding, etc. Furthermore, there has been a marked upturn in household participation in financial markets regarding asset holdings, primarily through private pension schemes and insurance provision (Lapavitsas 2010: 21-22). This increase in credit provision has been, in part, a response to falling real wages across developed nations during the period of neoliberal globalisation (Glyn 2006: 54). However, it has also been a factor in the spread of rising income inequality ac oss all OECD ou t ies si e the s ILO : -50; Stockhammer 2012) as average earnings are increasingly transferred from households to the financial sector8. According to Stockhammer, heightened levels of inequality – biased towards the financial sector - is i ti atel ou d ith a g o i g p ope sit to spe ulate in the search for higher risk and higher returns (2012: 15-16). In the context of a financial crisis, the implications of these social relationships for the power of financial actors are complex and potentially contradictory. On the one hand, the occurrence of a financial crash which has severe repercussions for economic growth throws the legitimacy of a liberalised

8 There are competing perspectives on the composition of household debt between low income and high income ea e s “to kha e : . Ne e theless, fo ou pu poses, the poi t is that i o e t a sfe f o households to e tie s th ough de t se i i g has i eased su sta tiall i e e t de ades a d has played an important role in accentuating income inequality.

financial system into question. Particularly, in the aftermath of the 2008 crash, animosity and public resentment towards banks and the financial system more generally reached a zenith in the face of public bailouts and revelations concerning various practises within the financial industry. It is also potentially at odds with political elites who have a more intimate concern with levels of employment, taxation and generally robust economic growth. Nevertheless, as crisis conditions aggravate the strain on public finances, governments become more aware of their dependence on international financial markets to maintain spending levels. Similarly, in a very real way, households have the potential to view their future prosperity as bound up with the overriding prerogatives of financial markets. As Boyer suggests;

age ea e s ha e ultiple a d possi l o t adi to o je ti es…if age auste it promotes higher profits, the surge in the stock market might be such that individuals pe ei e a i p o e e t i thei e o o i status…i othe o ds, fi a e redesigns the various interests of o ke s : .

Hence, while the occurrence of crisis exposes the financial system to calls for reform and redesign, it simultaneously attenuates pressures for households and states to adopt political perspectives that contribute towards maintaining established forms of interaction between finance and the rest of the economy.

The shift in prevalence towards capital markets is tied up with the unprecedented expansion of financial trading and the creation of complex financial innovation and engineering. A corollary of these transformations has been the augmentation of financialised market power which has distinctive implications for the modalities of how political power is exercised. We may summarise these implications as such:

1. The rise of capital markets has diversified power centres within the global financial industry. Alongside the major commercial banks is a spate of other powerful players such as large investment banks, hedge funds, institutional investors, private equity firms, sovereign wealth funds, etc. Thus, an important question relates to how these entities interact with each other and how either competitive, or cooperative, practises may bolster or mitigate the financial clout power wielded over decision-making. Additionally, due to extremely complex layers of integration, policymakers who take decisions about specific financial institutions have to consider the impact this will have the general financial market landscape.

2. The rise of capital markets and innovative financial products has exponentially complicated the regulatory process for public authorities. Hence, public bodies have become ripe for regulatory capture by the financial industry and indeed, quasi private authorities have often been delegated much responsibility for esoteric financial standard setting. Even where this is not the case, there is often a necessity to recruit public officials previously from the private financial sector who understand the complexities of global fi a e; this, i tu , st e gthe s to e ol i g doo et ee politi al a d e o o i age ts.

3. The development within most industrialised nations of a thriving and high income-earning financial sector has increased the structural dependence of the state on financial concerns. In this regard, there is less motivation for policymakers to rein in financial actors for fear that they will do significant damage to the financial sector within their own economies.

4. The global integration of the financial industry has created an acute collective action problem for national governments, who may be unwilling to take the first step in imposing regulatory standards that could put them at a competitive economic disadvantage vis-à-vis other nations. It is highly likely that financial actors will utilise this argument to forestall unwelcome policies.

5. The prevalence of financial instability in the financial global system is a Janus-faced phenomenon. While the impact of crisis puts the legitimacy of the financial industry into question and causes a drag on overall economic health, it also accentuates the dependency of cash-stricken governments on international financial markets in order to raise muchneeded funds. The mediation of this catch-22 by different states and policymakers is a key area of interest. Furthermore, as households have increased their dependence on the financial system in preceding decades through established patterns of borrowing, consumption and asset accumulation, there is a strong possibility that they will align themselves politically – willingly or otherwise - with the economic prescriptions of financial actors.

Growing involvement of non-financial corporations NFC’s in financial investment activity

The aspect of financialisation that has received the least amount of academic attention is the i easi g p e ale e of fi a ial t a sa tio s elati g to NFC s ithi the glo al economy. A substantial reason for the dearth of investigation into this area is due to severe limitations and methodological difficulties concerning the flow of funds data fo NFC s, as highlighted by Crotty (2002: 34-35). Due to the lack of empirical data and undeveloped conceptual nature of this phenomenon, it is crucial to not overstate its impact upon economic relations within the global economy. Nevertheless, it is worth briefly noting some of its implications that it may potentially have for the political influence of financial actors. The fi a ialisatio of NFC s a e see to fu tio i t o pa ti ula t e ds ithi the global economy. In the first instance NFC s have increased their spending percentages on a ui i g fi a ial assets. “e o dl , so e NFC s ha e egu to esta lish fi a ial subsidiaries which account for an increasing percentage of their market actions and profits (Crotty 2002: 34). We shall briefly describe each of these processes before offering some tentative proposals regarding their implication for financial political power.

O ha gazi ide tifies th ee a s hi h NFC s t a s it fu ds to fi a ial a kets. These are through dividends, stock buybacks, and interest paid on capital raised on financial markets, although interest payments and capital gains may flow in the opposite directiona k to NFC s – depending on their investment portfolio (2008: 82- . As e tio ed, NFC s have been shown to fund their capital asset investments overwhelmingly through the use of

their own internal funding; thus, their increasing engagement with financial markets is a curious trend. Based upon data for US corporations - it is clear that the increase in various payments to the financial sector during the period of neoliberal globalisation coincides with a relative slowdown in real capital accumulation, opening up the possibility that there may e a di e t li k et ee the fi a ialisatio of NFC s a d le els of real productive investment (Orhangazi 2008: 86; Stockhammer 2004). We have discussed the impact of shareholder value on hampering real accumulation – using funds to finance share buybacks as opposed to reinvestment and growth strategies – but there is also the possibility that NFC s will invest in different financial investments – e.g. portfolio shares - simply because they will make a more immediate and more profitable return during a period of exceptional financial expansion. For instance, it is well known that the French multinational Nestle holds 30.3 per cent of shares in the cosmetic company L O eal a d is o side i g u i g the fi outright (Economist 2009). Perhaps Apple is the prime example, whose hedge fund Braeburn Capital owns more than 7 billion dollars in sovereign debt, and holds 44.5 billion in o pa sha es, su sta tiall o e tha B itai s la gest hedge fu d Neate . I e tai ases, the e is the possi ilit that eal asset i est e t a e o e o ded out as top managers adopt a short-termism perspective emphasised by modern capital markets O ha gazi : . I deed, the esta lish e t NFC s of sig ifi a t fi a ial su sidia ies has not been the primary focus of any piece of academic research, and as such, much information concerning this process has been garnered from the business press. The classic case that is often cited refers to General Electric and its financial subsidiary GE Capital, which expanded into areas such as consumer credit, mortgages, leasing, and commercial eal estate. B , GE Capital a ou ted fo pe e t of Ge e al Ele t i s p ofits (Blackburn 2006: 44), while the company pursued an aggressive strategy of productive downscaling and outsourcing. Similarly, General Motors Acceptance Corporation produced record earnings for the company through financing of car sales and mortgages (Tabb 2012: 15- . U de the a age e t of illio ai e hedge fu d i esto Ed a d La e t, “ea s s retailing flourished - despite sluggish sales - due to extensive derivative trading (Covert and McWilliams 2006). Nevertheless, as the evidence is highly circumstantial, one must be careful to draw any firm conclusions regarding the implications that these changes have upon the impact of financial political power. However, some tentative considerations may be made:

. The i eased i ol e e t NFC s i fi a ial a kets – and in particular – their direct management of financial assets through the creation of purpose-built subsidiaries may lend weight to the potential for political u it et ee NFC s pa ti ula l la ge multinationals) and the financial sector. This may account somewhat for the lack of any observable conflict between productive and financial capital pre and post crisis. One indication of this may also e the politi al o ilisatio of NFC s i suppo t of fi a ial se to p e ogati es o regulation. By the same token, if firms are forced to scale back financial transactions as the

financial crisis continues, the financialisatio of NFC s a e ede, a d the pote tial fo divergent political prerogatives may surface.

. The fi a ialisatio of NFC s is pote tiall li ked to the s ali g a k of eal asset investment within the global economy, which is damaging to both consumer spending and government revenue. In this instance, management of scarce financial resources by the financial sector becomes ever more central to the accumulation process, hence – as we have argued – reinforces the structural constraints (be they real or perceived) placed upon government and society in challenging the salient economic role of finance.

Conclusion

The primary objective of this paper has been to provide a historical examination of financialisation within the contemporary global economy and to chart its manifold implications for the growing political power of finance. Based upon the analysis we can provide some concluding observations that may guide future empirical case-study research.

 Financial instability is a Janus-faced phenomenon: On the one hand it threatens the legitimacy of the financial sector and incentivises policymakers to re-regulate. On the other hand, the issue of structural dependency is a prominent concern for all advanced economies. How this tension is mediated by governments is a question open for empirical investigation.

 The competitive dynamics of a globally integrated financial system creates a severe collective action problem for governments who may be unwilling to take the first step in imposing regulatory standards that could put them at a competitive economic disadvantage vis-à-vis other nations.

 The growing complexity of financial markets and activity provides strong incentives policymakers to call on financial market participants to assist them in the (post-crisis) re-regulatory agenda. This could exacerbate rather than alleviate instances of e ol i g doo politi s a d egulato aptu e.

 The growth of a thriving and high-income earning financial sector within advanced economies is a strong fiscal disincentive for governments to reign in national financial activity.

 Depending on levels of political cohesion, the growing quantity of actors within the financial sector could be a key source of strength for the industry in influencing policy choices.

 The g o i g fi a ialisatio of NFC s is a pote tial fa to eati g politi al u it between financial and productive sector of capital. The spread of shareholder value approaches to corporate governance may also further align political interests.

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Politics, power and contemporary financialization

Politics, power and contemporary financialisation

University College Dublin

Working Paper: July 2014