- Accumulation in which profits accrue through financial markets and channels rather than the real sector (the production and exchange of goods) – Arrighi (1994), Krippner (2005)
- The increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies” (Epstein, 2005, p.1)
- Combining the two definitions financialization covers:
- Traditional Financial system in the economy of banks, non-bank institutions such as stock markets, microfinance, savings and loans companies, insurance services and more recently money transfer services.
- Securitisation which encompasses every part of the macro-economy – debt, money supply, future growth, trade in commodities, investment flows and remittances
- Human development services – health, education, water and sanitation services among others.
- Natural resources – land, minerals under the ground, water resources, forests etc.
- Anything where a flow income can be discerned, sliced and bundled.
- Securitisation is financial sector on “crack cocaine” according The Guardian Newspaper.
Roots of contemporary Finacialisation
While the beginnings of financialisation can be traced back to the 1950s, it was the fall of the Bretton Woods monetary system (the use of gold-backed dollars as the international currency, fixed exchange rates, and limited capital mobility) in the early 1970s that accelerated growth in global liquidity and prompted a surge of financial liberalisation and deregulation. Floating exchange rates and unregulated capital flows provided opportunities for financial innovation.
This coincides, in the African context, with the combined effects of the slump in commodity prices and the sharp increase in petroleum prces, bringing a sharp end, import substitution industrialization ad setting in motion a debt crisis which came to heard in the early 1980s.
Policy foundations for financialization.
- Changing the narrative of what is good macroeconomic policies and what is right or wrong for the role of the state in the economy.
- Practical tool-kit, enforced by international aid and the BWIs: Dismantling of controls in the flows of capital, credit ceilings and interest rates +promoting floating exchange rates in monetary policy + privatisation of state banks and the lowering of the barriers to private banking and non-banking services + refocusing Central Banks purpose predominantly on inflation management market with limited prudential regulation capacity development.
- Result: Unprecedented growth in the numbers of banking and non-banking institutions (the latter led by microfinance institutions benefiting from astronomical interest rates), then savings and loans companies, private insurance, investment companies and securities trading companies. In many countries the rate of growth of these institutions exceeded the capacities of regulatory institutions, leading to crisis and bailouts as in Ghana, Nigeria and Kenya.
- At the macro-economic level, high nominal interest rates (except for the Francophone countries), exchange rate volatilities and mounting debt
- Macro-economy Response?: More of the same + “Protection” through accumulation foreign exchange reserves + government outs of failing banks.