Stories written by Michael Lim Mah Hui

Developing Economies’ Subordinate Financialization

Rapid financial globalization is due not only to financial innovations, but also to choices made by national policymakers, often with naïve expectations, trusting promoters’ promises of steady net inflows of financial resources.

Financialization Undermines Real Economy

The relationship between finance and the real economy is arguably at the root of the contemporary economic malaise. Unlike earlier acceptance of simple linear causation, recent recognition of a curvilinear relationship between finance and economic growth, implying ‘diminishing returns’, has important implications.

Financialization Promotes Dangerous Speculation

Financialization has involved considerable ‘innovation’, often of opaque, complex and poorly understood financial instruments. These instruments typically have large debt components involving leveraging, deepening connections across markets and borders.

Driving Financialization

The emergence and growth of financialization from the 1980s has been driven by several factors operating at various levels – national and international, ideological and political, and of course, technological. The 1971 collapse of the Bretton Woods (BW) international monetary system arguably paved the way for financial globalization.

Transforming Society, Financialization Destroys Social Solidarity

Finance has not stopped at dominating the real economy. The tentacles of finance have reached into significant, if not most parts of society. Gerald Davis characterises modern society, where finance is dominant, as a ‘portfolio society’, in which aspects of social life have been securitized and transformed into a kind of capital or investment to be managed.

Finance’s New Avatar

Over recent decades, the scope, size, concentration, power and even the purpose and role of finance have changed so significantly that a new term, financialization, was coined to name this phenomenon. Financialization refers to a process that has not only transformed finance itself, but also, the real economy and society. The transformation goes beyond the quantitative to involve qualitative change as finance becomes dominant, instead of serving the needs of the real economy.