Financialization
Financialization is a term that recognizes and borders three fundamental schools of thought. These issues revolve around finances in an economic geographic analysis. The three include regulation theory, socio- cultural approaches, and critical social accountancy. Other concepts that might be related to the issue of financialization include things such as heterodox and variants in the economy. Financialization describes the economic process characterized by reduction of value exchanged into the financial mechanism. Drawing on a number of conclusions made by several researchers, the available literature on financialization demonstrates four crucial traditions in research that are distinct from each other, as a result, of their choice of method of explanation. These include function, power, interest and legitimacy. The growing influence of the capital markets together with the intermediaries as well as processes in the contemporary political and economic life has attracted the attention of political and academic institutions. Much notably, the traditions in theory and the type of surveys carried out on financialization reflect a lot of the epistemological and theoretical variance that has helped in establishment numerous debates on the economic geography.
Financialization is hence defined as a phenomenon in macroeconomics that represents a systemic change or shift in financial capitalism indicating the start of a new accumulation regime driven by finance. The financial markets tend to dominate over the usual industrial or agricultural economy. For other economists, financialization is part of an international neoliberal project that indicates the return of the financial fraction of the wealthy to hegemony. On the opposing side are the critical accounting perspectives that focus more on micro economic and macroeconomic analysis, and those that define financialization as a continues to influence the actors, processes and products of capital markets on household and firm behavior. Other see financialization as a new form of competition in finance in which each quoted organization competes as an investment for the purposes of meeting the same financial performance standards. As it follows, this concept in economics reworks and rearranges the organization of the objectives of management as organization struggle to meet the increasingly demanding needs of fund managers, shareholders and capital markets.
Socio- cultural accounts lay more emphasis on the financialization of everyday life. It analyses financialization as a selfhood that is inspired by commerce in which conditions people to assume greater financial risks and responsibilities as private insurance, personal pensions and investments. This has increasingly replaced state provided and socialized welfare advantages. This definition focuses more on the construction of identities of people and subjectivities and the enrollment and engagement of individuals in day- to- day life of global finance. Institutionalists understand that financialization focuses on the nature and extent of the comparative growth in the financial interest’s power and actors within the broader boarders of institutional webs that constitute mainly of national variances of capitalism.
Research by the unorthodox school of thought is strongly relates to the traditions in political economy, just as, to the perspectives of the post- Keynesian theorists. Therefore, they define financialization as the growing systemic power of financial engineering and finance that penetrates households and organizations alike and motivates people to think of themselves as a multi- legged profit and cost center. The first theme evident from the above paragraphs is the continuing growth in a wide variety of intermediaries in finance and other kinds of actors alongside visibility, growing size and influence of financial and capital markets. New and existing institutions are increasingly becoming attracted to the formerly disintermediated markets of finance through the equity, pension, debt, infrastructure, mortgages, insurance and investment fund investments. The obvious weight and extent to activities of financial activities and attendant activities of calculation and engineering of finances have permeated through the activities of such institutions, growing continuously in their geographic scope and scale and limiting growth of outputs, particularly in the economies that are strongly led by markets. The indicators of the influence it has on economies include pressures to manage and control corporations to produce value of shareholder in the form of asset appreciation and divided stream that favors financial ownership.
A second theme that indicates the influence financialization has on today’s economies is the demonstration that certain studies have done of how uncertainty, risk and volatility are now more embedded within geographies of economies of the financial system. This is shown to result from the voracious greed and appetite of present and new market actors for the quick achievement of extraordinary profits and a misleading belief in their ability to engineer complex methodologies and techniques through which to calculate and conceive profit and value from risk management. Such tendencies have resulted to the recognized influence of use of funds as similar models to increase the gaps between spaces in financial markets. The third theme has to do with the benefits of the increasing power of principals of investment over agent managers. Many financialization accounts have resulted to critical concerns about social, material and political impacts. Generally, what all these themes imply is that financialization has the capability and the potential to exacerbate unevenness among social groups, individuals and organizations in place and space.
Two different scenarios further emphasize the impacts of the themes of financialization and their ability to influence economies. One of these illustrations has to do with the student debt crisis. Statistics indicate that the average senior college student graduated with an outstanding loan of $24,000. Studies have indicated that in the recent years, student loans have exceeded credit cards as one of America’s largest source of debt, closing to almost 1 trillion dollars. One outstanding thing that shows how financialization has affected economies in this article is the ever-increasing tuition fee that makes it compulsory for the students to go for loans. It has become impossible to go to college without loans because institutions have stopped teaching for the sake of nurturing new talent, skills and knowledge to prepare it for the future responsibilities. Today, many institutions of higher learning are asking the government to provide them with the most expensive grants, materials and resources for the purposes of prestige and higher pay for educators. Students are the one that suffer in the end. Another bitter challenge for millions of American students is the stark reality of increasing levels of unemployment and highly competitive global workforce. The development has led to a wave of default among students. Student loans can be punishing at times as it is not escapable through bankruptcy. In addition, it has no expiry date hence the guaranty agency would have financial incentive to dog the graduates to their graves.
Another situation that shows how financialization has affected economies today is the world food crisis. The crisis as many would know was not, as a result, of nothing else but inflation of prices of certain commodities such as fuel. This was mainly due to greed and favoritism towards certain shareholders and actors in the financial market over the others. Food is however, a necessity that no one can do without. Such hikes in prices have therefore put spending constraints on ordinary Americans who have to cope up with other necessities. Financial speculation has compounded the whole problem with prices of essential foodstuff shooting to unmanageable prices. The price of rice for example surged by over 31percent on March 2008 and wheat by 29 percent on February of the same year.
Works Cited
McMichael, Phillip. Monthly Review, The World Food Crisis. July-August 2009
Pike, Andy and Pollary, Jane. Economic Geographies of Financialization
Harris, Malcome. Bad Education
