Charles Dickens selected a moneylender in his redemption story, A Christmas Carol. Scrooge was not an offender, a psychopath or Victorian Harvey Weinstein, but just a devoted moneylender. Nevertheless, Dickens described him as if he were the worst creature: ‘a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner’. Greed was (if not ‘is’) considered one of the seven deadly sins. Dickens was critical of the Victorian society, which was extremely unequal, like the 21st Century society.
There is not much difference between Scrooge and 21st Century financiers in terms of maximising their profits and valuing prosperity. Should contemporary financiers be considered as sinners too? We need to understand the story of financialisation and the financial mechanism to answer this question.
The financialisation of the economy has been observed in Australia, Canada, Switzerland, the UK and the US in terms of the value of market capitalisation on the stock exchange. The US financial sector’s share of Gross Domestic Product (GDP) increased from 15% to approximately 23% between 1960 and 2001 (Krippner 2005). The US financial sector’s share of total US corporate profits increased from 20% in 1980 to 30% in the early 1990s and then approximately 40% by 2000.
The financialisation of economy has had negative implications on equality and employment as follows:
1. Rise of wage slavery and gig economy
The rapid growth of the financial sector contributes to neither job creation nor the rise of wages except for those within the sector, whose beneficiaries are few. On the contrary, financialisation as well as neoliberalism is related to wage stagnation and the increase of unemployment and precarious jobs for the last three decades.
Such reshaped labour market by financialisation (and neoliberalism) is partially explained by non-financial corporations’ cutback in R&D, including human capitals. Increased financial profit opportunities have changed the incentives of firm managers from R&D investment to financial investment in the pursuit of higher stock returns rather than real investment in R&D (see Orhangazi 2008; Mukunda 2014). Shareholder value, not innovation and training, has become a priority in economic decision-making in financialised capitalism (see Feng et al., 2001; Froud et al., 2010).
2. Illusory ‘shareholder democracy’
Financialisation has given great opportunities to the already wealthy to earn more money through capital gains, dividends and interests. Share ownership or ‘shareholder democracy’ is not widespread.
3. Debt fuelled mechanism: Housing
Private as well as sovereign debts have prevailed in the UK, the US and other advanced capitalist countries for the last three or four decades. Private debt to GDP ratios, according to analysis by Jorda et al. (2014) based upon historical data from BIS, increased from the 50-60 percent range in 17 selected advanced economies by 1980 to 118 percent in 2010.
Mortgage/equity loans) are the chief areas causing private debt, followed by higher education, vehicles and credit cards. Australia, Denmark, the Netherland, the UK and the US experienced a housing-induced boom (see Fernandez and Aalbers, 2016, pp. 75-6). ‘Middle class’ aspiration in post-World War II boosted these high-debt liberalised housing economies. The growth of mortgaged home ownership and steep house price rises as the result of high demand helped the financial sector to grow.
4. Gambling ordinary people’s lives: Insurance companies and pension funds
Mortgaged home buyers have become victims of the growth of the financial sector, while institutional investors such as pension funds and insurance companies, which collect individual savings and allocate them to different users, have become the main holders of company securities – notably in the UK and the US, where state regulation is loose. Pension- and insurance company assets in the UK, according to OECD, increased from 20 percent of GDP to 80 percent and from 20 percent to 100 percent respectively between 1980 and 2009 (Andrews and Sánchez 2011). These UK institutional investors have preferred to invest in equities than in government bonds. The US showed similar trends in terms of the increase of pension fund assets during the period, although insurance companies there invested much less in equities. Overall, both the UK and the US tend to seek higher returns by investing in riskier assets.
The continental Europe model, where state regulation is stricter, traditionally focuses upon bank lending and some investment in government bonds, not equities and corporate bonds. Pension funds remain small there. The role of institutional investors is far smaller. Continental Europe, however, has moved towards the Anglo-Saxon market-based financing model, seeking high returns on investment.
The current mode of financial capitalism is the mechanism to make the wealthy wealthier by gambling with the money collected from ordinary people in spending on pensions and insurance and benefiting from people suffering life-long debts in homes, cars and/or higher education. Today’s financial sector, like Scrooge, makes profits from people’s desperate lives, financial insecurity or necessity. If these activities are not sins, what are they?