Discuss the concepts and processes involved in what is called financialization and describe how the financialization relates to economic phenomenon in today’s world. Discuss the food crisis and the student debt crisis to further illustrate the above topic.
Financialization is a term that identifies and surrounds three crucial schools of thought or issues of finance. These three include regulation theory, socio- cultural approaches and critical social accountancy. Other concepts that might be related to the issue of financialization might include such things as heterodox and variants in the economy. 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 mechanism of explanation. These include function, power, interest and legitimacy. 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 establishes numerous debates on economic geography.
Financialization can be defined as a phenomenon in macroeconomics that represents a systemic change or shift in capitalism indicating the start of a new accumulation regime driven by finance. For other economists, financialization is defined as part of an international neoliberal project that indicates the return of the financial fraction of the wealthy to hegemony. On the opposite side are the critical accounting perspectives that focus more on micro- and meso-economic analysis, and those that define financialization as a continuing influence of 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 emphasis more on the financialization of day- to- day life and define financialization as a selfhood that is inspired by commerce that conditions people to assume greater financial risks and responsibilities as private insurance, personal pensions and investments have 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 relative 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 heterodox school of thought on financialization is strongly related 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. In the context of such diverse differences in the conceptualization of financialization, there are three themes that one can derive from these definitions to understand how financialization affects or influences today’s economy.
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. Various indicators of the influence financialization 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, notable growth in the long- term capitalization of markets, the increase or growth of intermediaries earning fees, the trend to buy up financial subsidiaries and nonfinancial corporations and the wider enrolment of people in the world of financialized capitalism.
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.
The effects or the themes of financialization and their ability to influence economies can further be emphasized by two different examples. One of these illustrations has to do with the student debt crisis. Several studies have indicated that in the past few years’ student loans surpassed credit cards as America’s single largest debt source, closing to almost 1 trillion dollars. One thing that shows how financialization has affected economies in this article is the increasing tuition fee that makes it necessary for the student 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, educational institutions are asking and requiring the government to provide them with the most expensive grants, materials and resources, and not for the purposes of educating students, but for other insignificant reasons like prestige and higher pay for educators, and students are the ones left to suffer.
Another example of how financialization has affected economies today is given by the world food crisis. This crisis as many would know was not, as a result, of nothing else but inflation of prices of certain resources such as fuel, which was mainly, as a result, of greed and favoring of certain shareholders and actors in the financial market over the others.