The term “financialisation” originates in political economy and is used to describe in a systematic way the dramatic rise of financial activities and financial institutions within economy, society, and culture. Financialisation has been a secular and global process over the past 30 years or so, recently encompassing the global financial crisis and ensuing period of austerity in capitalist societies. It has been fuelled by deregulation policies and it has occurred often at the expense of the real economy. Financialisation has been particularly associated with rising levels of household indebtedness and higher levels of inequality. Workers have borne the brunt of financialisation, suffering lower pay, higher unemployment, and worse terms and conditions of employment.
These outcomes reflect the fact that financialisation has weakened the bargaining power of labour. At one level, firms have become more flexible in their investment decisions. They have invested not just in real assets but also in financial assets and have looked to invest beyond the shores of their home country. This increased flexibility has enabled firms to drive much harder bargains with labour: threats of plant closure have been used by footloose capital to check the pretensions and aspirations of workers. At another level, the nature of corporate governance has changed. The claims of shareholders have come at the expense of the interests of workers. The so-called “shareholder value” model has put pressure on firms to treat labour as a cost rather than as an asset. Wage cuts, job losses, reductions in pensions, and the casualisation of work, have been demanded in order to maximise shareholder returns.
The result of these shifts, at the macroeconomic level, has been a decline in the wage share in capitalist economies. Financialisation has been shown to be the key reason for this decline. Those who have benefited from financialisation have been among the 1 per cent at the very top of the income distribution. At the microeconomic level, work has become more insecure and more precarious with the increase in temporary work and latterly “zero-hour” contracts. Involuntary part-time work and enforced self-employment have also risen in recent times. These outcomes are a benefit to capital whereas they represent a clear burden to labour.
Of course, unequal bargaining power between capital and labour is endemic to any form of capitalism, as Coppola explains. But the balance of power has shifted further in favour of capital under financialisation. Capital has gained power in part by creating a workforce that is debt-ridden. Borrowing to consume has become a way of life for many. This has occurred partly due to slowly rising or falling real wages; however, it also reflects on the wider marketing of credit and loans. The demand for and supply of credit has risen giving rise to an explosion of consumer debt. This increase in debt has further eroded the power of labour.
There is also the impact of the financial crisis and the policy responses to it. Workers have faced increased job insecurity and also increased unemployment. They have also had to accept lower real wages to stay in work. The assault on labour has been magnified by austerity policies that have taken away welfare benefits or made them more difficult to access, raising anxiety about unemployment for those in work and increasing the economic hardship of those who are unemployed. Workers did not create the financial crisis, but they are suffering the most from its aftermath.
The fact that life is so hard for the modern “free” labourer reflects on the financialisation of capitalism. A financialised capitalism is both brutal and ruthless towards labour. Firms want to get workers on the “cheap” to maximise shareholder value and prefer not to enter into long-term employment relationships. Many of course are forced to do so, but they face continual pressure to remove entitlements, reduce pay, erode terms and conditions of employment, and shed jobs, in the name of shareholder value.
So, while the processes that Coppola describes in her piece do reflect pressures inherent to capitalism as such, what is novel is the way that these pressures have been intensified under financialisation. It is financialised capitalism that has turned firms into demanders of expendable labour. It is financialised capitalism that has made firms focus on the short-term and neglect the long-term. It is financialised capitalism that has made firms demand that governments enforce austerity policies even if their effect is to reduce economic growth.
If “the major problem with the UK economy” is “a failure of corporate investment”, as Coppola suggests, then the underlying cause is a failure of a financialised system of capitalism. Financialisation has encouraged financial speculation over real investment and has made firms increasingly subject to the maximisation of shareholder value which has biased corporate policies away from the pursuit of long-term productivity and profitability. Any significant revival in corporate investment would require no less than the reversal of financialisation; a prospect that seems highly unlikely at the present time.
The processes of financialisation must be put at the centre of the explanation of the changes in labour in modern capitalism. Employment protection has been eroded and “unstable, insecure and short-term jobs” have risen in number, specifically due to the financialisation of the economy. There is a powerful connection to be made between the processes of financialisation understood in the broadest sense and the immiseration of labour outlined in Coppola’s piece.
Financialisation is not just pernicious but also contradictory. For its ultimate effect is to reduce the prospects for sustainable economic growth and for enhanced well-being. The stress on the financialisation of labour, in short, raises the broader need to challenge and overcome the financialisation of capitalism.
***This post was orginally posted on Pieria. It was then reposted on the Work in Progress blog of the American Sociological Association's Organizations, Occupations, and Work Section.