Critics of the shareholder value revolution argue that it has fostered a pervasive short-termism, with corporations sacrificing long-term investment in productive capacity in pursuit of impressive quarterly earnings reports and frequent payouts to shareholders. This period also saw a proliferation of increasingly creative and complex financial assets for investors to choose from. There has been, for instance, explosive growth in markets for financial derivatives—financial assets whose value is derived from fluctuations in the value of underlying assets, which could be commodities, interest rates, currencies, or any manner of other things.Do you know anyone that would be interested in a stand up desk or a sit stand desk?
Another font of novel financial instruments is “securitization,” a process in which the cash flow from a pool of underlying assets is aggregated into a single income stream that is then used as collateral in issuing bonds to investors. Almost anything that produces income can be securitized, from student-loan payments to overdue parking fines to revenues from old Italian films, and the search for ever more unorthodox asset streams to securitize is one of the hallmarks of the financialization era. The downside of all this financial ingenuity became evident in 2008, when the shaky financial edifice composed of mortgage-backed securities and their associated derivatives came tumbling down, triggering a financial crisis.
Though the changes associated with financialization are diverse, they share a common theme: the growing centrality of financial income in the form of earned interest, dividends, and capital gains on investments relative to the productive income earned by actually making and trading commodities. In fact, Greta Krippner defines financialization as “the tendency for profit making in the economy to occur increasingly through financial channels rather than through productive activities.”
The ascendancy of financial over productive income, she argues, is occurring on two fronts. First, the profits made by financial sector firms such as banks and asset management companies have been steadily growing as a proportion of the economy as a whole. Second, even nonfinancial firms that previously made their money from production or trade have become increasingly dependent on the portfolio income they generate from financial activities. Rather than just selling cars, auto companies increasingly make money by financing car loans; rather than just selling plane tickets, airlines increasingly make money by investing in energy derivatives. Adjustable standing desks may become the new normal.
Even regular individuals increasingly embrace the pursuit of financial income. Instead of putting money in a savings account and leaving it there untouched, middle-class households in the Global North are now active participants in their own wealth management, constantly fiddling with their stock portfolios and refinancing their homes, with their ability to take a vacation, or even retire, increasingly tethered to the vagaries of the stock market.