Image: 401kcalculator.org via Flickr (CC BY-SA 2.0)
by Adam Goldstein and Neil Fligstein
The resurgence of finance over the past three decades represents one of the most remarkable trends in the recent history of capitalism. “Financialization” has become a common byword to describe the growing role of financial markets, motives, actors, and institutions in the operation of the overall economy.
One aspect of financialization that has received less attention is the role of households. As the financial industry has expanded, it has done so in large part by marketing more products to households, such as mortgages, second mortgages, mutual funds, stock trading accounts, student loans, car loans, and various forms of retirement products. But how have households themselves changed their attitudes and behavior in relation to financial markets? Should we view their primary role as that of consumers who supply the raw inputs for Wall Street’s machinations? Or have households also started to think about their own economic activity in more financial terms? What is the scope of popular financialization?
To answer these questions we examined eighteen years of survey data from the U.S. Federal Reserve Board’s Survey of Consumer Finances. We charted changes in the financial activities and attitudes of U.S. households from 1989 to the onset of the financial crisis in 2007. Our goal was to provide a global view of the various ways that households at different points in the income distribution have become more involved with the financial economy, and how this has coevolved with their attitudes towards risk and debt.
The patterns are revealing: In terms of financial consumption, we find secular growth in the use of all kinds of financial products across the socio-economic structure. This implies that financial firms sought out customers for their products and made them available to people up and down the income distribution.
Last week I discussed the connection between the Occupy Wall Street protests and the long-term transfer of national income into the finance sector. Well the problem is worse than Wall Street’s power over the national economy and polity.
There really are two faces to financialization. The most familiar face is the dominance of the finance sector over the rest of us: the giant profits and bonuses at the big banks and investment houses and the instability generated by too big to fail but rapaciously imprudent financial services firms. The other face is the financialization of the rest of the economy. Greta Krippner figured this out first. Greta discovered that since the 1980s firms in the non-finance sector have increasingly invested, not in the production of goods and services, but in financial instruments. The productive economy, Main Street in some formulations, has increasingly abandoned production in favor of financial shenanigans. Finance related income, including interest, foreign exchange profits, and stock market investments have risen from about 1/8th of corporate profits to around 30%. In the manufacturing sector the move from production to financial strategies has been even more dramatic, rising to a ratio of finance revenue/profit as high as .60 after 2000.
Many of us are watching with rapt attention as events in Oakland, Atlanta, and many other cities unfold. The police actions in NYC at the outset of the movement, and now the use of tear gas by police (and the serious injury inflicted on a Marine veteran) all play into the movement dynamics in very interesting ways. Readers will want to visit our sister blog, Sociological Images, for a very interesting story by Gwen Sharp, who presents a provocative graph charting what seems to be a dialectical relation between police repression and media coverage, in keeping with social movement theory. And yesterday, many national newspapers were reporting that many cities (New York, Oakland) were beginning to back off, perhaps sensing the tactical disadvantages that repression involves.