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18 N.C. Banking Inst. 167 (2013-2014)
Financialization: Causes, Inequality Consequences, and Policy Implications

handle is hein.journals/ncbj18 and id is 185 raw text is: FINANCIALIZATION: CAUSES, INEQUALITY CONSEQUENCES, AND POLICY IMPLICATIONS BY DONALD TOMASKOVIC-DEVEY & KEN-Hou LIN* The U.S. is now a financialized economy, where the financial sector and its priorities have become increasingly dominant in all aspects of the economy. We focus on financialization as a process of income redistribution with two faces. The first face is one of rent seeking by an increasingly concentrated and politically influential finance sector. This rent seeking has been successful, leading to the pooling ofprofits and income in the finance sector. The second face is a shift in behavior of non-finance firms away from production and non- financial services and toward financial investments and services. This shift has had both strategic and normative components and has reduced the bargaining power of labor and the centrality of production. As a consequence, financialization of the non-finance sector has led to lower employment, income transfers to executives and capital owners, and increased inequality among workers. We discuss the policy implications of these consequences at the end of this Article. I. INTRODUCTION Modem economies are always changing-inventing new technologies, creating new markets, adopting new regulations and institutions, and incorporating new labor forces while shedding old ones. Many of these changes are incremental, deepening or redirecting current activity. Others are more fundamental, like the move from feudal to capitalist economic institutions, or agrarian to manufacturing- dominated production. There is reason to believe that the U.S. economy is going through a similarly large transformation and is now becoming * Donald Tomaskovic-Devey is Professor of Sociology at University of Massachusetts, Amherst. Ken-Hou Lin is Assistant Professor of Sociology at University of Texas, Austin. We thank James Crotty and Gerald Epstein for their thoughts on the policy conclusions of this Article. We also appreciate Jacob Gerber, Patricia McCoy, Cowden Rayburn, and the editorial team for their thoughtful comments and suggestions throughout this Article. The research reported in this Article was supported by the National Science Foundation, the Institute for New Economic Thinking and the University of Massachusetts, Amherst.