WHEN IN MANCHESTER
The grey areas of financialization
A critical review of the concept of financial capital accumulation
Financialization as a concept of capital can be discerned into various critical tendencies (Goldstein, 2009; van Treeck, 2009). Understanding these tendencies helps to highlight the extent of this growing literature in explaining the transformation of capital accumulation in both financial and real economies that occur inherently within the walls of Wall Street and everyday finance (Christopherson, Martin and Pollard, 2013).
The following section discerns the critical debates on financialization and argues that an emphasis on the nuanced institutional and political dimensions of finance is useful to uncover the significance of financialization of the everyday. In contrast to the popular literature on financialization, this essay attempts to highlight the prominence of understanding the financialization of ‘grey areas’ in development, such as real estate in periphery countries. Such shortcomings in the literature are discussed, followed by a final section that concludes.
A heterodox view of financialization, its application and limits
Unlike other theories on capital accumulation (Arrighi, 1994; Perez, 2003), the concept of financialization as the ‘new phase’ of capital accumulation is more vaguely defined (Goldstein, 2009, p. 453).
Early financialization scholars have made their mark by attributing the concept to a macroeconomic perspective on the increasing dominance of financial actors, motives, and channels that signals a new phase of a previously commodity-dominated system of capital accumulation (Arrighi, 1994; Epstein, 2005; Krippner, 2005). According to Goldstein (2009), this dominant trend in defining financialization tends to follow in the lead of Hilferding’s contribution on a class-based analysis of finance that gives rise to a new class of capitalists called rentiers (Demir, 2007; Doucette and Seo, 2011).
Since then, the concept of financialization has spurred debates regarding a new kind of capital accumulation in concert with other broad concepts such as globalisation, neoliberalism, and development (Epstein, 2005; Bellofiore, Vertova and Duménil, 2014). Other prominent tendencies also note the changes in corporate behaviour that orients a shareholder value approach to financial profit maximisation (Krippner, 2005). Nevertheless, such firm-level analysis of financialization only further emphasises the eminence of power relations of financial actors and institutions, particularly that of the rentiers (Skott and Ryoo, 2008; Doucette and Seo, 2011), as demonstrated in the Chilean export-led financialization boom in the mid-1980s until the 2007–08 crisis (Becker et al., 2010).
From the above illustration, this essay argues that the tendencies of financialization differ significantly in terms of orientation and thus its applicability to understanding economic and spatial development outcomes.
First, the trends of financialization can entail a ‘regulationist’ and ‘critical social accountancy’ orientation that follows the logic of changes in financial power relations and regimes of accumulation on real economies and impacts of shareholder value on firms respectively (Goldstein, 2009; Aalbers, 2016, p. 45). The divergence in orientation highlights particular actors, institutions, and methodological frameworks to prominence on analysing the rise and dominance of finance on the real economy.
Second, while both tendencies offer insights on power relations, the differing orientations also diverge on situating financialization in a broader concept of development. In this regard, a shareholder value orientation explanation features the significance of only certain influential finance actors on market liquidity and growth rates (Aglietta and Breton, 2001). While a concentrated group of influential rentiers also exist in a regulationist approach, a shareholder value orientation nevertheless fails to explain how financialization engages and transforms pre-existing capital accumulation in the broader society (Doucette and Seo, 2011).
For instance, consequences that arise in turn creates uneven development through investment bubbles (Arrighi, 1994; Doucette and Seo, 2011; Christopherson, Martin and Pollard, 2013). In essence, this essay argues that a nuanced regulationist approach outweighs a shareholder value orientation of financialization in its use of understanding everyday development outcomes, though not without limitations.
In situating the concept of financialization with everyday development, the financialization of real estate often gains little clout in the growing literature despite playing a crucial significance in development through the reproduction of finance and risk relating to debt-led accumulation (Aalbers, 2016, 2019). What this entails is, first, ‘grey areas’ in financialization persist and to an extent limit its use on understanding development.
These grey areas denote the ambiguous differentiation between financial and non-financial sectors, including real estate (Krippner, 2005). For Christophers (2016, p. 16), such little attention paid to real estate finance is due to the conservative ‘housing-as-market’ tendency rather than an aggregate ‘housing-as-policy’ perspective. Additionally, Krippner (2005, p. 179) disaggregates finance from real estate to construct a ‘conservative estimate of financialization’ following her definition of financialization as the provision of profit through liquid capital and financial channels.
Second, ‘grey areas’ also persist in a limited scope of the financialization literature. Even when real estate finance surfaces to ongoing debates, studies are focused in core countries that have established neoliberal institutions that enable for competitive real estate markets such as the US and UK (Doucette and Seo, 2011; Aalbers, 2016; Pereira dos Santos, 2017). In contrast, cases of real estate finance from the periphery also contain valuable insights as to how the financialization of real estate can work even in a nuanced institutional and political setting but lack the same exposure.
Scholars note how financialization of real estate can be adapted with a state-orchestrated housing finance scheme such as in Brazil (Pereira dos Santos, 2017). Christophers (2016) further notes how the concentration of financial capital in the hands of rentiers create spatial disparities manifesting in extreme housing prices at the expense of the periphery. Additionally, Winarso and Firman (2002) also asserts how Indonesian elites speculating around real estate finance through clientelism could eventually drive the country into both a recession and democratic reform. Ultimately, the disaggregation or subordination of housing in financialization literature potentially limits the growing literature of financialization itself and also as a means to understand development through capital accumulation more broadly.
To conclude, financialization as a concept is an emerging literature that has the potential to encompass a multidimensional perspective on understanding new patterns of capital accumulation. Nevertheless, scholars have contested various tendencies of financialization but have fallen short of aggregating particular dimensions of finance and development such as real estate and periphery economies in its conception.
Therefore, this essay argues a conception of financialization that denotes how the dominance of financial actors and means are able to penetrate and become central drivers to even ‘grey areas’ of everyday development. Noting the centrality of financialization to the real economy and everyday development (Christophers, 2016), thus a nuanced tendency of financialization is argued to not only feature the lenses of understanding financial capital accumulation but also aggregate a broader institutional and political dimension of everyday development.
As part of the series ‘When in Manchester’, this piece was originally an assignment the author completed for the course Global Political Economy at the University of Manchester.
