Understanding "Financialization" and How to Defeat It

In the 1970s, something happened to the American economy that many people failed to appreciate at the time. After decades of strong and growing labor power, a burgeoning consumers’ protection movement emerged, and efforts to win new environmental protections were taking root. Corporate America was shaken, concerned that these three aligned movements would threaten to weaken their control of the economy and their ability to earn profits and enrich shareholders.

So, they adopted a new strategy. At the time, it didn’t have a name, but it’s since come to be known as “financialization.” While it’s a word many of us might not know, it’s caused a radical transformation in American life.

Quite simply, “financialization” describes the shift among businesses away from producing goods and services to earn money, to focusing on ways to use money to make money. Longtime union activist and labor educator Les Leopold, Director of the Labor Institute, calls financialization the “financial strip-mining of America.”

Financialization has led corporations to focus on short term gains and maximizing shareholder value. The most important thing for CEOs, who now receive most of their compensation in stock options instead of salary, is increasing their company’s share price, delivering record dividends, and keeping investors happy while growing their own wealth.

The corporate elite has cooked up all sorts of ways to boost their stock values. Leveraged buyouts, where a company buys out another company with borrowed money and uses the acquired company’s assets to pay off the debt, is one such example. This often leads to mass layoffs, and attacks on workers’ rights at the acquired company. Stock buybacks are another example, where companies will purchase their own shares from the open market, reducing the number of outstanding shares and driving up the price of the stock.

If that focus on immediate shareholder value means the quality of products suffers, the environment is damaged, that workers are treated poorly, or even if it comes at the expense of the long-term sustainability of the business, that's too bad! Today’s profits are the only thing that matter in a world of financialization.

These types of tricks don’t just threaten workers’ rights and the sustainability of existing companies, they also contribute to the record levels of wealth and income inequality the country faces. While financialization has taken hold, corporations have also succeeded in winning massive corporate tax cuts, and cuts in regulations from Congress, and have worked for decades to erode the power of the labor movement. The International Labor Organization has found that financialization has contributed more than any other cause to wage stagnation in the last four decades. At the end of the day, corporations keep getting richer and working people continue to fall farther and farther behind.

In addition to our efforts to build a stronger labor movement, winning postal banking can also be an important tool to reverse runaway inequality and the impacts of financialization.

Ensuring that financial services are provided in a responsible and sustainable manner promotes economic sustainability, social justice, and grows the power of average people to shape our economy and our society. By winning a financial system that operates with a public service mandate, prioritizing the needs of people over the profits, we can take back some of our power from the corporate elites and the big banks, and build a world that works for working people. ■