Phenomenon of financialization

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[...] This demonstrates how financialization can have a ripple effect, influencing not only financial markets but also the broader economy, affecting jobs and public services. In conclusion, the financialization of OECD economies has profound implications at both micro and macro-economic levels. While it has reshaped corporate behaviors and strategies, its broader effects on economic growth, stability, inequality, and global imbalances cannot be overlooked. Addressing these challenges necessitates a collaborative approach, balancing the benefits of a dynamic financial sector with the need for a robust, equitable, and sustainable economic framework. [...]

[...] This transformation is characterized by the globalization and integration of financial activities, leading to a significant increase in the interconnectedness of economies. The document discusses the critical role of securitization in the financial crisis of 2008, where the proliferation of securitized mortgage products led to a systemic collapse. The shift towards financialization has exacerbated income inequality. The concentration of wealth among those with substantial financial assets, combined with the stagnation of wages for average workers, has led to growing economic disparities within societies. [...]

[...] Companies have increasingly prioritized shareholder value, often resulting in a greater focus on short-term profits. This shift is evident in the heightened role of stock markets and a surge in activities like share buybacks and dividend payouts, affecting corporate governance and decision-making. Indeed, François et al. (2016) highlight this shift in the United States towards a regime where corporations primarily generate profits through financial activities rather than the production and sale of goods or services. It is exemplified by the changing strategies of major U.S. companies, which have increasingly focused on financial gains. [...]

[...] Finally, governments and regulators face complex challenges in managing the effects of financialization. Balancing the need for a vibrant financial sector with the risks of excessive financialization requires nuanced policies, including regulatory reforms and fiscal measures to encourage investment in the real economy. For instance, GDP growth in the Euro area the European Union the UK, the US, and Japan shows a clear pattern of slowing growth from 1961 to 2010. In the 1961-1970 period, the GDP growth rates were 5.3% for EA- for EU- for the UK for the US, and a remarkable 10.1% for Japan. [...]

[...] Macro-Economic Implications Financialization has a dual impact on economic growth. While it can spur short-term growth through financial activities, it may undermine long-term stability due to increased financial risks and reduced investment in real economy sectors. The 2008 financial crisis is a testament to the vulnerabilities inherent in a heavily financialized economy. The chapter which was first presented as a paper at a conference on "Finance-led Capitalism Macroeconomic Effects of Changes in the Financial Sector," also sheds light on financial crises that have punctuated the era of financialization. [...]