Financialization
Today, advanced capitalism, neoliberalism, and “the growth and empowerment of financial markets across multiple sectors of the economy and societies” — also known as financialization — go hand in hand. Essentially, neoliberalism led to privatization and the decoupling of the Main Street and Wall Street economies; this led to the financialization of everything; banks and asset managers grew to have an outsized role in the financial economy; and the corporate capture of the State, specifically of those central banks and economic policies, facilitated it all.
In 2021, Empower published a book about financialization, Runaway Train: The Perilous and Pernicious Path of Private Capital Worldwide, examining the impacts of private capital on human rights. We wrote that our understanding of financialization was the “‘the growth of the financial sector, its increased power over the real economy, the explosion in the power of wealth, and the reduction of all of society to the realm of finance.’ This entails international capital mobility as well as the deepening of finance-oriented accumulation strategies, both key components of advanced capitalism.”
In terms of its effects on people and the planet, we wrote that, “Together, privatization and financialization have become the twin engines of advanced capitalism. Hand-in-hand, these macro drivers have allowed for the increase in private capital and the shift to private markets by privatizing, assetizing, securitizing, and ultimately financializing not just public goods and services but virtually every aspect of life and nature.”
According to Conectas, “Corporate capture has recently gained additional contours: the evolution of artificial intelligence, data processing technologies, and the economy’s financialisation have made companies’ influence and power over States even more complex and refined.”
A prominent critic of financialization is Leilani Farha, the former U.N. Special Rapporteur on the right to adequate housing and currently the founding executive director ofThe Shift.Her voice is unique because, as Special Rapporteur, Farha was one of the first actors globally to explain the intricate, bedrock-level connection between housing and financialization, the role of the State, and how this phenomenon violates a fundamental human right.
“Across the globe, the greatest challenge to the realization of the right to housing by 2030 is posed by the unprecedented dominance of financial corporations in the housing sector. What is sometimes referred to as 'corporate capture' in other spheres has occurred in a singularly far-reaching and systemic manner in the housing sector in the last quarter century. (…)
The dominance of corporate financial actors in decision-making about housing and real estate and the loss of models of independent governance through which financial actors and markets can be adequately regulated has been gradual and often invisible. The trend has now become quite stark, with the unprecedented, visible role of real estate billionaires in government and policy-making in the USA and elsewhere. The corporate capture of democratic governance affects all sectors, but it is particularly all-encompassing and systematic in the sphere of housing and real estate. (…)
Financialized global markets are too often seen as external forces beyond the control of States. However, financialization is in fact a product of State action and inaction — sustained by and supported by States. (…) States and governments are perfectly capable of redesigning laws and policies governing housing and financial markets to recognize the centrality of the right to adequate housing, providing they are allowed to implement them.”
Farha considers corporate capture to be the de facto mechanism explaining the financialization of the housing sector. “Housing is a mode of finance that’s so deeply ingrained in how our financial system works.” With the exception of Finland, which does not rely on financialization to address housing, the rest of the world is “in bed” with developers and finance. Simply put, the real estate sector convinces governments that more housing and housing finance are the solutions to the problems it causes, because the companies have the know-how and liquidity to do this, not the State.
An example of the corporate capture of the State in the housing sector can be found in the Province of Ontario, Canada. There, at the wedding of a politician’s daughter, to which real estate developers were invited, a provincial cabinet minister was caught offering developers opportunities to build on lands protected from development (“greenbelts”). In 2022, approval was granted for construction in the greenbelt, but, in 2023, “[The] Ontario Minister of Municipal Affairs and Housing Steve Clark on Monday resigned from the Canadian province’s cabinet following a scathing report from the Ontario Integrity Commissioner released last week, which found that Clark had put himself into a position with a conflict of interest and violated integrity mandates while overseeing the process of opening protected Greenbelt lands to housing development.”
A major challenge posed by corporate capture and financialization is that the private sector, in many cases, simply has more money than the State.According to Tchenna Maso, in Brazil, “Corporations have become financialised and increasingly impermeable to pressure. (…) The state has become managed by corporations, so Vale is now involved in governing Brazil. (…) In the case of Vale, at the same time as it became financialised, it also got more involved politically. In the state of Minas Gerais, they finance 60% of the political representatives. They also have great relations with members of the Supreme Court and the judicial system.” A similar problem occurs in Kenya where, seeking new financing and urban planning, the government called on the world’s largest private equity firm, Blackstone, to advise its development.
When it comes to the regulation of banks and the financial system, a real problem is supervisory capture, when regulators become too close to the firms they supervise and develop pro-company biases. “In such cases, supervisors may be reluctant to enforce and escalate supervisory actions, compromising the effectiveness of supervisory intervention.”
This problem posed a challenge to the integrity of the U.S. financial system following the pandemic, when the world’s largest asset manager, BlackRock, landed a contract to manage the Fed’s corporate debt repurchase program. “In particular, BlackRock gained 100 billion USD in new clients during Q2 2020 alone, as well as a privatized form of management of the Fed’s bond-buying program. For comparison’s sake, BlackRock’s 7.4 trillion USD AUM is approximately equal to the combined value of the world’s top 20 pension funds. Such size and influence have led to calls by financial regulators to regulate asset managers like banks given their systemic importance for the economy.”
A concomitant concern is the revolving door between financial regulators and financial firms. For example, according to thePublic Integrity Center(PIC), “The nomination of Carlos Agostinho do Rosário (CAR) for President of the Board of Directors (PCA) of Banco Comercial and Investments (BCI) represents a phenomenon little debated in Mozambique, the transition of former rulers to the private sector. In the Mozambican case, this transition has occurred with greater frequency by former governors who will occupy positions of top in commercial banking. The phenomenon is known as ‘revolving door,’ which is nothing more than the capture of the public sector by private/private sector interests. The transition from CAR to BCI does not represent the first case of its kind, it is only the most recent to happen.”