The Financialized Economy : Theoretical Views and Empirical Cases

Social science theorists from various scholarly disciplines have contributed to a recent literature that examines how the finance industry has expanded and now wields increasing influence across a variety of economic fields and industries. In some cases, this tendency towards a more sizeable and influential finance industry has been referred to as'the financialization'of the economy. This book explains how what is referred to as the finance-led economy (arguably a more neutral and less emotionally charged term than financialization) is premised on a number of conditions, institutional relations, and theoretical propositions and assumptions, and indicates what the real economic consequences are for market actors and households.The book provides a theoretically condensed but empirically grounded account of the contemporary finance-led economy, in many cases too complicated in its design and rich in detail to be understood equally by insiders—empirical research indicates—and lay audiences. It summarizes the relevant literature and points at two empirical cases, the construction industry and life science venturing, to better illustrate how the expansion of the finance industry has contributed to the capital formation process, and how the sovereign state has actively assisted this process. It offers a credible, yet accessible overview of the economic conditions that will arguably shape economic affairs for the foreseeable future.The book will find an audience amongst a variety of readers, including graduate students, management scholars, policymakers, and management consultants. Cover Half Title Series Information Title Page Copyright Page Table of contents Preface Acknowledgements Introduction Vignette: the civilizing effects of commerce argument Commerce in the new millennium: business deals made in microseconds The purpose of the thesis Outline of the volume Summary and conclusion Notes 1 The financial economy: A review of the literature Introduction: the business franchise to issue credit Finance industry expansion The concept of financialization Firm-level financialization The legal theory view Entangled financial conditions: foreign direct investment (FDI) and corporate offshoring Additional financialization activities and their relations Financial innovations: the case of asset securitization Securitization and the escape from liability Securities regulation to uphold the liability law enforcement mechanism Shadow banking and its role in the credit formation process Systemic risk: the ghost in the finance machinery Summary and conclusion Notes 2 The institutional framework: The capital formation process in finance-led economies Introduction Housing policy, home mortgage lending, and the role of the construction industry Capital formation, safe assets, and credit supply Securitization and the credit formation process State-backed safe assets and the question of financial stability The state debt mechanism Credit supply shocks and the household debt channel The global savings glut The role of behavioural bias Regulatory concerns: the question of how to balance credit supply and financial stability Regulatory blind spots Summary and conclusion Notes 3 Thickly capitalized ventures: Housing production, illiquid assets, and social welfare Introduction Attracting finance capital to the housing sector Illiquid assets, asset prices, and the expansion of credit Local government and the creation of housing project The financing of urban renewal projects Housing projects on the basis of tax increment financing The creation of affordable housing in finance-led markets Everyday housing concerns and practices: the case of middle-class and destitute communities Thickly financed industries and the quest for affordable housing: is the subsidizing of housing production supportive ... Summary and conclusion Notes 4 Thinly capitalized ventures: Financing science-based innovation in entrepreneurial firms Introduction The endemic shortage of venture capital and the taming of uncertainty The entrepreneurship ideology and venture capital supply The significance of venture capital investment Junior stock market financing The state as the venture capital market maker: some concerns Investment opportunities that attract residual capital Rentier interests exclude uncertain investments Summary and conclusion Note 5 The institutional logic of the finance-led economy Introduction Rentier interests and the entrepreneurial function The difficulty to regulate the finance industry towards welfare ends: the case of social impact bonds (SIBs) Empirical studies of SIB financing Policy implications Household level implications: questioning credit as social provision on the basis of diminishing returns on finance ... Alternative routes: a new view of finance industry regulation Theoretical view of the central bank independence legislation Empirical evidence challenging the central bank independence model The consequences of low interest rate policy Risk calculation as the basis of the financial economy: consequences and policy implications Summary and conclusion Postscript Notes Bibliography Index "Social science theorists from various scholarly disciplines have contributed to a recent literature that examines how the finance industry has expanded and now wields increasing influence across a variety of economic fields and industries. In some cases, this tendency towards a more sizeable and influential finance industry has been referred to as "the financialization" of the economy. This book explains how what is referred to as the finance-led economy (arguably a more neutral and less emotionally charged term than financialization) is premised on a number of conditions, institutional relations, and theoretical propositions and assumptions, and indicates what the real economic consequences are for market actors and households. The book provides a theoretically condensed but empirically grounded account of the contemporary finance-led economy, in many cases too complicated in its design and rich in detail to be understood equally by insiders-empirical research indicates-and lay audiences. It summarizes the relevant literature and points at two empirical cases, the construction industry and life science venturing, to better illustrate how the expansion of the finance industry has contributed to the capital formation process, and how the sovereign state has actively assisted this process. It offers a credible, yet accessible overview of the economic conditions that will arguably shape economic affairs for a foreseeable future. The book will find an audience amongst a variety of readers, including graduate students, management scholars, policy-makers, and management consultants"-- Provided by publisher