The term financialization is used all over the place, but it’s usually defined in a pretty circular way: financialization means “more finance,” more things controlled by finance.

Our way of thinking about it starts from the idea that the logic of the market doesn’t enforce itself — the logic of the market has to be enforced. And one way of looking at the role of finance is that it enforces the logic of the market and ensures that a whole range of decisions that could potentially be made in many different ways in fact end up being made according to the logic of commodities and of accumulation. Here we’ve been inspired by the economists Gérard Duménil and Dominique Lévy, among others.

So, the most obvious case we highlight is the corporation. On one level, we think of the corporation as a typical organizational form of modern capitalism. But in another sense it’s simply a body of people with some sort of hierarchy and defined roles, engaged in some kind of productive process.

It’s not inherently engaged in producing commodities for profit. And if we go back to the prehistory of the corporation, the corporation was just a legally chartered body that carried out some kind of function. It got appropriated as an organizational form for capitalism specifically, but it didn’t start out as that.

The other side of the coin is that there’s a long tradition of thinkers, including Galbraith, Keynes, Veblen, and many others, who saw a natural, or at least possible, evolution of the corporation into the basis of some kind of planning or collective organization of production —that it could easily cease to be oriented toward the needs of profit maximization.

So if you think that type of evolution is possible, then you ask, why hasn’t it happened? I would argue that the answer is that somebody stopped it from happening — that there are people in society whose job it is to prevent that from happening. There are people and institutions whose job it is to ensure that corporations remain within capitalist logic, that they remain oriented towards production for sale and for profit. On some level, this is the fundamental role of shareholders and their advocates, and of institutions like private equity.

In some ways it’s even clearer when you look at finance in relation to states, because with states there’s no presumption that they should be guided by a logic of profitability or commodity production at all. So, the role of finance in enforcing a certain kind of policy on the state, a certain kind of logic, a certain kind of organization – whether it’s the bond market or whoever else we imagine here — is even more clear-cut.

The other thing we wanted to push against is the flip side of that notion, which is the idea of finance as a distinct social actor with a distinct set of interests – that we can talk about finance capital as if it had its own material interests distinct , or opposed to, industrial capital or capital in general.

That just doesn’t seem to fit the sociology of the system we live under, where there’s obviously a lot of back and forth between these groups. In general, the wealth that takes the form of claims on productive enterprises also takes the form of financial assets. There’s not a distinct group of people or entities who you would call industrial capital as opposed to finance capital.

Again, this functional view of finance, as the enforcement arm of the capitalist class as a whole, seems more productive.

We cite a nice paper by José Azar where he reports that in 1999 less than 20 percent of firms in the S&P 1500 had a substantial shareholder in common, a shareholder that owned 5 percent of more of their stock. In other words, if you randomly picked any two publicly traded corporations, it was relatively unlikely — a one in five chance — that they had a large shareholder in common.

By 2014, the proportion had reached 90 percent. In other words, almost every corporation shares large shareholders with other large corporations.

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[...] It’s not that there’s been a huge change in the distribution of the ultimate wealth owners, but the actual stocks are owned by a relatively small number of financial vehicles that then, in turn, are owned by a widely dispersed group of people.

But as Azar and others have pointed out, from a shareholder-value perspective, that really changes the logic of profit maximization. If each firm has a different set of shareholders, “maximizing profits for the shareholders” is basically the same as “maximizing profits for the firm.” But when you have the same shareholders across all these different firms, those two objectives are quite different.

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If you’re a shareholder who owns all of the major airlines, you want them to just divvy up market share in a stable way. The last thing you want is to see them all competing and offering fare cuts that are just going to the customers and not to you.

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If you take competition out of the mix, it’s unclear what function private ownership is supposed to accomplish. If the evolution of finance gets you to a situation where you have a single set of institutions — or in the long run, maybe a single institution — that owns all of these firms, then pressure from shareholders is going to be against competition. They don’t want to see these firms trying to gain market share or anything else at each other’s expense.

But in the real world, the constraint the market imposes on you is that you can’t spend more today than the money available to you today. Which, in the most extreme form, means that the income you’ve collected in the past is the hard limit on how much you can spend today. That’s the ultimate form of market discipline and, in that sense, the whole function of finance is to remove that discipline — to allow spending today based on future income that hasn’t yet been received, and may not be received.

In a fundamental sense, the reason we have finance is to allow money-losing enterprises to operate. The money-losing enterprises are the ones whose current activities don’t fully pay for themselves, which is why they need to raise finances in the first place. That’s what it means, in a cash-flow sense, to be carrying out investment: you’re carrying out activities which, in the current period, don’t pay for themselves. You believe, you hope, that they will pay for themselves in the future, but at the moment they don’t.

The purpose of finance is to allow that to happen, to allow people’s beliefs and hopes about the future to take precedence over the actual results that have been achieved in the present. But then, on the other hand, the judgment of finance is supposed to be enforcing market discipline, even on actors who otherwise might not be subject to it — like states, and, potentially, large corporations whose existing profits are already more than they need to maintain themselves and achieve their desired level of growth.

[...] if you can’t conceive of social life organized in any terms except commodities, if you can’t conceive of any right that isn’t a property right, if you can’t conceive of any sort of goal or organizing principle of collective productive activity except maximizing profit or some kind of stand-in for profit, then the term neoliberalism isn’t going to make much sense to you. Because the extension of market logic can’t be parsed by someone with a worldview where everything is already organized as markets or might as well be.

I suppose you could say that neoliberalism is broader than financialization in the sense that the growth of finance is about enforcement of market logic on other domains of human activity. But it’s not the only instrument for that. You can imagine and you can point to other methods of enforcing that logic that don’t really consist of anything you would call financial institutions or the development of financial markets or anything like that.