The debate surrounding the role of finance in capitalism has been polarized, with some factions of the political Left considering finance as a parasitic element that leeches from the real economy, exacerbating capitalism’s decline. This perspective suggests that financial institutions, in their quest for dominance, have captured the state and hollowed out the tangible elements of the economy that produce real goods and services. However, a thorough examination of the last century’s capitalist development reveals a different narrative: finance, despite its costs to workers and the middle class, has actually enhanced competitiveness and fortified capital, supported invariably by an increasingly authoritative state.
The journey since the 2008 financial crisis has seen the emergence of a new economic regime, characterized by an extraordinary level of concentration and centralization of capital in the hands of the “Big Three” asset management firms—BlackRock, Vanguard, and State Street. This shift was further solidified by a notable “statization” of the financial system. Such developments compel a reevaluation of popular notions against finance, challenging the feasibility of a working-class alliance with industrial capital against financial ‘parasitism’, as well as the presumed benefits of aligning with asset management firms on environmental or social initiatives.
Financialization’s evolution can be segmented into four distinct phases: classical finance capital, managerialism, neoliberalism, and new finance capital. Each phase represents a cycle of financial power’s decline and rebuilding, reshaping state, corporate, and class power structures in a complex interplay of continuity and change.
The advent of new finance capital post-2008 crisis marked the centralization of financial influence previously diffused in shareholder capitalism, into a select group of asset management companies. Amid regulatory efforts to stabilize the financial system, we witnessed the rise of megabanks and a parallel gravitation towards these asset management behemoths. These firms, through sophisticated risk mitigation and index-tracking investment strategies, have mustered an unprecedented economic dominance, echoing the influence wielded by finance barons of the past.
These developments underscore the historical continuity of financialization as an integral component of capitalist expansion, challenging reductions of finance’s ascendancy to recent capitalist decay. Since its inception, capitalism has navigated through its inherent contradictions by adapting and evolving, casting finance not as a drawback but as a pivotal mechanism in this continuous transformation.
The intertwined relationship between finance and industry is foundational to capitalism’s structure, with each sector reliant on the other for the mobilization of capital towards profitable ventures. This symbiosis has blurred the lines between financiers and industrialists, with contemporary industrial corporations engaging in financial activities, and finance capital influencing production decisions more directly than ever.
Understanding the role of finance within capitalism also provides insights into competitive dynamics and state intervention in the economy. The mobility and allocation of capital, facilitated by financial mechanisms, determine sectoral competitiveness and efficiency. Furthermore, the state’s evolving relationship with the economy, from nurturing neoliberal policies to recent interventions aimed at stabilizing financial markets, reveals a complex interdependence rather than a straightforward narrative of state withdrawal or market dominance.
In the face of contemporary global challenges, including persistent inequality and environmental crises, the insights gained from examining the evolution of finance within capitalism point towards the necessity of a reimagined socio-economic order. Rather than tinkering with the existing system in hopes of isolating ‘good’ from ‘bad’ elements, a more radical transformation, rooted in democratic principles and aimed at serving societal and ecological needs, emerges as the crucial endeavour for the future.
Indeed, the future trajectory of capitalism, particularly the stability and dominance of new finance capital, remains uncertain amidst ongoing economic volatilities and policy debates. However, the imperative for an organized, mobilized working class to challenge the current capitalist framework and advocate for an economic system that prioritizes public welfare over private profit is clearer than ever. In this struggle, understanding the complex role of finance within capitalism is indispensable, offering a foundation upon which transformative change can be pursued.
