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18 N.C. Banking Inst. 167 (2013-2014)
Financialization: Causes, Inequality Consequences, and Policy Implications

handle is hein.journals/ncbj18 and id is 185 raw text is: FINANCIALIZATION: CAUSES, INEQUALITY
The U.S. is now a financialized economy, where the financial
sector and its priorities have become increasingly dominant in all
aspects of the economy. We focus on financialization as a process of
income redistribution with two faces. The first face is one of rent
seeking by an increasingly concentrated and politically influential
finance sector. This rent seeking has been successful, leading to the
pooling ofprofits and income in the finance sector. The second face is a
shift in behavior of non-finance firms away from production and non-
financial services and toward financial investments and services. This
shift has had both strategic and normative components and has reduced
the bargaining power of labor and the centrality of production. As a
consequence, financialization of the non-finance sector has led to lower
employment, income transfers to executives and capital owners, and
increased inequality among workers. We discuss the policy implications
of these consequences at the end of this Article.
Modem economies are always changing-inventing new
technologies, creating new markets, adopting new regulations and
institutions, and incorporating new labor forces while shedding old
ones. Many of these changes are incremental, deepening or redirecting
current activity. Others are more fundamental, like the move from
feudal to capitalist economic institutions, or agrarian to manufacturing-
dominated production. There is reason to believe that the U.S. economy
is going through a similarly large transformation and is now becoming
* Donald Tomaskovic-Devey is Professor of Sociology at University of Massachusetts,
Amherst. Ken-Hou Lin is Assistant Professor of Sociology at University of Texas, Austin.
We thank James Crotty and Gerald Epstein for their thoughts on the policy conclusions of
this Article. We also appreciate Jacob Gerber, Patricia McCoy, Cowden Rayburn, and the
editorial team for their thoughtful comments and suggestions throughout this Article. The
research reported in this Article was supported by the National Science Foundation, the
Institute for New Economic Thinking and the University of Massachusetts, Amherst.

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