In this chapter from the forthcoming book, The Political Economy of Financial Crises, edited by Gerald Epstein and Martin H. Wolfson, (Oxford University Press, 2012) Engelbert Stockhammer discusses ‘financialization’, i.e. changes in the role of the financial sector. This will highlight (1) changes in household behavior, in particular with regards to household debt, (2) changes in the behaviour of non-financial businesses, such as shareholder value orientation and increased financial activity and (3) changes in the financial sector, in particular the emergence of the (hardly regulated) shadow banking sector, a shift towards household credit (rather than business credit) and a shift to investment banking/fee generating business. Second, the chapter discusses the international dimension of financialization. Here the liberalization of capital flows and its consequences, the determination of exchange rates by capital flows (rather than by current account disequilibria), will be discussed. International financial liberalization has not fulfilled the neoliberal promise of generating investment-based growth, but rather has given rise to a series of financial crises that were typically driven by a swing of capital inflows (‘capital flow bonanza’) followed by capital flow reversals. Third, the chapter offers an interpretation of the finance-dominated accumulation regime as having given rise to two distinct growth models (based on Stockhammer 2010): a credit-financed consumption-driven growth model (mostly in Anglo-Saxon countries) and a export-driven growth model (in Germany, Japan, and, possibly, China). Both growth models suffer from a structural demand deficiency, which is due to wage suppression, but each try to overcome this by different means (credit-financed consumption or export orientation). The chapter thus highlights how financialization with its domestic and international effects have interacted with a polarization of income distribution to generate the structural imbalances that led to the crisis 2007-09.
