Financialization of the economy leads to disaster

This is the final stage in the evolution of capitalism, based on indebtedness – “leverage” in the same jargon – and the dominance of financial markets over industrial or agricultural production.

Its purpose is to reduce any business or service product in a convertible financial instrument, including “derivatives” that allow, for example, to provide a future price on the purchase or sale of an asset to avoid potential risk. risks.

As Christian Democrat politician and former Italian Minister of Public Administration Paolo Cirino Pomicino (1) explained, the financialization promoted since the early 1990s “poisoned the market economy,” favoring financial capital over productive capital, and scandalously fueling Social inequality.

The volatility observed in raw material prices in recent decades is not only related to the well-known law of supply and demand, but above all to the financial flows reaching that sector of the economy, pure speculation.

Positions for “futures” in the food sector increased from 137,000 million in 1998 to over one and a half billion in 2012, and contracts in the grain field increased from 118,000 to 412,000 million in the same period.

Pomicino reminds us that in 2015, the face value of financial derivatives traded outside regulated markets – in particular, raw material futures – was already ten times the world GDP.

Today, the total volume of these contracts is still above the level at that time and is very difficult to monitor.

First the 2008 financial crisis, then the pandemic, and finally the war in Ukraine fueled the deterioration of markets, causing energy bills to skyrocket everywhere and having tremendous effects not only on families but also on the systems industry.

And instead of acting radically on the causes, European governments have so far chosen to limit the effects with public aid, which will always be insufficient.

As the former minister of Giulio Andreotti denounced, the concentration of financial power over the past two decades and its close ties to media powers, both national and international, make the former virtually unrivaled.

The problem, according to Pomicino, is that “social anger” grows in many places and liberal democracy may endanger itself if the primacy of politics, the only thing that can guarantee social and economic balance, is not restored.

We are already seeing this in some European countries with the growth of far-right parties taking advantage of the logical discontent of the population with the current situation and the lack of response from the hitherto overly indifferent social democratic left. with financial capital.

Finance must return to being a tool in the service of real production, not an industry in itself. Otherwise it will lead to disaster.

1. In an article published in the Italian newspaper “Il Foglio”.