According to Arrighi (1999), the spread of the financial system is a process that has characterised the cyclical evolution of capitalism since its origins in the 15th century. Financialisation represents the end of the cyclical trajectory of what he refers to as a particular ‘hegemonic power’ (Gramsci 1971). The historical path of this hegemony has traversed various territories combined with particular government and trade organisational arrangements, from Geneva (15th – 17th centuries), the Netherlands (16th – 18th centuries), Britain (18th – 20th centuries) and the USA (19th – 21st centuries century). On Arrighi’s understanding, our current ‘neoliberal’ era of financialisation is thus an ‘interregnum’ (M. Davis 2011a; Gramsci 1971), a transition phase between an old and a new model of hegemony. This is manifest as a dual process of declining productive returns that is causing the current waning of hegemonic power, and also the subsequent expansion of the financial system in search of new business opportunities that produce higher profits from financial transactions compared to other activities. Against this view, we might instead propose that financialisation is not a transition phase but rather a new model for the hegemony of ‘moneyed men’, exercising their cultural, economic and political authority through the praxis of linguistic dominance over other members of society.

What does differentiate this hegemonic process in present-day capitalism, however, is its intensity and structural character, as we stated already above. The structural transformation of financial markets and their relationship with the productive economy has been possible thanks to an intense process of financial deregulation and innovation, which favoured the emergence of new actors: financial intermediaries (Folkman et al. 2008), institutional investors (Gospel et al. 2014), and the rise of new models of corporate governance and ownership (Erturk et al. 2008). The roots of these changes can be found in the early years of the 20th century when intense scholarly debate regarding the rights of shareholders’ claims, and the consequences of the separation of ownership and control for corporate performance, led academics to analyse the ‘financial turn’ of capitalism (see Keynes 1973). Not since the 1980s, however, has an intense process of financial deregulation and innovation allowed for such an unprecedented expansion of the financial system, encompassing the emergence of new financial instruments and consequently new channels for monetary accumulation.

In sum, financialisation is not a new epochal stage of capitalism which simply inverts previous system characteristics. Nor is it a new national ‘variety of capitalism’ (Hall and Soskice 2006), spreading from its original Anglo-American base, since financialisation does not establish a behavioural coherence for all economic actors. We suggest instead that financialisation remains an ‘unfinished hegemonic project’ with the capacity to transform all central economies. It may wear out the stability of the capital-labour relationship or else, as we will argue, seek to supress it beneath credit-debt relations. But it does not vanish, provided that income from employment remains the primary source of monetary resources for individuals and companies.

The present intensification of financialisation has been caused by a series of changes in financial systems that have enabled their expansion and an unprecedented increase in their business opportunities. According to Engelen (2008), contemporary financialisation encompasses a set of processes developed on a global scale at least since the 1980s, which created new organisational, mathematical and technical structures. These processes include financial innovation (Mazzucato 2014; MacKenzie 2009), deregulation (see Krippner 2011) and ‘liquidification’ (MacKenzie et al. 2012; Carruthers and Stichcombe 1999) as the most significant developments. In turn, these processes are typically understood within the context of a ‘neoliberal’ order, which emerged initially in the United Kingdom and the United States in the late 1970s under the leadership of Thatcher and Reagan respectively, and that subsequently expanded into Continental Europe and around the world (Duménil and Lévy 2014; Harvey 2007). Each of these processes is discussed separately below.

Firstly, the recent expansion of the financial system has been supported by an intense process of financial innovation. This is understood as the creation of new financial products and exchange mechanisms, thanks to a mix of deregulation and entrepreneurial activities in alternative finance spaces (M. Davis and Braunholtz-Speight 2016; Langley 2016), as well as the application of advanced mathematics, data analytics and probabilistic techniques (Lash and Dragos 2016; Hacking 1990). Following Khraisha and Arthur (2018), it involves the creation, promotion and adoption of new products, platforms, processes and enabling technologies. This process is shaped and modelled by legal structures, political processes, and even cultural differences (Wherry 2011; MacKenzie 2009).

Financial innovation is not a linear process driven by individuals but, as Mazzucato (2014) has so clearly shown, is the result of wider social factors such as market opportunities, academic research and development, and through state ‘patient capital’ investment in early-stage product development. In this process, technology, science, the environmental context, and different categories of users of financial instruments interact in an embodied expertise process (Mackenzie 2009). Beunza’s (2019) concept of performative spiral exemplifies this reciprocal relationship between investment practices, economic models and financial instruments: on the one hand, financial devices and tools lead to changes in investment practices, metamorphosing the properties of securities; and on the other, these new properties are exploited by new financial devices and economic models.

Secondly, and closely related to the above, financialisation is the result of a new type of regulation. The sophistication of financial products and practices to manage risk and uncertainty, especially from the 1970s onwards, required the inclusion of the normative and regulatory body as a core element of the innovation process. This dimension shows how financial innovation is also a political matter (MacKenzie 2009). Legal frameworks, self-regulatory mechanisms and policies are endogenous parts of the financial innovation process (Pistor 2019). Since the 1980s, financial markets have experienced a complex and ever-increasing process of financial deregulation and liberalisation focused on the removal of interest rate ceilings, the management of competition among banks, and the promotion of securitization practices to develop secondary markets.

Paradoxically, financial deregulation occurs by creating new rules to ensure the free movement of capital and the creation of complex financial products. Deregulation is therefore not equivalent to eliminating rules to relieve excessive regulation, but rather the application of regulatory power to the creation of freer, more competitive markets. In short, and strictly speaking, we argue that it is more accurate to understand deregulation as re-regulation with intent.

Thirdly, liquidity refers to the process by which the monetary value of a financial asset is created (Massó and Yruela 2017). Economists understand the ‘liquidity’ of a market to be the standardisation of products that can be bought and sold continuously at a price that everyone knows. A perfectly liquid market, then, is one in which participants know at all times what the buy/sell price is, and only one is obtained in the market. According to the classic definition provided by Carruthers and Stichcombe (1999), the spread of the financial system from the 1970s onwards presupposes the creation of conditions for liquidity in the various markets through implementing technological and legal arrangements to exchange homogeneous and standardise financial instruments in a continuous and competitive auction. As Chiapello (2015) has pointed out, however, the conditions for liquidity creates the illusion of liquidity “based on the assumption that investments are perfectly liquid and interchangeable, which is never in fact the case, since money loses its liquid form as soon as it is invested” (Chiapello 2015: 18). More broadly, we can think of ‘liquidity’ as the desire to withdraw money from financial circuits, hoarding money in its more flexible form (e.g. ‘cash dividends’) rather than investing in more ‘solid’ and inflexible parts of the economy (e.g. physical equipment and machinery for the productive process).

To sum up, these three changes have affected the nuclear components of the financial system in its institutional, organisational and technological dimensions.

Existing literature has recognized the limitations of measuring empirically this complex process and consequently its net effects on the employment relationship, social protection systems, wages and subjectivities, among other areas. This section reviews the principal contributions to the analysis of the social effects of financialisation in the employment relationship and the marketisation of daily life.

The first area concerns the impact of financialisation on employment and industrial relations. Literature on financialisation reveals a negative effect on labour costs and income distribution (Tridico and Pariboni 2018; Alvarez 2015; Hein and Van Treeck 2010; Crotty 2005). Kohler, Guschanski and Stockhammer (2018) have already reviewed the principal literature on financialisation and income inequality, concluding that there is a negative and significant association that operates through various channels requiring different empirical measures. These contributions confirm the well-known conclusion supported by Lazonick and O’Sullivan (2000) of a shift in corporate strategy from ‘retain and reinvest’ to ‘downsize and distribute’ as a consequence of shareholder value maximization.

Further research is needed, however, to identify the strengths and limitations of financialisation measures by non-financial corporations (NFCs) and their effects upon labour income distribution. As we already mentioned, the concept of financialisation is often unclear, and requires considerable attention in order to differentiate it from other ‘near neighbour’ concepts such as: privatisation, globalisation, neoliberalism, offshoring, mergers and deregulation. At the same time, the lack of a consensus on how to measure financialisation empirically leads to a plurality of indexes that serve to impede relevant advances in financialisation studies. Measuring financialisation through the capitalisation of listed companies (Tridico and Pariboni 2018) or financial income (L. Davis 2017a; 2017b) is a valid, but incomplete, proxy. Clarifying its relationship with financial costs, fixed investment, financial investment and stock variables (such as debt or financial assets) is needed to develop an appropriate measure. Advances in this direction can contribute to developments on how to link theory with empirical data in order to understand how financialisation takes place and its main effects on income distribution.

In addition, changes in corporate ownership by new financial actors – such as investment funds or private equity funds – is associated with corporate restructuring. Gospel et al. (2014), for example, have offered systematic evidence of employment reductions and decreasing labour costs. Financialisation has also changed the nature and institutional practices of industrial relations (Barradas, 2019; 2017; Gospel et al. 2014). The temporal orientation of investments to maximize shareholder value, and in detriment to the longer-term interests of the firm and workers (Appelbaum et al. 2013), has reduced workers participation and the bargaining power of employees’ representatives (Wilke et al. 2009). It must be stated, however, that the consequences of financialisation on industrial relations and social dialogue constitute an underdeveloped field of research, even though it has grown notably in the last decade.

The second area relates to the hegemonic expansion of financial values and market norms and culture into everyday life practices and discourses. A first group of contributions to this area focus attention on the effects of financialisation on individual actions and subjectivities, exploring diverse ways in which finance is grounded in practices of everyday life (Sandel 2013). As Chiapello (2015: 24-30) has stated, financial reasonings have “colonized” spaces where they were previously not present, exacerbating the configuration of new modes of subjectification, in the quest for total dominance over language and ideas we noted above.

A complementary line of research analyses the consequences of the market as the sole mechanism by which to distribute access to various economic, social and cultural resources, such as welfare (Lazzarato 2015; Farnsworth 2012). As a result, social and public policies shift the responsibility for welfare provision from the State to individuals (with the latter moving as a consequence from citizens with rights to consumers with credit cards). The erosion of the capital-labour relationship, mentioned above, is also connected to the welfare state crisis, based on a process of decommodification in the provision of goods and services. In a context whereby labour remains the formal basis of access to social rights and protection, the increasing insecurity and precarity of labour affects government revenues and by extension social and public policy, leading to greater social and economic vulnerability (Edmiston 2020; Standing 2011; 2009). This process is analysed in association with the rise in the credit-debt relationship as the new antagonistic nexus that characterises a financialised economy in which citizenship rights are increasingly substituted by contractual links to the financial systems through loans and mortgages (M. Davis and Cartwright 2019a; Lazzarato 2015; Streeck 2015). To sum up, studies on financialisation make several contributions to understanding the effects of the financialised economy on the social sphere. Definitions of financialisation vary considerably across these analyses, however. To help navigate the reader, the next section explores the main conceptualizations of financialisation in various research sites corresponding to the main economic actors and their complex relationship with financial markets.

Studies of corporate financialisation have increased significantly in recent decades. The empirical conceptualisation for NFCs, however, remains unclear and is often imprecise. Following L. Davis (2017a; 2017b; 2016), the shift in the financial behaviour of NFCs is measured empirically by analysing three different elements of corporate balance sheets and income statements. First, there is the portfolio composition and the correlative types of debt. This is done in order to find evidence of the evolution towards more intangible portfolios and their relationship with financial markets. Second, there are the various sources of income. And third, there are the characteristics of investment, which is pursed in order to examine the evolution of financial profit and investment fluxes generated by financial assets in relation to the main corporate business.

Approaches to corporate financialisation typically utilise a framework of agency theory and address the problem of maximising shareholder value (Ireland 2008; Jensen 2008). These contributions have been enriched more recently with analysis on changes on corporate ownership (Appelbaum and Batt 2014; Gospel et al. 2014) and the relationship between financialisation and investment (L. Davis 2017b; Crotty 2005).

The shareholder value orientation2 of the firm involved a new conceptualisation of management whereby it is aligned with the principal interests pursuing financial performance indicators, such as ‘earnings per share’ or ‘dividends paid’ rather than by the goods and services produced (See Froud et al. 2011). Additionally, the maximisation of shareholder value has become an increasingly dominant corporate governance ideology (L. Davis 2017a; 2017b; 2016). This results in a radical redefinition of the company as a set of financial assets, rather than as an organisation intended for production purposes.

The term ‘shareholder value’ became commonplace only in the 1980s, deployed by financial analysts as a way to increase the profitability of listed companies and to align managerial and ownership interests (Williams 2000). Later, in the 1990s, its use was associated with processes of corporate restructuring and downsizing. This was due to the predominance of shareholder incentives over productive purposes across a range of areas, such as: corporate strategies, the time frame of productive investment, profitability, the remuneration of the senior management team and the entire workforce, as well as workers’ representation and participation (Gospel et al. 2014; 2011).

Literature on financialisation has positioned short-term shareholder orientation as being a result of institutional ownership restructuring to deal with declining fixed investment rates. Total or partial acquisition of companies by institutional investors (i.e. hedge funds, equity funds, sovereign wealth funds) (Gospel et al. 2014) has been accompanied by a set of regulatory changes that support this maximization of shareholder value (L. Davis 2017a; 2017b). The relationship identified between ownership structure and investment, however, has so far failed to yield any definitive results. Some have suggested a negative relationship between financialized, or ‘rentier-dominated’, firms and investment in the physical assets of equipment, machinery and industrial plants (Demir 2009; 2007; Orhangazi 2008; Stockhammer 2004). These approaches show how ‘impatient capital’ has contributed to an prioritisation of short-term over long-term firm performance objectives. The robustness of the results across contexts and specifications, however, has caused this ‘crowding out’ hypothesis to be questioned (L. Davis 2017b). In this sense, no conclusive evidence can be drawn from this hypothesis due to the lack of an intermediate theory capable of explaining corporate financial behaviour, or to explain adequately how and why financialisation occurs in different types of businesses, sectors and national contexts.

The financialisation of the state is an emerging field of research (Karwowski 2019). Even though there is a growing number of contributions studying the privatisation of pensions (Van der Zwan 2014), new models of finance for public infrastructures and services (M. Davis and Cartwright 2019b), and government debt markets (Massó, 2016; Streeck 2015; Lemoine 2013), to date insufficient attention has been given to the conceptualisation of the role, functions and structure of the State and public administration bodies in the process of financialisation (Karwowski and Centurion-Vicencio 2018; Aalbers 2017).

Following in part the proposal made by Karwowski and Centurion-Vicencio (2018) and Karwowski (2019), we suggest that the analysis of state financialisation can be structured around two main categories3.

The first category encompasses the financialisation of the social protection systems (e.g. pensions, health, education) and organisations that support these services, such as universities and hospitals. Existing studies focus their attention on the privatisation of these formerly public services and systems as supported by regulatory and normative changes, such as fiscal benefits for owners of private pension schemes and the development of student loan markets, especially in the UK and USA. This process exemplifies the process through which financialisation as a set of values (Chiapello 2015) that is applied to essential areas of society that are basic public services (educational, health and pension budgets) and that were formerly detached from market provision. As we have suggested, it is in turning social provision and physical infrastructure into the logic of financial assets of investment and return that this new model of hegemony takes hold. For example, funded pension schemes turn contributions into deferred returns, which transforms a monetised quantification into a financialised one that has to be optimized and managed (Engelen 2003). Similar schemes can be found in education (Engelen et al. 2014) and the health systems in Europe and US (Mulligan 2016).

The second category is related to public finances. The accumulation of government debt in OECD member countries has acquired an unprecedented significance in the social, economic and political spheres of advanced capitalist societies. Indeed, the concept of the ‘debt state’ reflects a process characterised by the steady rise in government debt, which began in the 1980s in all wealthy capitalist democracies (Hager 2016; Green 1993). The mechanisms employed by states in order to finance their deficit has fostered the development of government debt markets and debt instruments seeking liquidity. In the case of government debt markets, financialisation is associated with an intense process of deregulation and financial innovation that began in the 1980s in most European countries. The financialisation of government debt markets depends on the legal restrictions to make certain types of operations related to the commercialisation of risk through financial instruments, and on the existence of a variety of authorized transactions ensuring liquidity and reducing credit risks.

The sovereign debt crisis suffered by southern European countries since 2007/8, especially in Portugal, Italy, Greece and Spain, is attributable mainly to the institutional and technological structure of these markets, which enabled investors to speculate with different types of sovereign risks. The harshest criticisms of the role played by the state in debt markets are levelled at the balance between private and general interests, as well as between the role of the state as a regulator capable of designing the microstructure of specific markets, and as a ‘lean state’ that is receptive to market pressures coming from banks, investment funds and market participants (Massó 2016).

In terms of individual and household economic practices, financialisation refers to the rapid encroachment of the financial sector into various aspects of everyday goods and services, consumption, housing, insurance and pensions. Today, financial institutions are increasingly focused on the business opportunities presented by individuals. This is the result of the considerable expansion of financial markets and the growing participation of non-bank financial intermediaries (Lapavitsas 2009: 7-8). Financialisation has revealed the emergence of new economic and financial values that are spreading to everyday economic practices, whilst at the same time disseminating new patterns of economic behaviour (Lapavitsas 2009: 8-10). Non-financial activities, and specifically private spheres, have been gradually invaded by the language of finance as part of the hegemonic process we identified above. According to Chiapello (2015), financialised valuation processes have “colonized” the everyday life of individuals and households, with basic rules of finances and private capital valuation becoming embedded into everyday personal projects and daily life more broadly (Chiapello 2015: 24-30). By participating in financial markets, individuals are encouraged to internalise a new cultural discourse, including embracing risk-taking norms and developing new subjectivities as investors and the owners of financial assets (Van der Zwan 2014).

Sociology has long-engaged with the concept of risk and its association with the rise of a marketized existence (Giddens 2006; Beck 1992). Martin et al. (2008: 122) develop a similar argument in stating that actions resulting from financialisation represent a new ontology for 21st century life, whereby risk is not only a form of rational calculation, but also a complete way of life. Risk is understood as the motivation for participating in financial markets, guided by a desire to avoid future vulnerability from possible illness, underfunded retirement or enduring unemployment. And, the state and linked public institutions have also played an active role in promoting this type of behaviour through the promotion of social and public policies that shift responsibility for social protection provision from the State to individuals, resulting in what Martin (2002) labels as “the financialisation of daily life”.

Much of this research has to date focused upon the context of the UK and USA, characterised by their liberal welfare protection model. An emerging branch of literature is beginning to consider the degree to which the financialisation of daily life is present amongst other national contexts and cultures, a direction for future research that we also encourage.