The Political Economy of Financialization in the United States, Europe and India

The quantitative growth and increased social prominence of financial institutions and markets can be usefully seen in terms of the constraints or ‘discipline’ they impose on other private and public decision makers. The role of finance in allocating real resources may be less important than its role in supporting the claims and authority of wealth‐owners vis‐a‐vis other social actors. This article discusses the political economy of financialization in the United States, Europe and India. In the United States, the latter role is most visible in the pressure non‐financial corporations face to increase payouts to shareholders. In Europe, the financial constraints on national governments are more salient. Tightening these constraints is openly acknowledged as the major benefit of financial integration, yet, on the other hand, the constraints financialization imposes on policy may also limit the extent to which finance can in fact be liberalized. This countervailing pressure is visible in the great expansion of central banks’ balance sheets and management of financial markets over the past decade. It is even more clearly visible in India, where the conflict between financialization and concrete policy goals has sharply limited the extent of liberalization, despite consistent rhetorical support.