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	Sustainability requires the End of Financialisation by Kristian Weise Social Europe Journal   To some it will be simple and obvious, while for others more complicated and perhaps even novel. But the point still has to be made: we will not achieve economic and social sustainability unless we see an end to financialisation and the emergence of a new economic (growth) model.   Today, the predominance of finance and financial priorities in business and politics – what is called financialisation – poses a threat to sustainability in three ways. First, and as we have come to know at great cost, finance-dominated economies are more prone to severe economic crises and recessions. Secondly, an ever greater share of economic activity concentrated in finance means that less money is invested in the productivity of the real economy.   In consequence, our economies grow and develop much slower. Thirdly, when finance dictates business strategies as it does today and investment in productivity is on the return, labour markets too take a hit. Job creation is stifled and precarious work is the name of the day. Hence, financialisation goes hand in hand with increasing numbers of working poor in unattractive service sectors.   But, first and foremost, what is financialisation? In short, it is what has been happening to our economies and in corporations over the last 30 years or more.   Financialisation captures our present situation of financial markets determining the state of the overall economy, and of financial demands dictating company behaviour. It means that developments in interest rates, bond spreads and stock prices increasingly shape economic cycles and that financial concerns, and those who voice them, are ever more influential in setting corporate strategies.   It is the predominance of financial activities over production of goods and services. And it can be vividly seen in the growing dominance of the financial industry in the total sum of economic activity.   In the 1970’s profits in the financial sector averaged 15-20 percent of overall profits in the US. In the first ten years of this millennium, the figure was 35-40 percent. And that has happened in a period, when total corporate profits have been rising as a share of US GDP.   Financialisation has become today’s face of capitalism through changes in all parts of the economy. At the company level, it is linked to the ‘shareholder value’ approach to corporate governance. It encourages financialisation of the company by maintaining that the purpose of its existence is to maximise the value of its shares rather than its long-term profits.   Inherent in this logic, the company is seen as a bundle of assets that generate different returns on investments, and the company’s purpose becomes to increase profits in the short-term by manipulating such assets through mergers, acquisitions, sell-offs and the like.   In relation to investment, financialisation is linked to deregulatory reforms of the investment chains, creating so-called dis-intermediation between owners of capital and the final destination of their investment. Coupled with market liberalisation, this has allowed financial operators to operate in a vast investment universe, involving investment and trade not only in real assets, such as debt and equity, but also in market expectations and risks in the form of a plethora of derivative products such as different options, futures and swaps.   From making up more or less the same amount as global GDP in 1980, financial assets reached the value of 212 trillion dollars or the same as 3,4 times global GDP by the end of 2010. Financial transactions equalled 15 times global GDP in 1990. Today it is more than 74 times. And the trade in financial activities is increasing 50 percent faster than trade in other goods and services.   In politics and policy-making as well as in relation to the overall state of the economy, the story of financialistaion is almost too well known. In Europe politicians have spent most of their time and tools over the last three years trying to satisfy ‘the markets’ and not much else. And in the US, it was the rumour of a possible downgrade of the US economy by one single credit rating agency that almost turned the weak recovery into a new recession in the first days of August 2011.   Well, back to sustainability.   As noted, finance dominated economies are more prone to economic crises and recessions. Researchers have found 148 examples of financial meltdowns since 1870, where a country’s economy has decreased by 10 percent or more. Through the last decades, such crises have become more and more frequent – from the savings and loans crisis in the US in the 1980s, Japan’s lost decade in the 1990s, over the Swedish, Mexican and Argentinian crises to the great financial crisis in South East Asia starting in 1997, the dot.com crisis and the Great Recession that we are still in today.   According to the IMF, financial crises on average last 18 months longer than other recessions, and it takes almost 3 years to recover pre-recession output levels. As professors Reinhart and Rogoff have shown, government debt has on average increased by 86 percent after severe financial crises.   And employment? It falls far behind… just how much is something we are still learning today. Think about youth unemployment in a country like Spain and the figures (closing in on 50 percent) are incomprehensible.   But economic and social sustainability is about more than the costs of crises. It is, fundamentally, about ensuring some kind of progress for all. Here again, financialisation is a threat.   The most important factors in ensuring economic development and labour markets that provide growing opportunities is investment in education and production (or what economists call capital formation). But as more money has poured into finance, it has been lacking in the latter. Indeed, from the 1990s onwards – when financialisation really took off – investment in the real economy has been on the retreat. There are several reasons for this. But one clearly stands out: the impatience and short-term orientations of financial investors.   When there is no substantial investment in the productivity of the real economy, there is nothing that can ‘trickle down’ to ordinary workers. Hence, the economy becomes more and more polarised – with inequality reaching levels not seen since 1928 in the US, as a witness to this – and the single most dominant job creation are precarious service sectors jobs.   Indeed, in a new EU-study it has been found that in the last two years this pattern has been strengthened: job destruction has been greatest in high- and middle-income jobs, while most new activity has been in lower-paid employment of the temporary and part-time kind.   If we are ever again to see a positive and sustainable circle of economic development and social progress we must see an end to financialisation. Visit the related web page
	Why is a human rights approach needed in financial regulation? by International Network for Economic & Social Rights   Protests are rippling from Wall Street to all parts of the globe, and the ongoing effects of the financial and economic crisis have brought home to people worldwide the intrinsic connection between financial regulation policies and the social contract in any given society.   This is in stark contrast to the two particular myths prevailing before the financial crisis. The first was that private financial firms could be trusted to exercise self-regulation. By seeking out their own self-interest, it was argued, the firms would inevitably end up pursuing the behaviors that were optimal, ultimately, for society as a whole. Government regulation was seen as an intrusive attempt to second-guess the outcome that market forces in their free interplay would achieve. Another prevailing myth was that the framing and design of financial regulation must be reserved to certain trained experts, only ones qualified for the job because of their understanding of the technical complexity of financial markets. Technocracy was to rule the market, not the rest of democratic society.   The financial collapse and its aftermath represent a moment of awakening about the interdependence of financial regulatory choices with a broader set of public interests. In a resolution issued in 2009, the Human Rights Council -the world"s foremost human rights organ--recognized the "negative impact of the global economic and financial crises on economic and social development and on the full enjoyment of all human rights in all countries."   Three years after the crisis, indeed, basic human rights continue to be affected. The impacts on budgets due to lower revenues and the rescues of financial firms generated knock-on effects on sovereign debt that have become today sources of uncertainty and the sources of a looming new crisis.   After an initial period where governments were encouraged to increase social spending to counteract the crisis, a recent study reveals that 91 countries have either significantly reduced expenditures or on their way to reduce them next year-with social protection, old-age pensions, wages, education, healthcare and social security facing serious cutbacks, leaving deep, long-lasting scars upon people"s well-being and basic dignity.   It is estimated that more than 40 million people around the world were driven into hunger as a result of the 2008 food price crisis. While the food price inflation may be partly due to fundamentals of demand and supply, the Special Rapporteur on the Right to Food found evidence that such developments "were exacerbated by excessive and insufficiently regulated speculation in commodity derivatives."   Now more than ever there is a need to counter-balance the often myopic views of financial experts with a broad array of social groups (consumer, labor, women, environment, indigenous people, and other "human rights-holders") in the design of financial policy. Reciprocally, democracy in any meaningful sense rests upon a legitimate contribution of all people to the design of public policy, including related to financial regulation.   But if this is true, the human rights considerations cannot be addressed only at the apex of a crisis to mitigate or remedy the consequences. Forward-looking steps are needed if financial regulations are to prevent crises or ensure their effects do not unjustlly harm ordinary people. Human rights principles and standards-including participation, transparency, equality and non-discrimination and above all accountability-must form the cornerstone of financial regulatory efforts from the design to implementation to monitoring stages.   Fundamental human rights-as laid out in the International Bill of Rights--must be the primary consideration in decisions on the generation and the allocation of public resources, employment, the provision and access to essential reproductive services, and many other public policies. International human rights law requires governments to protect people from abusive behavior by the private sector-including financial actors-which leads to human rights harm.   Nonetheless, whatever role human rights considerations play, choices on whether to regulate or not to regulate the financial sector, and how, will have clear implications for the extent to which governments can ultimately fulfill their commitments in those areas. In extreme cases, an economic emergency situation might result, as we have seen, in democratic political processes being swiftly brushed aside to respond to a crisis.   Of course, this argument may make perfect logical sense but, for those working on the trenches of human rights advocacy and defense, getting involved in financial regulation matters is much more easily said than done. In fact, the second myth referred to above was more than a belief. It was consistent with the reality that, on account of their technical and complex nature, financial regulations have typically been hard to access but by a few experts. This made those regulations easy to capture by the lobbying of large and well-resourced financial firms and experts on their payrolls, while impairing access by, and accountability to, the broader public.   "A bottom-up approach to righting financial regulation" is an initiative that seeks to build the capacity of human rights organizations, grassroots and social movements to engage in the financial regulation debate, assess the human rights merits of alternative approaches and their trade-offs, and determine priorities, always taking as a starting point the interests of the constituencies they serve.   * Visit the link below for more details. Visit the related web page
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