What is Financialization?

– Manuel B. Aalbers –

Many financial geographers use the term “financialization”. But what is financialization? It clearly has to do with finance and the “-ation” part suggests that it is not a state or end result but an action, something that is made. So let’s start by looking at the meaning of “finance”. The term finance is often used without any explicit conceptualization of what it means. This is not necessarily problematic; terms are often used without conceptualizing or defining them, and many daily terms are not so easy to define. Yet, it may help to take a step back and ask the question: What is finance? Google this question and one of the first answers you find is Daniel Kurt’s definition on investopedia.com:

"‘Finance’ is a broad term that describes two related activities: the study of how money is managed and the actual process of acquiring needed funds. Because individuals, businesses and government entities all need funding to operate, the field is often separated into three sub-categories: personal finance, corporate finance and public finance."

Other websites highlight that finance was originally a French term adopted into English to mean “management of money”. Finance is sometimes also considered as the equivalent of the exchange of available resources:

"Finance is not restricted only to the exchange and/or management of money. A barter trading system is also a type of finance. Thus, we can say, finance is an art of managing various available resources like money, assets, investments, securities, etc."

Combining these different definitions, finance can be considered the management of funds one owns outright, raised funds (e.g. through shares) and borrowed funds (e.g. loans) for personal, corporate or public goals.

Financialization, in its most basic terms, is then the process by which something or someone is managed as a fund. A more elaborate definition would read:

There are many other definitions of financialization and I am not arguing that my definition is necessarily the best one. Other definitions can be used, some even are more precise, but often definitions tend to be too specific and narrow to capture the essence of the process. Financialization also has been criticized, either because the concept is considered imprecise, vague and chaotic or because the presented evidence supporting the financialization claim is disputed. To some extent, the critics are right: financialization can be a very loosely defined concept that covers many processes, structures, practices and outcomes at different scales and in different time frames.

Furthermore, sometimes financialization is the explanandum (the phenomenon to be explained), sometimes the explanans (the thing that explains) and sometimes as a mechanism intervening between causes and consequences. In that sense, financialization is not that different from other concepts whose academic and media popularity rose quickly and which are simultaneously criticized for being imprecise and vague – globalization and neoliberalism are cases in point. Part of the intellectual journey of the use of concepts is that they problematize existing conceptualizations and understandings of what caused what. The literature on financialization thus is part of a larger attempt to understand the non-linear, multi-dimensional, multi-scalar complexity of contemporary societies/economies.

Manuel B. Aalbers is Associate Professor of Geography at KU Leuven where he leads an ERC project and research group on the intersection of real estate, finance and states. He is a founding member of FinGeo and the managing editor of its Working Paper Series. This blog is based on the introduction of his book The Financialization of Housing (2016), which will be published in paperback format this month.

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