Financialised economy context of modern firms

“What is needed is not more finance, but better finance. Yes, this might also end up as substantially less finance”. Martin Wolf, FT

Financialisation could be seen as the process of changing the perceptions on the modern economy. With growing influence of financial institutions we could say, that there are new things that are being analyzed while discussing the modern economies. There are several ways to analyze the level of financialisation of the economy, one of them is the ratio measured by dividing the size of the financial market size on the GDP of the country. Later we could use the term – rafinantio– to discuss this proportion.

The percentage or the rafinancio of the country defines the level on how financialised the economy is. Some authors  (Kindleberger and Aliber, 2005) argue, that financialised economy is the future of the capital market economy, Martin Wolf in the Financial Times article, “Why Finance is too much of a good thing” asks an interesting question, which helps the reader think about Financialisation in a different way. The article discusses whether it is possible to have too much finance (Martin Wolf, 2015).

Based on the research and analysis by IMF, the author argues that at some point, too much finance causes harm – damages economic growth, causes crisis, corruption and so on. The article offers some advice on what should be done in order to avoid further problems caused by excessive finances, like be more moral, and reduce incentives and so on. But the real question is, after what point is finance too much and harmful? Does rafanantio matter? What is better finance? In my opinion, relying on the growing morality is no real answer. What should be done is for the country to define the point, where the finance causes harm, not progress. I think they should decide to encourage innovation and production, although not by subsidizing specific industries, as it is well-known among economists, that the subsidies reduce economic surplus.

Leave a Reply

Your email address will not be published.