Financialisation: needs, forms and logics

Based on the previous approaches, it is possible to build a new framework of the process of financialisation. Basically, financialisa -

tion means that people need to use financial services in order to meet a growing number of needs. These needs can be grouped in two:

The first type of need is related to the necessity to receive money and to make payments in order to lead a normal life, e.g. to receive wages.

The second type of need involves a relationship with time and relates to promotion and protection:9

• Promotion refers to the improvement in a person’s situation. For example, consumer credit could be used to buy a car which increases the possibility of finding a job, or to refurbish an apartment which improves the person’s standard of living.

• Protection refers to the need to avoid a decline in an individual’s situation. For example, a loan could be used to repair a car in order to be able to go to work but also to pay for bills that are larger than planned.

These two groups of needs (perception/payment and promotion/protection) are influenced by financialisation, in three different ways:

• Monetisation: refers to the conversion of non-monetary

elements (or parts of them) into a monetary payment. For example, before urbanisation many people produced much of their own food in their own garden. Today, home- growing is less common and food is generally bought. This is an example of the monetisation of food. The pocket money given to children by their parents could also be seen as the monetisation of a part of their parental relationship.

• Intermediation: refers to the intervention of an

intermediary (e.g. banks) between people and their money. Based on monetisation, it could take the form of a payment card to pay for the food mentioned in the previous example, or the fact that the pocket money is more likely to be put into a child’s current or saving account than his/her pocket.

• Financialisation: refers to the overall interconnection of an

individual’s financialised needs with an entity representing

a collective. This could be the financial markets or a political representation in a planned economy.

These three forms are interconnected. There would be no intermediation or financialisation without monetisation. Likewise, monetisation and intermediation are strongly influenced by the nature of financialisation.

Clarifying the link between the two groups of need and the three forms of financialisation helps to explain the link between financialisation and financial exclusion.

People need money because money is needed to satisfy a large number of needs (monetisation), and a bank account and modern means of payment are a norm to deal with money (intermediation). But if these people have no access to a bank account or to certain means of payment, it is because they are not profitable for the bank regarding the expectation of the financial markets (financialisation). Financial exclusion (the experience of financial difficulties that leads to negative social consequences) is a result of the link between the three forms of financialisation.

A fourth element needs to be introduced in order to define appropriate answers to financial exclusion: the logic behind the process of financialisation. The current process of financialisation is led by financial markets and their logic. But this logic is not the only one possible. Other principles of production and distribution can be called into play. For example, Polanyi (1944) made a distinction between three such economic principles:

• The principle of market exchange is based on personal interest. It is a contractual arrangement coordinated by

Financialisation

Intermediation

Monetisation Perception/

prices, with no influence from social relationships. What is paid equals what is given. For example, consumer credit sold by a credit card provider is led by the logic of market exchange. The lender only takes into account the supposed level of risk of the borrower, while the borrower is supposed to base his/her decision only on the price and the conditions of the offer.

• The principle of redistributionorganises production and distribution from the centre, towards which all the commodities converge before being redistributed to the members. This principle takes into account the potential irregularity of production and income. The best example of exchange led by redistribution is taxation versus payment of benefits by the welfare state or grants given by the state to students who do not have the financial resources to afford college costs.

• Within the principle of reciprocity, the exchange is still inter-individual but it is influenced by the nature of the relationship and the collective interest. There is no strict equality in the exchange but this could be compensated for at a later stage by the person who received the service or by another member of the group. For example, the credit union movement (or cooperative banks) lends to its members at a price which does not perfectly reflect their level of risk but includes their membership of a community (i.e. a common bond).

Both redistribution and reciprocity acknowledge that each individual is a member of a community, while market exchange relies on an asocial contract. Furthermore, market exchange is only led by individual interest, while redistribution and reciprocity take into account collective interest. Despite such differences, these three economic principles are always simultaneously present in every society, even if one is dominant.

Of course, these principles are just conceptual tools which clarify the different logics that lead production and exchange. It is possible to link the different pieces of our framework (needs/forms/logics) in order to advance the following theoretical description:

current account in a commercial bank (market exchange), in a public bank (redistribution) or in a credit union (reciprocity). Each of these account providers is inspired by a different logic which affects the terms and conditions applied to their customers. Public banks and credit unions are usually seen as playing a greater role in financial inclusion by opening accounts for people who would be refused by commercial banks.

• In relation to health care (protection), it is possible to have private insurance (market exchange), to benefit from the welfare state health care system (redistribution) or to subscribe to a health insurance cooperative (reciprocity). The individual customer will be offered different terms and conditions (the way the risk is assessed, the cost of the premium, the rate of reimbursement of heath costs, etc.) in each instance.

• In order to improve employability (promotion), a student may work towards upskilling with the support of a loan from a commercial bank (market exchange), a loan from a credit union (reciprocity) or a grant from the state (redistribution). Again, the individual student will experience different costs and conditions of access in each instance.

These three examples show that increasing financialisation does not necessarily mean a greater influence of market exchange logic. For example, financialisation developed through public banks and a planned economy does not have the same consequences (better or worse) as that led by financial markets and market exchange logic. So it is now possible to rephrase the definition of the financialisa - tion of society.

The financialisation process influences the way people (or firms, or state) meet their needs (reception/payment – promotion/protection) through the rules and norms applying to access to and use of money, banking services and financial services. These rules and norms reflect the dominant logic of the financialisation process (market exchange, redistribution, reciprocity).

financial exclusion. It will explain why financial exclusion developed so much during the past thirty years that its prevention has now become one of the dominant policy priorities of the European Union.