To Boost Prosperity, We Must Shrink the Financial Sector | Time
▻https://time.com/5740415/prosperity-financial-sector
“Finance” has two interconnected parts. First, the financial sector itself: banks and insurance firms, along with more esoteric, less regulated players: hedge funds, private equity firms, exchange traded funds, and many more. The second part involves the penetration of financial tools, techniques, motives and institutions into the non-financial economy, from manufacturing to agriculture to tourism.
I first grasped the idea that more finance can make us poorer while spending years living and writing about oil-rich countries in west Africa, which have suffered a so-called “Resource Curse”. It’s not just that the elites steal the oil money (though there is plenty of that): in many cases their oil wealth seems to have actually impoverished their citizens. It was certainly true when I lived in Angola in the 1990s, amid an oil- and diamond-fueled civil war.
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There are also big differences between finance and oil, of course. One involves that penetration of finance into other economic sectors that I described: academics call it ‘financialization.’ Its techniques include loading up real companies with debt to boost immediate returns, using tax havens to dodge taxes or regulations, corporations buying their own stock to goose short-term financial returns (and executives’ stock options), or amassing monopoly powers to extract wealth from consumers, workers and suppliers, and delivering them up to shareholders. Instead of drilling for oil in the ground, they are drilling into main street businesses and into our pockets. This isn’t supporting wealth creation, it’s wealth extraction.