(COVID) Crisis in a Financialized Economy and Alternative Regulation

Faruk Ülgen

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Abstract: Drawing upon the 2007-2008 global crisis and the current Covid pandemic, this article aims to show that since the 1980s, the organization of the economy in a liberal way transformed public financial regulation into market-relying self-regulation that led to persistent crises. The article maintains that the financialized accumulation regime generates endogenous inconsistencies and proves to be unable to ensure systemic stability and long-term viability of society. An alternative financial regulation resting on preventive collective action seems to be a relevant way to provide society with a sustainable and progressive financial system. The ill-management of the Covid crisis is related to the socio-economic framework that rules societies and economies around the world since the 1980s. The evolution of capitalism rests on speculation-led accumulation process that deepens inequalities and puts collective projects and goals on the back burner. This evolution, also known as financialization, is based first and foremost on the primacy of short-term profitability. Relying on individual (micro) rationality, it is unable to conduct market activities from a macroeconomic perspective to ensure the development of society. Although individual market strategies can be regarded as rational actions, the systemic financial stability cannot be achieved by market mechanisms. In a capitalist economy, financial stability is to the viability of society what public health is to the lives of citizens. Both require the oversight of a visible public hand. Drawing upon institutional economics this article then shows that systemic dysfunction of capitalist finance does reflect the dysfunctional organization of society in which collective action has been abandoned in favor of the doctrine of efficient, self-regulating markets. Recurrent crises, caused by the imbalances generated by laissez-faire economics, are the main threats to the sustainability of an open, innovative and progressive society. From this perspective, the regulation of financial systems is of paramount importance and calls for alternative models of collective action that should determine the conditions of exercise of private financial institutions according to the goals of a sustainable economy respectful of both people and the environment beyond the conservative individualistic doctrines.

Keywords: Financial crisis; financial stability; institutional economics; regulation (search for similar items in EconPapers)
Date: 2024-04-13
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Published in American Review of Political Economy, 2024, 18 (2), 12 p. ⟨10.38024/arpe.244⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04546806

DOI: 10.38024/arpe.244

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