How financialization undermines democracy

Adam Tooze’s Crashed – How a Decade of Financial Crisis Changed the World is an extremely ambitious project. Organised in four parts, it captures the build-up to the 2007/8 Global Financial Crisis (GFC), its unfolding and containment in the United States (US), its sequel in the guise of the Eurozone sovereign debt crisis and, finally, the political aftershocks we face today, particularly rising nationalism and the increasingly visible cracks in democratic systems around the world. Unlike other books on the GFC it sheds light on the grand narrative behind this financial turmoil, connecting the dots not just between major economic but also political events of the past two decades.

In the context of the financialization research agenda, the book identifies limitations of the current debate and avenues for future research without always spelling them out, which might be a deliberate choice given a popular readership as target audience. Therefore, this article will put Tooze’s insights into the context of the broader research agenda, focusing on three main aspects: (1) How changes to financial regulation and monetary policy pioneered by the US and UK fuelled the gathering storm of the global crisis, (2) how a fixation on secondary markets for public debt, meaning the promotion of these markets as part of sovereign debt financialization and wooing of financial investors by governments, choked off the recovery, transforming the GFC into a European crisis and finally, (3) how austerity policies are quietly transforming public provision into the basis for a new financial asset class, while leading democratic societies into a political crisis. These three dimensions map broadly onto the four parts in which Tooze presents his account, while capturing the major dimensions of financialization in the realm of monetary and fiscal policy (see Karwowski forthcoming, for a typology). Crashed documents the powerful influence that finance has on the political system, undermining democratic accountability by eroding regulatory control and narrowing policymakers’ options. At the same time, it exposes the complex and sometimes contradictory interests of the financial industry, shedding doubt on the idea of a monolithic transatlantic financial elite. Hence, finance, while extremely influential, is far from uniquely powerful, especially in situations when civil society succeeds in leading the public debate. Thus, pushing financialization research forward we need to strengthen our understanding of the interaction between finance and democracy, paying attention to the agency of specific interest groups and their representatives as well as to the type of power they are able to exercise.