October 10, 2018

Financialisation: Threat or opportunity for welfare in the Nordics?

Johannes Kananen

Adjunct professor, University of Helsinki

Nordic welfare states top every other index measuring things like happiness, lack of poverty, lack of corruption and trust. Yet, the world is changing and the Nordic countries need to adapt.

One important recent transformation is the financialisation of the economy. Finance has grown into a world of its own, with bankers acting like modern-day wizards creating double-digit returns for capital investments with new sophisticated computer-based instruments, such as derivatives.

For the layperson, the connections between finance and the real world seem obscure. The obscurity is enhanced by the fact that central banks around the world pump enormous amounts of money into the economy while governments are simultaneously struggling with austerity, cutting benefits and public budgets.

People are left with the impression that money is available for the rich while the poor have to endure endless cuts and tightening of the belt.

I would argue that notwithstanding all the obscurity, financialisation creates opportunities for Nordic welfare states aspiring towards both equality and economic prosperity. The concept of money is changing. No longer do savings create debt, as economists used to think, but in fact debts create savings. Banks and states have unprecedented opportunities to finance activities that are deemed useful and fulfil needs.

Banks and states have unprecedented opportunities to finance activities that are deemed useful and fulfil needs.

We could also start thinking innovatively about distributing risk in the economy. The most valuable economic asset is not money or capital but people’s talents, aspirations and ideas. In the context of financialisation, we need to think about money or capital as not having value in itself but as a means to realising ideas and aspirations.

And governments do not need to let markets do everything. In fact, governments can do a lot about distributing risk in ways that facilitate and promote the realisation of ideas. Capital should be available for good ideas and the risks of starting up a business should be manageable.

If we grasp the opportunities of financialisation, we could be looking at the democratisation of entrepreneurship, where the innovative and creative potential of all citizens would be recognised and where innovation, growth and employment would not only be associated with big, multinational businesses exploiting their monopolies.

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