Even though it’s been around 16 years since the onset of the 2008 financial crisis, its relevance persists as we are still contending with its economic and social repercussions. The crisis of 2008 laid bare the broader impasses confronting the capitalist system globally. The handling of the financial crisis, particularly the government bailout of large investment banks in the United States, Germany and France, as well as commercial banks in Greece, underscored the systemic nature of this crisis.
This process saw financial entities accruing greater economic and institutional power, often with state assistance, which in turn led to a relative weakening of the state vis-à-vis financial capital. This represents a gradual shift in the regulatory paradigms or mode of regulation for the countries undergoing this transformation. In essence, a mode of regulation is a set of rules and procedures that ensure the perpetuation of existing institutional structures, support and oversee the accumulation regime and constrain the knowledge required for individual action. The stability of an accumulation regime hinges on the emergence and adaptability of such regulatory mechanisms.
Within this context, in order to navigate past the 2008 crisis and safeguard each nation’s domestic and global accumulation regime, strategies of labour relations deregulation were embraced. These strategies encompassed wage reductions, labour market flexibility, and consequentially, a decline in employees’ bargaining power. However, the decline in earnings or the financial strain experienced by employees hasn’t been uniform across all sectors. A striking example of this divergence is the increase in earnings inequality between employees in the financial sectors and those employed in other industries of the economy.
Over the past few years, there’s been a growing interest in understanding the reasons behind this widening wage gap. Some economists argue that the faster growth of relative wages in the financial sector stems from higher labour productivity among its employees compared to other sectors. The main idea behind this argument is that the rapid expansion of the financial sector has attracted skilled and highly educated workers away from other sectors. Thus, their higher salaries are a fair compensation for the better skills they have and their higher productivity.
Furthermore, financial liberalisation, the process of removing state rules controlling the way banks and other financial organisations operate, a procedure that started in the late 1970s and early 1980s in the US and UK and then spread to most other economies, often involves loosening regulatory constraints on their employees as well. This increased freedom allows them to innovate with new products and services and adjust prices accordingly. But the question remains: Are employees working in the financial sector indeed that more efficient than employees in the rest of the economy?
While it may seem logical that highly skilled workers gravitate towards the financial sector due to its higher remuneration, thereby enhancing productivity, this argument oversimplifies the matter. Conversely, numerous studies support the idea that the development of the contemporary finance-led growth regime perpetuates this trend, as financial ‘rent sharing’ within the sector drives up relative wages. Very often that happens at the expense of employees in the rest of the economy. Specifically, studies show that financial deregulation amplifies the profitability of the financial sector. The relevant literature refers to rent sharing, explaining that the opening of profit margins of financial-sector businesses enables firms within it to afford higher salaries and bonuses. The origin of these rents, a concept implying unearned income from a Marxist perspective distinguishing between productive and unproductive labour, seems to redirect resources from more productive activities and productive capital towards the financial sector, exacerbating wage (and other) inequalities in the rest of the economy.
This situation serves as an example that, depending on the phase of the wealth accumulation and distribution process in which the system finds itself, it needs to create indirect and direct alliances with segments of the labour force, shaping the appropriate mode of regulation to ensure the smooth continuation of the accumulation process. In doing so, it forges social alliances, forming support bases for dominant groups in the sense that a significant part of the working world perceives its interests as identical to those of the dominant groups, otherwise necessary conditions for the reproduction of the latter.
By extension, this alignment of interests also takes on a political dimension since socioprofessional groups tend to support conservative parties. Conversely, workers in other sectors of the economy experience both indirect pressures, such as increased work demands and a heightened sense of competitiveness, and direct pressures, including declining wages and limited purchasing power. This dual burden exacerbates wage inequalities and intensifies polarisation among workers, contributing to a tendency towards conservatism.
With this in mind, the financialisation of modern economies might be viewed as a triumph of neoliberalism in mitigating the fallout from the crisis. However, a deeper examination of the underlying mechanisms reveals that the system grappled with a structural crisis for which it was unprepared, given its reliance on the narrative that crises are externally driven phenomena rather than products of internal operational dynamics. The reliance on financialisation as a means to navigate crises highlights the inherent fragility of a system propped up by speculative finance rather than sustainable, productive investment. Nonetheless, reality dictates that these contradictions precipitate serious economic and social ramifications, containing elements that could trigger subsequent crises across economic, social and political spheres that disproportionately impact the most vulnerable members of society.
Iris Nikolopoulou is a research at the Social Dynamics and Recomposition of Spaces Laboratory (LADYSS – CNRS) at Université Paris Cité.
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