Financialization can seem an abstraction too far. The sheer length of the word suggests an academic boondoggle is at hand. But anyone who has taken an air flight in the past twenty years has had a first-hand encounter with financialization. I won’t bother with a description of the conditions on air flights today.
Up to the 1980s, business managers concerned themselves with building good products and services, developing and retaining a productive workforce, keeping customers happy, and by definition, these strategies would increase sales and deliver competitive levels of profit. In the 1950s and ’60s, CEOs earned around 24 times their average employee.
The Social Responsibility of Business Is to Increase Its Profits
Starting in the 1980s, management changed its focus to how to achieve the highest level of profits in the next quarter. This was in response to a shift in the purpose of business to a profit maximization strategy. This is usually typified by maximizing profits in the shortest time possible time, usually as seen in quarterly results reporting for public companies. This follows Milton Friedman’s 1970 essay in the NYTimes, “A Friedman doctrine‐- The Social Responsibility of Business Is to Increase Its Profits“. Business schools, the business press, and consulting companies piled on to make this a central theme of management.
This change in management objectives was accelerated and intensified by changes in the compensation of top management. They found that their personal financial future was directly tied to this very short-term objective. Their compensation became bloated with incentive stock options and bonuses tied directly to immediate financial results. Stock buybacks multiplied the value of stock option packages. Today, the ratio of CEO to average worker pay is over 350 to 1.
From production to extraction
The results are what I refer to as the transition from production to extraction. In the airline industry, this meant cramming more and more people into airplanes. Thus, narrower, less well-padded seats in rows with such little spacing that even a guy like me, 6″1″ tall, finds his knees bang up against the seat in front. God forbid that person wants to tip their seat back. On most flights in the US, food and drinks are now minimized. Checked bags are charged extra. The list of extra charges is now so long that I will not list them all here. The point is that the airlines are now caught up entirely in the expectations of investors for immediate, maximum profits.
Next Time You Are on a Flight
recognize that the conditions are not the result of some natural functioning of capitalism. No, they flow from financialization, which is enabled by changes in laws and regulations and driven by investors’ demands for immediate maximal rewards.
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