Economic sociology

Impacts of Finance & Financing of Impacts (session 3 of 3)

June 30, 2021 10:45
June 30, 2021 12:15

Lena Ajdacic, University of Lausanne; Felix Bühlmann, University of Lausanne; Fabien Foureault University of Lausanne; Noé Kabouche, University of Neuchatel & Sciences Po, Paris; François Schoenberger University of Lausanne


Olivier Godechot and Nils Neumann, Sciences Po – Paris

Antonis P. Masonidis, Ionian University

Lena Ajdacic (presenter), Felix Bühlmann, Fabien Foureault, University of Lausanne

Since the 1970s, financialization of economic life has turned finance, financial behaviors and financial mechanisms into omnipresent companions of our everyday life. Financialization is defined by Krippner (2005) as a “pattern of accumulation in which profits accrue primarily through financial channels rather than through trade and commodity production”. This evolution goes along with a massive spread of investment activities into social life, involving citizens in financial schemes (Boussard, 2017; Carruthers & Arriovich, 2010) and granting financial institutions a growing influence in domains such as politics, culture or health alike. In this workshop, we would like to discuss the concept of financialization and the impact finance has on governments, firms and individuals.

On the one hand, we shall examine the impacts of financial activities on our societies (Arrighi, 1994; Tregenna, 2009; Godechot, 2012; Lazarus, 2020). What influence does finance have on politics and policy making, for instance in the domains of taxation, housing or welfare? How does financialization transform business, corporate governance and organization of the economic processes (Davis, 2009; Baker & Smith, 1998)? How does financialization influence the distribution of wealth, risks and income? How does finance affect social justice and social equality (Lin & Tobias Neely, 2020)? From the aftermaths of financial crises on households to the inequalities of remuneration within financial institutions, we are interested how finance impacts our lives.

On the other hand, we would like to examine the concept of impact, but backwards, by focusing on a movement of finance that aims at investing in positive social impacts. Sustainable finance denotes practices that link social and environmental justice to financial activities, through authority of state and regulation (Chiapello, 2015; Knoll, 2015, 2019), as well as through action of NGOs (Soule, 2009) or private initiatives, with responsible investments (Sparkes & Cowton, 2004). Today, the actors of this sector claim that the financial sector has a major role to play in the main social challenges of our time, advocating for the spread of social and ecological investments, for instance known as microfinance, ESG investing or impact investing (Barman, 2015; Gregory, 2016; Höchstädter & Scheck, 2015).

For this workshop we welcome contributions from all theoretical and methodological approaches. Our aim is to create a dialogue between research papers that focus on one or both aspects of this proposal. This discussion shall enable us to think about the place and the role of finance in the current issues related to social justice in Switzerland and beyond.

Keywords: financialization, morality and markets, sustainable finance, inequalities

Booms and Busts – Financialization and Income Inequality before and after the crisis 

Olivier Godechot and Nils Neumann, Sciences Po – Paris

Since the manifestation of the current Corona crisis, there has been an increased public awareness for income inequality. For instance, the public and prominent acclamations for health workers and supermarket cashiers at the beginning of the pandemic were quickly followed by demands for better pay for these professions. The focus on low-income groups in the debate however – as important as it certainly is– is ignoring the finance sector. This sector in particular has attracted much attention in scholarly debates and contributed to a large increase in income inequality over the last decades. 

Recent studies show with remarkable unanimity that finance was a major driver of income inequality before the financial crisis and throughout the 20th century. As is a well-established finding by now, this effect is most visible at the very top of the income scale where financiers have experienced by far the largest income increases. For instance, from the early 1990s onwards half of the increase in the top 1% share went to employees in the financial sector in Sweden, as did 45% in France, 36% in Denmark, and a fifth in the United States, Germany, Canada, and Norway. However due to a lack of sufficiently detailed data, it is unclear what happened after the crisis. This gap in research on the one hand and the lack of clarity about the exact mechanism that propels this trend motivate this paper. Two trends in particular further drive our interest in the post-crisis era. The first is the decline in financial activity in most countries as measured by the volume of transactions on national stock exchanges. While the size of the financial sector continued to grow in the build-up to the financial crisis, this trend seems to have reversed for most advanced economies in the years that followed. It remains puzzling whether this decline in activity has led to an equivalent decline in income inequality and what role other developments such as increasing marketization of debt financing play here. The second trend that we want to investigate is the heightened regulatory efforts of international financial regulators with regard to both capital requirements and remuneration policies of banks. For instance, the increasing capital requirements through Basel 3, the decreasing profitability due to the Volker rule in the US, or the introduction of the so-called bonus cap in the EU may reduce profitability and remuneration of bankers and thus income inequality. 

In this paper, we present a comprehensive data base to trace and compare the trends of the pre- and post-crisis era. We do so by using administrative data from 1990 to 2017 on nine countries (Godechot & Neumann January 2021) (France, Denmark, Norway, Sweden, Canada, Germany, Spain, Hungary, and Japan) developed as part of the collective COIN project (Tomaskovic-Devey et al. 2017), and the results of the CPS survey for the United States. Furthermore, we use disaggregated company level data to examine the effects of different regulations on banker’s remuneration. To do so we employ COMPUSTAT data which is available from 1991 to 2017 and a self-collected dataset on remuneration of bankers from Bank reports, from 2010 to 2019 in 13 Countries (Germany, Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, Netherlands, Spain, Sweden, United-Kingdom).

Twinning this increased interest in sustainable investment is a widespread urge to standardize the reporting and evaluation of sustainability data to create a legitimate and efficient market for sustainable investment and to avoid claims of greenwashing. Once again, the tradition runs deep: from Sullivan principles adopted in 1977, which laid out corporate social responsibility requirements, to UN Global Compact 2004, which urged the incorporation of sustainability metrics into corporate practice, to European Union Green Finance Taxonomy that went into effect in 2020, many intergovernmental and non-governmental organizations are working to create standardized reporting and evaluative metrics for corporate sustainability reporting. For instance, in 2020, the five biggest standard setting organizations, International Integrated Reporting Council (IIRC), Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), Climate Disclosure Standards Board (CDSB), and Carbon Disclosure Project (CDP), announced that they would collaborate in creating a globally accepted taxonomy for integrating sustainability concerns into financial decision-making.

In this paper, I argue that these collaborative efforts to create standardized metrics for integrated reporting serve as epistemic alliances, which draw from a plethora of ways of thinking in bridging the divergent registers of valuation denoted by sustainability and shareholder primacy. By merit of negotiating the legibility, accessibility, and the value of assessment criteria for financial decisions (Power 2003), these epistemic (and political) alliances “structure the unknown” (4, Waterman quoted in Weick 1995): They “shape the preferences, organizational routines, and the forms of visibility” (379, Power 2003) around sustainable financial practice, and in doing so they both legitimate the place of sustainability within finance and craft sustainable investing as a “tangible, transferable, and marketable” (290, Shore 2008) asset. Barring the inherent violence entailed by most abstraction and standardization (Carrier 1998; Mirowski 2010; Stevenson 2014; Kirsch 2020), this purposeful move for standardizing ESG reporting promises to become a form of bureaucratic care (Stevenson 2014). This kind of care depends on tinkering with different ways of incorporating sustainability into finance, including models, calculative devices, and narrative framings (Mol 2008). In the end, the potential success of this kind of care depends on its ability to create a new investment tense (Povinelli 2011) that seeks to reconcile the short-termism of shareholder primacy (Fligstein 1995; Ho 2009) and the long-term view of sustainability “hinging on the means of financialization” (359, Tellmann 2020).

Keywords: finance, Inequality, remuneration, financial regulation  

Forward contracts in a financialization economy: The case of Greece in the early 20th Century

Antonis P. Masonidis, Ionian University

In the early 20th century Greece was characterized by inequalities between economic and social progress on the one hand, and disparities in the aftermath of the independence wars and political turbulences. Furthermore, the lack of a developed financial sector, which could boost transactions and the economic development, was affecting primarily the lower productive classes.

The main objective of the proposed paper is to investigate the details of three presale commodity contracts that were signed at a city of the Greek periphery (Preveza), in the early years of the Great Depression. The underline commodities were fish, milk and olive oil.

A commodity or forward contract, in the financial literature, is a non-standardized contract agreement between two parties to buy and sell an asset at a specified future time in a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument. The economic aspect of those types of contracts is significant. In a more generalized form, derivatives were instruments developed to secure the supply of commodities and trade, as well as to insure farmers against risk (crop failures, price fluctuation etc). They also served as a source of funding and for speculation profits. The seller, who usually was the producer of the commodity (cultivator, farmer etc), mostly needed an initial money capital which could not obtain due to the defective credit system or/and to minimize the risk of price fluctuation. The buyer of the asset was a merchant with cash money in hand, with two main objectives: Firstly, to achieve the lowest price possible for commodity to be delivered, and secondly to have a guaranteed delivery of a product of specific quality. 

Although this kind of contracts has significant importance for the capitalized economy in finance literature, in Greek historical literature they have been overlooked or at best criticized. The buyer of the contract, taking advantage of the lack of money capital acts as a lender. Therefore, the buyer could impose more execrable terms, such as extremely low wholesale prices, which can deviate up to twice the purchase price, effectively blocking the seller's property when the latter could not meet the terms of the contract.

The purpose of the proposed paper is to present some almost impecunious transactions of the local economy, the customary law that governed the contracts, and the impacts of the settlement price. The case becomes more interesting due to the fact of the absence of an exchange – a marketplace operated within a legal framework, providing buyers and sellers the infrastructure, that is, the contract specifications necessary to facilitate forward trading.

Within the fragmentary study of the contracts, we will seek to present some evidence to the following question: whether the lack of financialization and the aftermath of a sufficient amount of monetary capital in the market economy, in times of uncertainty, creates the necessary conditions for unfair settlement prices, distribution of wealth and income, leading consequently to social injustice.

Keywords: Commodity contract, forward contract, market economy, presale, money, capital, social injustice, financialization, Greece

Getting on in finance: sources of resilience for women on the way to the top

Lena Ajdacic (presenter), Felix Bühlmann, Fabien Foureault, University of Lausanne

Good luck finding a woman in the executive suites of high finance. In banking, women hold less than 2% of all CEO positions and in hedge funds, 97% of partners are white and male. While other previously male dominated industries such as medicine and law gradually lost their exclusiveness, finance remains a male bastion with a strong “old boy’s culture” and high promotion barriers for women. This paper looks at those women who succeed against the odds. Research has identified several mechanisms that work against women’s career advancements in finance such as homophily preferences, the perpetuation of sexist organizational cultures and lacking family policies. We contribute to these research efforts by studying the women who managed to overcome such career obstacles.  We advance the hypothesis that I) women who reach the top outperform male managers in key resources that increase the possibilities of getting ‘on’ within organisations. This is contrasted to an alternative way to success, which could be labelled “the women’s path to the top”, following the hypothesis, that II) women who reach the top dispose over specific resources, which men lack. The study relies on a stratified sample of top managers in large US financial companies, specifically in hedge funds, private equity funds, investment banks and mutual funds. We use data on socio-demographics, lobbying and leisure networks, and educational backgrounds from 2005 (n= 2’052) and 2018 (n= 1’706) BoardEx data. To study the sources of resilience these female achievers’ profit from, we apply network and regression analyses. Preliminary results indicate that in terms of racial homophily, more women than men are white, but they do not outperform men in terms of educational backgrounds. We further find that they use a variety of women specific networks, possibly as a means to compensate the lack of access to established old boy’s networks. Our results contribute to the literature on gender inequality within a particularly male dominated industry by focusing on the resources rather than on the obstacles women face. This research matters, because women have been shown to differ from men in terms of investment decisions, sex-based biases and salary policy preferences. Not at least, policies, which would support women’s resilience in career progress, would work towards a more egalitarian income distribution between men and women. 

Keywords: gender, finance, resources