The recent economic crisis has demonstrated that the strong interrelationship between the financial sector on one side and the economy and society on the other is not without risks. In the project Financialisation, the Council explores this interrelationship, and the options for dealing with it where policy is concerned. The Council calls for a broader vision which includes both the sector and society in its scope, and makes suggestions aimed at creating a more robust financial sector and strengthening the organisation of politics and policy.
Political and public debate
The crisis has led governments to impose drastic measures to save the financial system. However, the political and public debate that has erupted has concerned primarily the issue of how changes within the financial sector can increase stability. The fact that the financial system is strongly interrelated with the broader economy and society is often disregarded.
Major impact financial markets
That interrelationship has become so far-reaching in recent decades that we can speak of a process of 'financialisation', i.e. the ever-increasing role of financial motives, markets, and institutions in the way economies and societies function. One example is the increased relevance of private debt to the development of consumption and thus of economic growth. But there is also the major impact that financial markets have on the behaviour of enterprises; managers now aim for mergers and takeovers more than they used to, and they focus strongly on the share price.
Sustainable economic development
The research project is focusing primarily on the interrelationship between the financial system and the real economy. The key questions here are:
- What are the different functions of the economic system, and how are they distributed within the current financial system, specifically in the Dutch financial sector?
- How does the financial sector contribute to the real economy? How can we measure and evaluate that contribution?
- What characteristics of the financial sector affect financial stability, or may cause the economy to become unstable?
- What national and/or international measures are necessary to make the financial system contribute to financially sustainable economic development?
The project has culminated in the publication of the WRR report 'Finance and Society: Restoring the Balance' (Samenleving en financiële sector in evenwicht).
The enormous dependence on the financial sector have made the economy and society extremely vulnerable. Socio-economic policy has actually contributed to the dominance of the financial sector. In its report Finance and Society: Restoring the Balance (Report no. 96, 2016), the WRR therefore calls for changes in socio-economic policy in order to strengthen the resilience of society and the economy.