Beyond austerity and privatisation: bringing financialisation into the analysis of neoliberal reforms

Ana Carolina Cordilha

Systems of social provision are undergoing a silent revolution in financing mechanisms with detrimental impacts on social justice. Historically, social services and infrastructure were funded directly by public revenues from taxes and contributions. However, this model no longer holds entirely true; in the era of financialized capitalism, governments are increasingly inclined to bring in money from the financial sector to finance social provision, while taxpayer money pays for the costs of this intermediation. This appears through an ever-growing number of instruments. In this process, the interests of financial players can be placed above those of citizens, in ways that are often hidden from the public eye.

This crucial yet overlooked change in the financing of social provision is steered by the growing power of finance over the economy and society in the neoliberal period. The conventional concepts used in the analysis of neoliberal reforms – such as privatisation, commodification, and commercialisation – seem no longer sufficient to fully grasp the nature of such changes.

Take the usual notion of privatisation, for example. This term was coined decades ago to describe the incorporation of practices and actors from the private non-financial sector into public structures of management, financing, and provision. This means, broadly speaking, private providers of goods and services – in the case of health care, it may include private hospitals, clinics, or care providers. Today, however, a large share of the actors driving and benefitting from reforms in social provision are private providers of money, such as banks, investment funds, and foreign investors. And this is where the concepts of financialisation can come in handy.

Financialisation in social provision can be understood as the incorporation of practices and actors from the financial sector into public structures. By looking at social reforms from these lenses, we can better grasp the specific narratives, actors, instruments, and policies driving part of recent changes in social provision. This does not mean that other processes (like privatisation), have lost their importance, but rather that there is another layer of complexity involved in liberal reforms today. The process of financialisation, for example, continue at full speed, now fuelled by financialization.

The case of the French social security system is quite telling about the financialization of social provision. Social security in France is a large structure that comprises the public pension system, the public health care system, and the welfare system (which provides housing and family benefits, among others). In 1996, the French government set up a public financial agency responsible for transforming the social security debt into a financial debt to be refinanced in international financial markets. In rough terms, since then, the social security system issues debt securities in foreign markets through a third-party agency. This move allows the system to raise revenues from (mostly foreign) investors. The agency uses the revenues to pay off the “social debt.” But now social security has another type of debt – the one owed to the investors, who are entitled to be reimbursed with interests when the securities arrive to maturity. To pay for this debt against financial investors, the French government collects revenues from taxpayer money and from a public pension fund – money that, before, was largely unavailable to finance the social provision. In 2017, the amount of interests paid by Social Security to financial investors and banks in order to keep up with this scheme was equal to the so-called “social security deficit” of that year. Since 1996, social security paid €87 billion in these forms of financial charges (in real prices of 2022).

This is of course not exclusive from France: there are many other examples of how public systems are resorting into financial markets and institutions to bypass austerity constraints and address governance challenges. England, Canada, Italy, and Brazil are only some of the examples we can come up with.

By bringing financialisation into this analysis, we can better examine the forces at play in neoliberal reforms in social provision, and how the latter is being reshaped in ways that support the expansion of the financial sector and the accumulation of financial capital.

Financialisation in social provision undermines transparency, democratic participation, and solidarity principles, to name a few. The complexity and opacity of the financial system play a major role in explaining these challenges. The destination of the reimbursements later on is largely unknown, although it is evident that they benefit mainly those at the top end of the income distribution. This lack of transparency prevents the proper assessment of how these strategies can affect the quantity and quality of services rendered to the population. But the mounting challenges and deteriorating state of several aspects of social provision in the last decades seem to corroborate the hypothesis that financial investors and institutions have benefitted from current reforms more than the average citizen.

In light of the fact that austerity policies, market-friendly government agendas, and the growing power of financial actors are common trends in several countries, the financialisation of social provision represents thus a crucial avenue of research in social sector reforms.