Against Financialized Extraction: Community Wealth Building as Economic System Change
One of the key drivers of our current overlapping crises is financialization. Financialization is an abstract word for a simple but corrosive process whereby more and more gains can be made from existing financial wealth and assets. Unlike conventional workings of the economy in which investment in the production of goods and services creates financial return, in a financialized economy the mere holding of assets is the basis for further wealth accumulation, with investment diverted away from productive purposes into speculation in pursuit of such capital gains. This is now the core aspect of contemporary advanced economies, with financial markets, elites and institutions dominating. Quite simply, the more you own the more you stand to gain.
Financialization is deeply iniquitous by design. It favors large corporations and the very rich who already own significant wealth and assets. It is the economy of the few and not the many. If you do not have significant asset wealth or own a stake in the economy you are a bit part and second class player, without access to the major driver of wealth accumulation. In this economic caste system, the overwhelming majority who don’t own significant wealth can work harder and harder, aspiring to gain greater wealth and assets which will always remain elusive, and/or be left to sink or swim under the cosh of welfare, low pay, and precarious work.
As is well known, the labor share of income in the United States is on the slide. Most work doesn’t pay what it once did—certainly not enough to provide a secure, middle class lifestyle given mounting costs and liabilities.
Labor share in U.S. national income, 1960-2022
(Source: Howard Reed, Index of Systemic Trends, second edition, The Democracy Collaborative, forthcoming 2024.)
Furthermore, the structuring of economies in such a way has seriously dangerous political implications. The forces of financialization demand that they are insulated from democracy and public policy, and set out to capture domestic politics to ensure that this happens. Globally, institutions from the IMF and World Bank to the WTO all seek to fetter national and state democratic decision-making that could helpfully steward the patterns of finance and investment. In the words of economic historian Quinn Slobodian, this is about a financialization which rather than setting out to liberate the market instead ‘inoculates capitalism against the threat of democracy.’
The American dream was, in part, founded on a belief and myth by which the USA stood as a democratic land of opportunity where hard work and creativity opened up many positive possibilities. However, social mobility is on the retreat, poverty and inequality is deepening, and our democratic institutions and power are being undermined like never before. The dream of a better life is simply unattainable for millions of Americans.
This is now manifesting as multi-dimensional crisis of the system. Such systemic crises require systemic solutions. As one of the richest nations on Earth, America still wields huge power through its individual, corporate, and national wealth. However, our wealth lacks democratic oversight and is being misallocated, misused and abused. Our great corporations—who in their heyday innovated and produced great products and services whilst supplying well paid and worthwhile jobs—are now too often reduced to financial investment vehicles(i.e Boeing), where decisions on investor return and shareholder dividend take precedence over research and new product development, decent wages, and supply-chain development . There is little economic democracy here. Wealth for wealth’s sake is increasingly the America of today. The dream was once about a ladder of opportunity and social mobility (albeit a slippery one) where with hard work and good fortune you could possibly rise up. Now the lower rungs on the ladder are missing, decayed through neglect or broken by those who prefer individual short term financial return over democratic power and longer-term societal growth and development. If you are poor and/or have little or no assets, you are more likely than not going to stay that way. This is especially so if you are Black or Brown.
Median financial assets by race of household, 1989-2022
(Source: Howard Reed, Index of Systemic Trends, second edition, The Democracy Collaborative, forthcoming 2024)
If we are to break out of the patterns of financialization and extraction that see wealth flowing to those who already own assets, and away from—and extracted from—those who do not, there will have to be major restructuring of the way the economy works such that it produces wealth that is broadly shared by the many and not funneled upwards to the few. This is where Community Wealth Building comes in.
Community Wealth Building vs. Financialization
Community Wealth Building (CWB) has advanced greatly since its origins in the creation of the Evergreen Cooperatives in Cleveland, Ohio, over a decade ago. As we have previously written, it has now entered a new era, with a more honed place based model of practice and theory of change. Underpinning this evolution is a growing awareness of the need for CWB to be seen as and to become an economic system change model, addressing the corrosive impacts of wealth extraction and the financialization process that facilitates it. As the financialization of capitalism has advanced, the key role for CWB as a counter-strategy and the need for democratizing finance has come into much greater focus.
The recent context to CWB is framed by decades of revitalisation efforts, and more recently the big post-pandemic Bidenomics programs of Build Back Better, the American Recovery Plan and the Inflation Reduction Act. This legislation, policy and funding has attempted to take the worst edges off poverty and injustice, hinting at the prospect of a deeper transition within the economy. However, the failure to bend the curve on long-running trends makes clear that this activity is insufficient, with a growing recognition that America is failing to address the underlying systemic racial, economic, social and environmental injustices that produced the current crisis. In this, many increasingly know that to truly address the shortcomings of the economic system we need to consider the underlying undemocratic patterns of asset and wealth ownership alongside the prevailing financialization process which perpetuates it.
Hitherto, CWB has often been perceived as, broadly speaking, a correction to post-industrial decline, dereliction and poverty with a focus on placing greater ownership and control in the hands of the community, citizens and workers. That still stands now. However, as the tentacles of wealth extraction through financialization grow, we should no longer see CWB as being just for the underserved poor living in poor places. Equally, it is about addressing the undemocratic economic policies and plans of the overserved, where the patterns of financialization create great inequity, gentrification, and financial wealth extraction.
Through its five pillar model, CWB has a focus on locally rooted finance. In this we seek to advance a financial ecosystem that redirects money in service of the real economy and greater democratic control through public and community banks; community focused initiatives such as community development finance initiatives and credit unions; community shares and a plethora of employee ownership models and promotion of social impact investing. However, these in themselves are insufficient in relation to the wider ills of financialization. We must now go further.
Part of this to look much more deeply at the key economic sectors that shape our lives—i.e., health, energy, housing, and the extent to which they have been financialized and become democratically distanced from our lives and oversight. Rather than just looking at a local place or community, under the lens of CWB we need to think sectorally, and to how we use a CWB lens more effectively to create economic sectors where investment and wealth serve us all.
CWB always was and must increasing be seen as a much bigger system change project. As we move forward we need to apply a CWB lens to an entrenched pattern of wealth concentration and the underlying financialization that lies at the rotten core of our economic system. In the same way that place-based applications of CWB are a place to start in transforming the institutions and relationships of our local and regional economies from the bottom up, new industrial and sectoral applications of CWB centering democratic ownership and productive investment and the urgent need to decarbonize are needed to bring about economy-wide change. The principles at the heart of both are one and the same: democratic ownership of the economy, recirculation rather than extraction, public goods over privatized gains, and re-embedding finance in the economy and the economy in community and the natural world. In this way, CWB holds out the prospects of democratization and de-financialization that we urgently need—both for our economy and for our politics. Viewed in this light, CWB is economic system change.
Neil McInroy is Global Lead for Community Wealth Building and Joe Guinan is President at The Democracy Collaborative
Photo by Alexander Grey on Unsplash