The finance curse refers to the phenomenon where a financial sector grows beyond a useful size and begins to harm the economy that hosts it. The financial sectors turns away from traditional ways of helping society create wealth to more aggressive ways of extracting wealth from other parts of the economy.
For example, just 3.5 per cent of all business lending by UK banks went to the UK manufacturing sector. 60 per cent, however, went to financial intermediaries, like commercial banks and private equity funds. An oversized financial sector shifts from financing sectors that create jobs and goods that can be used and sold, to financing the creation of increasingly complex and risky financial structures that extract wealth into tax havens.
The Sheffield Political Economy Research Institute at the University of Sheffield study into the finance curse revealed that the UK’s oversized financial sector had cost the economy £4.5 trillion in lost economic output between 1995 and 2015 – equivalent to 30 years of the UK’s spending on health services in 2018.
Learn more about the finance curse here.