Has Finance Become Disconnected from Reality?

For centuries, finance was an engine of transformation. It funded industrial projects, infrastructure, and technological revolutions. From the Florentine bankers of the 15th century to the industrial barons who built railway, energy, and steel empires through stock markets and bank credit—all embodied finance oriented toward productive investment, job creation, and territorial development.

Finance was not an abstract world then: it invested in factories, railway lines, and ports. It was concrete, rooted in territories, focused on the physical transformation of the world.

But since the 1980s, a shift has occurred: deregulation, globalization of flows, financial innovations, and the rise of non-bank actors have changed the nature of finance. Now, it seems to evolve in an autonomous sphere, sometimes disconnected from productive and social needs.

When Finance Breaks Free from Production

The numbers speak for themselves. In 1990, global stock market capitalization represented 28% of world GDP. By 2023, it exceeded 140%, according to the World Bank. Meanwhile, the notional value of derivative products reached $600 trillion—more than six times global GDP.

This financial hypertrophy doesn't reflect an explosion in productive investment but rather a proliferation of instruments serving liquidity, arbitrage, tax optimization, or speculation.

Another emblematic figure: in 2021, share buybacks by American companies reached a record $882 billion (S&P Dow Jones Indices), growing 69% from 2020 and maintaining significant average growth in subsequent years. This capital could have financed infrastructure modernization, R&D, or ecological transition. Instead, it was used for shareholder returns and stock price support.

The Marginalized Real Economy

Consider industry. In France, according to INSEE, industry's share of GDP fell from 24% in 1980 to 13.5% in 2022. Industrial or agricultural SMEs, often invisible on financial radars, struggle to raise funds for growth or innovation. Yet they are the pillars of the real economy: 99% of French companies, 50% of employment, 60% of productive investment.

Similarly, ecological transition remains largely underfunded. According to the Climate Policy Initiative, global climate financing reaches less than 15% of funds needed to meet the Paris Agreement goals by 2030. At the same time, financial investment stock held by French entities abroad has quadrupled. Capital hasn't disappeared—it has migrated where immediate financial returns are strongest.

"Finance is not intrinsically disconnected from reality. It is what we make of it."

This financial logic is understandable from an economic mechanisms perspective, but it has significant consequences.

Reconciling Finance and Reality: Concrete Solutions

This decoupling produces systemic effects: capital logically concentrates on technology hubs, major metropolises, and premium segments, neglecting rural or industrial areas. In Europe, 70% of venture capital is invested in just five regions.

Small players are excluded: SMEs, often deemed "too risky" or "unprofitable," struggle to raise funds or access long-term credit. Projects focused on sobriety or climate adaptation are judged unprofitable or difficult to scale—and thus often excluded from investment portfolios. Meanwhile, asset holders see their wealth soar while youth, the precarious, and middle classes stagnate.

Exiting this impasse doesn't mean demonizing finance, but rather giving it a framework, direction, and mission. Several levers exist:

• Valorize long-term thinking by supporting the creation of long-duration or patient capital funds
• Develop territorial finance similar to US community banks or regional public/private investment funds
• Systematically integrate extra-financial criteria (ESG, territorial impact, carbon) in capital allocation decisions—not as RSE bonuses but as risk and value creation criteria
• Regulate speculative excesses by evaluating investments' real contribution to the economy

Rehabilitating Investment: The Role of Private Equity

Facing this disconnection, some actors strive to reinvent finance to anchor it back in productive reality. This is the case with private equity, often caricatured as predatory, but which can—when properly oriented—play a structuring role in economic transformation.

For private equity to truly contribute to reindustrialization, climate transition, and value chain relocalization, we must distinguish approaches: not all strategies are equal. It's essential to foster a new generation of funds—more engaged, more anchored, more transparent—capable of combining performance and impact.

This is the logic we champion: investing in the industrial and sustainable transformation of European SMEs, on horizons consistent with climate urgency—typically by 2030.

Private equity funds operate on long-term horizons. They take majority or significant stakes, support executives, restructure sectors, and accelerate digital or ecological transformation. They take risks where others won't. They invest in SMEs, mid-caps, and territorial projects—far from the noise.

Reconnecting Finance and Utility

Financial actors must share and serve a sovereign ambition of value chain relocalization in Europe, strengthening European sectors, generating returns derived from industrial, territorial, and climate impact, and giving birth to European leaders while growing regional operators.

This means investing in key players of the European "Mittelstand": food processors, industrial subcontractors, companies in ecological or energy transition. Companies not always visible on traditional finance's radar screens, but which constitute the backbone of our economic sovereignty.

In the case of transition to a sustainable economy, this vision is even more important. As the Pisani-Ferry-Mahfouz report (May 2023) highlighted, much current economic planning relies on optimistic implicit scenarios: stable growth, controlled carbon prices, and salvific technology. Yet these hypotheses are contradicted by ongoing physical and geopolitical dynamics.

We must rebuild economic policies on more realistic bases, integrating disruption effects: increased capital costs, asset destruction, raw material tensions, or climate adaptation. In this regard, economist Adrien Bilal's work (Harvard) is enlightening: it shows how climate disorganization effects on productivity and supply chains are largely underestimated in classical models. In other words, financial "business as usual" will collapse if models aren't refounded on 21st-century physical realities.

All this confirms the need to quickly find ways to adapt our economy and strengthen the resilience and sustainability of European industry—particularly SMEs in large companies' value chains that struggle to make these changes.

This example shows us that finance can again become a reconstruction lever. That we can target returns while contributing to a more stable, equitable, and sustainable world.

Refounding the Contract Between Capital and Society

Finance is therefore not intrinsically disconnected from reality. It is what we make of it. After the crises of 1929, 1945, and 2008, we knew how to rethink the rules of the game. Today we must set a new ambition: reconciling capital, long-term thinking, and the common good.

"Private equity, when oriented toward useful, patient, structural investment, can embody this ambition. This is how it can restore capital's role as a tool—not of domination, but of transformation."

For finance to no longer be a world apart, but a part of the world.