Chapter 3: Finance-dominated Capitalism, Capital Accumulation and Macroeconomic Regimes
1 3.1 INTRODUCTION In order to discuss the macroeconomic implications for the period of finance-dominated capitalism with respect to aggregate demand, growth and financial stability within a demand-led distribution and growth model, we first have to consider the effects of financialization on the main building blocks of such a model. This concerns, firstly, the effects on functional income distribution, which have been examined in depth in the previous chapter. Secondly, we have to consider the effects on the components of aggregate demand, that is, on investment in capital stock of the firm sector and on consumption expenditures by the private household sector. Our main concern in this chapter will be with investment of the firm sector and with the related effects on aggregate demand, growth and the long-run stability of the financial structure of the corporate sector. The effects of financialization on private consumption demand will only marginally be treated in this chapter and we will not consider the problems of household debt yet. Chapter 5 will be devoted to a detailed treatment and modelling of the related issues. Therefore, in this chapter we will start with a detailed examination of the effects of financialization on corporate investment in capital stock supplying theoretical and empirical evidence, which will be followed by a brief consideration of the effects on consumption. Then we will summarize the macroeconomic results of increasing financialization and shareholder power as they have been derived in the previous literature, before we integrate some important channels of influence of...
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