The Demise of Finance-dominated Capitalism

The Demise of Finance-dominated Capitalism

Explaining the Financial and Economic Crises

New Directions in Modern Economics series

Edited by Eckhard Hein, Daniel Detzer and Nina Dodig

This book provides an overview of different theoretical perspectives on the long-run transition towards finance-dominated capitalism, on the implications for macroeconomic and financial stability, and ultimately on the recent global financial and economic crisis. In the first part, the macroeconomics of finance-dominated capitalism, the theories of financial crisis and important past crises are reviewed. The second part deals with the 2007-09 financial and economic crisis in particular. The special focus is on the long-run problems and inconsistencies of finance-dominated capitalism which played a key role in the crisis and its level of severity.

Chapter 2: Finance-dominated capitalism, distribution, growth and crisis – long-run tendencies

Eckhard Hein and Nina Dodig

Subjects: economics and finance, financial economics and regulation, post-keynesian economics


In this chapter we provide a macroeconomic perspective on ‘financialization’ or ‘finance-dominated capitalism’, as a long-run trend which has dominated modern capitalism, to different degrees in different countries, starting in about the late 1970s or early 1980s in the USA and the UK and later in other developed capitalist economies and also in emerging market economies. We will also link this trend with the recent financial and economic crises. From a macroeconomic point of view, financialization has four important features (Hein 2012): 1. With regard to distribution, financialization has been conducive to a rising gross profit share, including retained profits, dividends and interest payments, and thus a falling labour income share, on the one hand, and to increasing inequality of wages and top management salaries, on the other hand. The major reasons for this have been falling bargaining power of trade unions, rising profit claims imposed in particular by increasingly powerful rentiers, and a change in the sectoral composition of the economy in favour of the financial corporate sector.

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