Explaining the Financial and Economic Crises
New Directions in Modern Economics series
Edited by Eckhard Hein, Daniel Detzer and Nina Dodig
Chapter 2: Finance-dominated capitalism, distribution, growth and crisis – long-run tendencies
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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