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The Rise of Unemployment in Europe

A Keynesian Approach

Engelbert Stockhammer

This book offers a long overdue and refreshing Keynesian approach to the rise of European unemployment. It critically discusses the NAIRU theory and presents econometric evidence to assess the relative importance of capital investment and labor market institutions. The author also explores the reasons for the slowdown in capital accumulation, and is able to establish a clear link between changes in the financial sector, changes in corporate governance and investment expenditures.
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Chapter 5: Financialization, Shareholder Value and the Theory of the Firm: Financialization and Management Priorities

Engelbert Stockhammer


5. Financialization, shareholder value and the theory of the firm: financialization and management priorities 5.1 INTRODUCTION Most OECD countries have experienced a marked slowdown in growth and accumulation from the 1960s to the 1990s. In this chapter we argue that financialization, that is the adoption of shareholder value orientation by non-financial businesses and their increasing investment in financial assets, is an important factor in the slowdown of accumulation. The argument is not that investment in financial assets itself causes a reduction in physical investment, but that financial investments are a symptom of the changes in management priorities – or preferences of management, if one prefers. In a nutshell, the argument is that a change in the institutional setting of the firm occurred. The Golden Age was a period of relatively autonomous management that lead to a growth-oriented investment policy, which has been called ‘managerial capitalism’. Starting in the 1970s shareholders made stronger claims on management by means of the development of a market of corporate control (hostile takeovers and so on) and changes in the remunerations of managers (performance-oriented pay schemes for example). This led management to adopt, or at least follow, shareholders’ preferences, which implies a shift in management priorities from growth to profits. If there is a trade-off between growth and profits, which is a standard assumption in the literature, then this will translate into lower investment (on the firm level). The chapter introduces the concept of financialization, that is the growing importance of income from...

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