Chapter 6: Finance-dominated Capitalism, Global Imbalances and Crisis
6. Finance-dominated capitalism, global imbalances and crisis1 6.1 INTRODUCTION In the book so far, we have shown that from a macroeconomic perspective finance-dominated capitalism or financialization has affected economic developments through the following channels: 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 the falling bargaining power of trade unions, higher profit claims imposed in particular by increasingly powerful rentiers, and probably also a change in the sectoral composition of the economy in favour of the financial corporate sector. Regarding investment, financialization has been characterized by increasing shareholder power vis-à-vis management and workers, an increasing rate of return on equity and bonds held by rentiers, and an alignment of management with shareholder interests through short-run performance related pay schemes, bonuses, stock option programmes, and so on. On the one hand, this has imposed short-termism on management and has caused decreasing management’s animal spirits with respect to real investment in capital stock and long-run growth of the firm. On the other hand, it has drained internal means of finance for real investment purposes from the corporations, through increasing dividend payments and share buybacks in order to boost stock prices and thus shareholder value. These ‘preference’ and ‘internal means of finance’ channels each have partially negative...
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