A Critique of Shareholder Value
From spring 2000 to mid-autumn 2002, Western stock markets fell by between 50 per cent and 80 per cent. Business investment declined everywhere. Debts mounted dangerously. Those businesses most in debt were caught in the noose of an increase in credit spreads, drying up debt ﬁnancing, and the reticence of banks to lend. The fall of stock market prices brought about vertiginous capital losses on business assets which had been acquired at exorbitant prices. The annihilation of billions of dollars of artiﬁcially inﬂated wealth shook the credulity of savers to the core. Our position is markedly diﬀerent from the claim that the ﬁnancial crisis that swept the Western world is an accident ﬂowing from a cocktail of fortuitous events, clandestine frauds and passing failures to adapt to ﬁnancial liberalization. The preceding chapter established the relations which we now tie together in order to reach an understanding of the economic cycle generated by ﬁnance. The interlinking of the ﬁnancial logic of markets and of a regime of corporate governance controlled by the stock market is a dynamic system that oozes instability. In the present chapter, we show that the ﬁnancial cycle is endogenous in economies where stock market valuation is the pivot of business strategies. A fruitful way to treat the problem is to take a certain historical distance, which economists almost always neglect. Yet the history of ﬁnancial crises overlaps that of capitalism. Kindleberger (1996), who has spent a lifetime studying these problems, provides a magniﬁcent...
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