Finance-Dominated Capitalism: Potentials for Systemic Instabilities and Crises
In this chapter we provide a macroeconomic perspective on finance-dominated capitalism or ‘financialisation’ (we are using these expressions interchangeably), which refers to a long-run trend dominating modern capitalism, to different degrees in different countries, roughly starting in the late 1970s/early 1980s in the US and the UK and later in other developed capitalist economies and also in emerging market economies. The particular purpose of this chapter is to examine the macroeconomics of this trend and to point out the potentials for systemic instability and crisis. From a macroeconomic perspective, finance-dominated capitalism has displayed the following important characteristics (Hein 2012a):
1.With regard to distribution, the dominance of finance 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.
2.Regarding investment in the capital stock, financialisation has been characterised 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, as for example bonuses and stock option programmes. On the one hand,...
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