Inequality and Finance-Dominated Capitalism: Recommendations for Further Reading

Abstract

Private Equity at Work: When Wall Street Manages Main Street. By Eileen Appelbaum and Rosemary Batt. New York: Russell Sage Foundation, 2014. 396 pp. $35.00 (paper).The New Way of the World: On Neoliberal Society. By Pierre Dardot and Christian Laval. New York: Verso Books, 2013. 352 pp. $29.95 (cloth).The Birth of Biopolitics: Lectures at the College de France, 19781979. By Michel Foucault. Edited by Michel Senellart. Translated by Graham Burchell. London: Palgrave Macmillan, 2008. 368 pp. $20.00 (paper).Liquidated: An Ethnography of Wall Street. By Karen Ho. Durham, N.C.: Duke University Press, 2009. 392 pp. $25.95 (paper).Capitalizing on Crisis: The Political Origins of the Rise of Finance. By Greta R. Krippner. Cambridge, Mass.: Harvard University Press, 2011.240 pp. $21.50 (paper).The Empire of Value: A New Foundation for Economics. By Andre Orlean. Translated by M. B. DeBevoise. Cambridge, Mass.: MIT Press, 2014. 360 pp. $40.00 (cloth).Buying Time: The Delayed Crisis of Democratic Capitalism. By Wolfgang Streeck. New York: Verso Books, 2014. 240 pp. $26.95 (paper).The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It. By David Weil. Cambridge, Mass.: Harvard University Press, 2014. 424 pp. $29.95 (cloth).An adequate religious response to growing income inequality in the United States (and other developed nations such as the United Kingdom) presupposes a correct understanding of its causes and con- ditions. Proposed solutions, religious or otherwise, depend, that is, upon a proper diagnosis of the problem. A growing number of books suggest that a fundamental structural change in the organization of capitalism since the 1970s is a significant factor behind income and wealth concentration. In this review article I offer a synthesis of some of this literature regarding what is often called finance-dominated capitalism, discuss its disciplinary effects on corporations, governments, and individuals, and then draw out some consequences for income inequality.Contemporary capitalism can be said to be finance-dominated in several senses. First, it is so simply in the growing importance for contemporary capitalism of finance-generated profit. Profit in the financial sector (for example, banking, insurance, real estate) is a growing percentage of national income when compared with the industrial or service sectors. Profit from financial dealings is also of increasing significance to non-financial firms. For example, car companies routinely make more money from loaning money to buy cars than from selling them. Contemporary capitalism is marked, furthermore, by in- creased financial activity. That is, the amount of money and frequency of transactions in finance dwarf those in other economic activities. It is not uncommon, for instance, for the money changing hands on foreign currency exchanges in a single day to equal that of the whole of world trade in a year.This shift to finance is no doubt propelled by the oversized profits to be made there, when compared with industrial production or non-financial service provision. While clearly aided by tax policy and reserve requirements for investment banking, financial dealings in principle are far more profitable than other ways of making money; one can literally, for example, triple ones money overnight. This is partly a function of volatility in financial markets: the prices of assets on financial markets typically rise (and fall) quite sharply and rapidly (for reasons that will be discussed in a moment). But it is also a result of the common use of leverage in financial dealings. If I buy a stock with my own money for $100 and the price of that stock goes up by $1 to $101 the next day, my rate of return is obviously far smaller- 1 percent-than if I had initially borrowed $99 to buy it. In the latter case I would have doubled my money, from $1 to $2 (minus whatever interest and principal were paid on the loan of $99 in the meantime). …