Finance-dominated Capitalism Research Articles

Varieties of demand and growth regimes – post-Keynesian foundations

We review post-Keynesian contributions to demand and growth regime analysis. First, for the theoretical model perspective, we distinguish the Kalecki–Steindl approach and the Sraffian supermultiplier approach as relevant theoretical foundations for demand and growth regime research, with investment-driven and distribution-led growth in the focus of the former and autonomous demand-led growth in the latter. Second, for the empirical-historical perspective, we review different ways of analysing the co-existence of demand and growth regimes in the current period of neoliberal and finance-dominated capitalism. We distinguish, first, a basic national income and financial accounting decomposition approach; second, a Sraffian supermultiplier inspired growth decomposition approach; and third, several lenses looking at growth drivers. We argue that these three levels of analysis are, in principle, not mutually exclusive nor even contradictory, but that they rather complement each other. We conclude that, in particular, the PK analysis of growth drivers provides several systematic links with comparative and international political economy approaches, when it comes to the introduction of the political economy dimension (social blocs, growth coalitions, changes in institutions favouring certain types of re-distribution and economic policies, etc.), while the national income and financial accounting, as well as the Sraffian supermultiplier growth accounting decomposition approaches provide the consistent macroeconomic foundations for such synthetic approaches.

Poles Apart? Alternative Welfare Trajectories under Finance-Dominated Capitalism

By connecting the post-Keynesian view of financialization with Comparative Political Economy, we suggest some elements for an updated interpretation of the existing models of welfare. As a main element of novelty, we consider how high-income countries are reacting to the pressures of finance-dominated capitalism, namely by extending, keeping, or retrenching their welfare systems. The contribution of the article is threefold. First, we elaborate on the nexus between welfare and financialization. Second, we introduce a multidimensional index aimed at assessing the degree of welfare of 32 OECD countries for the period 1990–2015. Third, we compare our index with the socio-economic models identified in the literature and with the patterns of financialization. Two trajectories emerge from our exploration: on the one side, Scandinavian and Continental European countries moved toward relatively higher levels of welfare; on the other side, lower levels of welfare feature Anglo-Saxon, Asian, Mediterranean, and Central and Eastern European countries. Besides such divergence, we find that the process of financialization was more intense in countries with stronger welfare, which likely opted for a compensation strategy. Our work highlights the relevance of policies and institutions in shaping different welfare systems and coping with the challenges of the current phase of capitalism.

Bringing subordinated financialisation down to earth: the political ecology of finance-dominated capitalism

Abstract This paper explores how subordinated financialisation occurs through uneven environmental transformations on a global scale, thereby revealing a political ecology of finance-dominated capitalism. Rather than depicting financialisation as a detachment of profits and power from the ‘real’ economy, this paper argues that financial accumulation arises from co-dependent and hierarchical monetary, productive and environmental relations. In particular, we outline how Peripheral subordination is connected to the reorganisation of global value production (‘offshoring’) and the intensification and expansion of capital to new frontiers of resource extraction (‘commodity frontiers’). These patterns form a ‘financialisation-offshoring-commodity frontier’ nexus, a self-reinforcing institutional arrangement that guarantees new possibilities for capital accumulation within the Core of the world-system, while accentuating the Periphery’s vulnerability to financial instability, uneven development and ecological degradation. This suggests that addressing Core–Periphery structural imbalances and systemic ecological risks requires a major overhaul of the international monetary and financial system, in a way that may nevertheless limit capital accumulation and GDP growth in Core economies.

Varieties and interdependencies of demand and growth regimes in finance-dominated capitalism: a Post-Keynesian two-country stock–flow consistent simulation approach

The authors outline and simulate a stylized Post-Keynesian two-country stock–flow consistent model to demonstrate the interconnection of three of the main features/outcomes of finance-dominated capitalism, namely worsening income distribution for the bottom 90 per cent of households, the rise of international imbalances, and the build-up of financial fragility. In the model, two basic regimes emerge, depending on the institutional setting of the respective model economy: the debt-led private demand boom regime and the export-led mercantilist regime. The authors demonstrate the complementarity and interdependence of these two regimes and show how this constellation transformed after a crisis into the domestic demand-led regime stabilized by government deficits, on the one hand, and export-led mercantilist regimes, on the other, depending on the required deleveraging of private household debt, distributional developments and fiscal policy.

Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the Great Financial Crisis and the Great Recession

We contribute to the recent debates on demand and growth regimes in modern finance-dominated capitalism linking them to the post-Keynesian research on macroeconomic policy regimes. We examine the demand and growth regimes, as well as the macroeconomic policy regimes for the big four Eurozone countries, France, Germany, Italy and Spain, for the periods 2001–2009 and 2010–2019. First, our approach supports the usefulness of the identification of demand and growth regimes according to growth contributions of the main demand components and financial balances of the macroeconomic sectors. This allows for an understanding of the demand sources of growth, or stagnation, if there is a lack of demand, of how these sources are financed and of potential financial instabilities and fragilities. Second, when it comes to the macroeconomic policy drivers of demand and growth regimes, as well as their respective changes, we show that the exclusive focus on fiscal policies, as in the previous literature, is too limited and that it is the macroeconomic policy regime which matters here, i.e. the combination of monetary, fiscal and wage policies, as well as the open economy conditions.

FINANCIAL SECURITY OF THE STATE: INTERNATIONAL EXPERIENCE IN THE STUDY OF INSTITUTIONAL AND LEGAL CAUSES OF CRISIS PHENOMENA IN THE ECONOMY

Abstract. The article maps out the topical issue of reinforcing the financial and economic security of our country by switching from uncritical compliance with standard requirements of financial institutions affecting the provision and amount of international loans to development of own economic policy on the basis of rethinking the reasons for the unsatisfactory state of the financial and economic security of Ukraine. The purpose of the article is to study the issue of increasing the sustainability of the financial system of Ukraine taking into consideration foreign experience and to determine the main direction of its provision with the emphasis on the priority development of the real sector of the economy. The financial security issue has become of paramount importance and relevance not only for Ukraine but for other countries as well. The study of foreign experience showed that stagflation of the 1970s provoked an erroneous neoliberal economic reaction. Policy responses were focused on deregulation of markets, in particular labour and financial markets, on the one hand, and on achieving the price stability instead of full employment on the other hand. This neoliberal «counterrevolution» created the conditions for the emergence of «financialization» or «finance-dominated capitalism» since the early 1980s first in the USA and Great Britain and then spread around the world. Over the past 30 or so years, finance began to dominate the industry, and non-financial corporations are increasingly engaged in financial rather than production activities. For instance, in Japan it resulted in the Great Recession. In Ukraine such policy has been implemented since the early 2000s under the influence of IMF requirements. As a result, the economy has lost the ability to provide a decent standard of living for the population and encouraged the labour migration and the increase of debt burden which was practically unavoidable without catastrophic consequences for state sovereignty. It is proposed to redirect the economic policy of Ukraine from spontaneous development of the «mechanism of financialization» to the creation of a mechanism for the development of real economy and effective creation of high-wage jobs complemented by the social responsibility of entrepreneurs and improving the regulatory requirements for legal regulation of public relations related to ensuring the financial security of the state. Keywords: financial security, gross external debt, liability, social responsibility, law, labour migration; employment of population, budget deficit. JEL Classification Е02, H63, K10, M14, O11 Formulas: 0; fig.: 2; tabl.: 1; bibl.: 26.

Перспективы финансового капитализма

The financial capitalism has largely determined the direction of economic and social development in the last four decades. Addressing key aspects of financial capitalism, the author reviews its impacts on macroeconomic and social indicators, and its potential for transformation. Finance-dominated capitalism and financialization of all aspects of social life can stifle economic growth, favor capital at the expense of labor and the state, undermine democracy, increase inequality and cause economic and social instability. Politically, financial capitalism is underpinned by the imperative of neoliberalism. This flawed model of development and the deregulation of the financial system have inevitably led to crisis Instead of deregulation, today’s capitalism needs regulation to coordinate and guide the market economy to ensure broader and longer term interests.

When Melius Abundare Is No Longer True: Excessive Financialization and Inequality as Drivers of Stagnation

ABSTRACT The apparently never-ending phase of economic slowdown that advanced economies have been experiencing in recent decades has recently contributed to the resurrection of the hoary old argument of ‘secular stagnation’. In this paper, situated intellectually within the strand of research documenting the negative impact on growth of inequality and financialization, we elaborate on the idea that such a prolonged period of stagnation is associated with a new paradigm of socio-economic policy, known as ‘finance-dominated capitalism’. In this way, we distance ourselves from the mainstream ‘secular stagnation’ narrative, adopting instead a post-Keynesian perspective that allows us to discuss the links between financialization and inequality, on one hand, and economic performance, on the other. Then, we submit our arguments to empirical scrutiny by undertaking an econometric analysis of 21 OECD countries between 1990 and 2016. The evidence indicates that excessive levels of financialization, along with high inequality and weak labor market institutions, have a negative impact on real growth. Based on our findings, we propose possible demand-side policies, to be implemented through expansionary fiscal measures, which could help sustain GDP growth and employment in the current context of stagnation, mitigating income inequality and sustaining an inclusive recovery at the same time.

Welfare models and demand-led growth regimes before and after the financial and economic crisis

Connecting comparative political economy (CPE) approaches, as the Varieties of Capitalism (VoC) theory, with post-Keynesian (PK) research on different demand and growth regimes in modern capitalism has recently given rise to some interesting claims regarding differentiation and shifts of demand and growth regimes. However, we find some difficulties in the way PK approaches have been interpreted and integrated in modern CPE approaches. Therefore, we first provide a theoretically consistent and empirically applicable classification of demand and growth regimes under the conditions of finance-dominated capitalism, as it recently has been proposed by PK authors. Second, instead of using the traditional VoC dual classification, we focus on a more differentiated welfare model classification, which can be seen as different socio-institutional responses towards the challenges of globalisation and financialisation. For the period before the 2007-9 crisis, we link the PK demand and growth regimes with five socio-economic models identified by Hay and Wincott (2012), and thus provide an alternative approach. Third, going beyond the current debate, we examine the regime shifts after the 2007-9 global crisis with respect to the demand and growth regimes, and we also examine the changes within the welfare models. Whereas we find a clear pattern for the shift of demand and growth regimes, the changes in the welfare models are not as clear-cut.

Financialization and the Labor Share of Income

Abstract Financialization has been growing importance in macroeconomic perspectives since the finance-dominated capitalist relations have captured many of the specific positions in an aggregate economy. However, the empirical literature has substantially ignored the examination of the link between an increasing scale of financialization and the rising income inequality. In this study, a major hypothesis is based on the fact that the finance-dominated capitalism has a considerable effect on distributional practices through the channels of bargaining power. By applying the Kaleckian approach, the paper investigates the relationship between financialization and the labor share of national income using a panel dataset of 52 countries over the 1992-2012 period. The results suggest that a higher level of stock market development leads to a more unequal distribution of income and, thus, to the decline of wage share in the national income. Other factors such as globalization and technical change can also exacerbate the decline of wages, coupled with a decrease in the bargaining position of labor measured by unemployment rate and labor force participation rate.

Financialization, distribution, and macroeconomic regimes before and after the crisis: a post-Keynesian view on Denmark, Estonia, and Latvia

ABSTRACTSince the early 1980s, financialization has become an increasingly important trend in developed capitalist countries, with different timing, speed, and intensities in different countries. Rising inequality has been a major feature of this trend. Shares of wages in national income have declined and personal income inequality has increased. Against this background unsustainable demand and growth regimes have developed that dominated the major economies before the crisis: the ‘debt-led private demand boom’ and the ‘export-led mercantilist’ regime. The article applies this post-Keynesian approach to the macroeconomics of finance-dominated capitalism of three Baltic Sea countries, Denmark, Estonia, and Latvia, both for the pre-crisis and the post-crisis period. First, the macroeconomics of finance-dominated capitalism are briefly reiterated. Second, the financialization-distribution nexus is examined for the three countries. Third, macroeconomic demand and growth regimes are analyzed, both before and after the crisis.

Labour share decline, financialisation and structural change

AbstractThe purpose of this article is to explain the determinants behind the decline of labour share in the last three to four decades in OECD countries. In our view, this decline was determined by financialisation and was deepened by the structural changes that occurred almost simultaneously in those economies. Financialisation, or finance-dominated capitalism, from the 1980s onwards, was a key element in the strategic offensive of the advanced countries’ dominant classes to appropriate higher shares of national income and to restore their control over the political process, a control that had been threatened by a generalised advancement of the labour movement in the 1970s. The development of a finance-dominated capitalism was helped by the process of globalisation, which affected not only OECD countries but also many others. A new, though unstable, macroeconomic model emerged, which we will call financial capitalism. In financial capitalism, trade unions lost power vis-à-vis capital, labour flexibility increased enormously, and a structural change from manufacturing to services was accelerated in rich countries. This resulted in negative consequences for labour share and income inequality. After having provided a theoretical discussion of the determinants of the compression of the wage share, making reference to the relevant literature, we submit our hypotheses to empirical scrutiny, performing a panel data analysis on 28 OECD Countries. The results of the estimations provide support to the theoretical argument.

Der Mythos des globalen Kapitalismus und die Aktualität des Nationalen

This contribution is a critical response to the article “Global Capitalism in a State of Emergency” written by the editorial board and published in PROKLA 185. In contrast to the editors’ analysis, it argues that capitalism does not qualify as a global system with an international form of government and an international ruling class. We are still living in a state of „Varieties of Capitalism“ dominated by national states. This was proven by the deep crisis of the European Union and the political struggles within the EU. The model of finance-dominated capitalism is not able to explain why the export-oriented German capitalism, German politics and the German economic ideology of mercantilism can dominate the economies and the states in the European Union.

Inequality and Finance-Dominated Capitalism: Recommendations for Further Reading

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). …

Finance-Dominated Capitalism and Income Distribution: A Kaleckian Perspective on the Case of Germany

We present an investigation into the long-run effects of financialisation on income distribution before the financial and economic crises for Germany, one of the major mercantilist export-led economies. The analysis builds on a Kaleckian approach towards the examination of the effects of financialisation on income distribution, as suggested by Hein (Camb J Econ. doi: 10.1093/cje/bet038 , 2014a). First, we show that Germany saw considerable re-distribution of income starting in the early 1980s, which accelerated in the early 2000s, in particular. Examining the three main channels through which financialisation (and neo-liberalism) are supposed to have affected the wage or the labour income share, according to the Kaleckian approach, we provide evidence for the existence of each of these channels in Germany since the mid-1990s, when several institutional changes provided the conditions for an increasing dominance of finance.

Workplace relations, unemployment and finance-dominated capitalism

This paper considers the interconnections between the nature and organisation of work and the level of unemployment. We consider how actions taken at the workplace level can impede as well as facilitate the reduction in unemployment. We also consider how the workplace may be reformed to overcome some of the obstacles, economic as well as political, to full employment. Finally, we examine the impacts of the current finance-dominated capitalism on work organization and workers. Our view is that financialization represents a major barrier to full employment not least because of its tendency to limit real investment but also because of its negative effects on the bargaining power of workers.

Reseña: The Macroeconomics of Finance-dominated Capitalism - and its Crisis

Reseña: The Macroeconomics of Finance-dominated Capitalism - and its Crisis

Finance-dominated capitalism and re-distribution of income: a Kaleckian perspective

In this article a major channel through which financialisation or finance-dominated capitalism affects macroeconomic performance is examined: the distribution channel. Empirical data for the following dimensions of (re-)distribution in the period of finance-dominated capitalism since the early 1980s is provided for 15 advanced capitalist economies: functional distribution, personal/household distribution and the share and the composition of top incomes. Based on the Kaleckian approach to the determination of income shares, the effects of financialisation on functional income distribution are studied in more detail. Some stylised facts of financialisation are integrated into the Kaleckian approach, and by means of reviewing empirical and econometric literature it is found that financialisation and neoliberalism have contributed to the falling labour income share since the early 1980s through three main Kaleckian channels: 1) a shift in the sectoral composition of the economy, 2) an increase in management salaries and rising profit claims of the rentiers and thus in overheads, and 3) weakened trade union bargaining power.

Revisiting the regulation approach: Critical reflections on the contradictions, dilemmas, fixes and crisis dynamics of growth regimes

Capitalist growth regimes are analysed drawing on Marx’s insights into the fundamental contradictions of the capitalist mode of production, regulation theoretical arguments about the five basic structural forms of accumulation regimes and their modes of regulation, historical geographical materialism’s emphasis on spatio-temporal fixes, and state-theoretical accounts of the ‘government + governance’ of capitalist social formations in the shadow of hierarchy. This framework is then applied to four specific growth regimes and their crisis tendencies. These regimes are Atlantic Fordism, two (among many) alternative post-Fordist trajectories – the knowledge-based economy and finance-dominated capitalism – and a radical ‘no-growth’ variant of the ‘Green New Deal’. The article highlights the crisis tendencies of the first three and assesses whether the Green New Deal represents an alternative route out of crisis or the capture of an eco-social project by the forces that brought us finance-dominated accumulation. It concludes with a future research agenda.

Introduction to the special issue on the regulation approach and the contemporary crisis

The regulation approach has brought powerful insights into the relationship between periods of stable accumulation and the dramatic ruptures associated with their decline. Shifts from Fordism to post-Fordism and thence financialisation have been analysed using the concepts of structural and cyclical crisis and institutional evolution advanced by the regulation approach. After the current crisis, the new challenge that the environmental threat presents suggests that 'New Green Deals' could play a major role in future regulation regimes. This special issue of Capital & Class draws on the work of new and established scholars working in traditional and new areas of the regulation approach to interrogate the nature of the current world crisis, and the viability of new forms of accumulation that may emerge from it. The issue, largely based on discussions held at a COST-funded colloquium in Paris in November 2010, 'Systemic Risk and Financial Crisis' (COST ISO 902), draws on the work of scholars and activists working from within the regulation approach tradition in the fields of economics, sociology, industrial organisation, political science and international political economy. Regulation approaches new, old and critical are brought to bear in order to explore the systemic causes of the crisis, and the consequences of these for change. The special issue begins by examining how the tensions suppressed under the previous period of growth were revealed in the explosive events of the recent financial crisis. Jessop introduces analytical tools for a better understanding of the continuous making and destruction of the institutional fabric of the economy in order to characterise the main contradictions and crisis tendencies of the successive regimes of accumulation (Fordism, knowledge-based economy [KBE] and finance-dominated capitalism). This leads to an assessment of recent proposals for a 'Green New Deal' as alternative routes out of the global crisis that brought us finance-dominated accumulation. Petit starts with an assessment of the respective properties of accumulation regimes and of modes of regulation. The intrinsic instability of finance-led regimes of accumulation hints at the difficulties of forging modes of regulation that could accommodate them. In such a perspective, the political sustainability of finance-led capitalism can only rely on some specific ties which may not fulfil the objective. The paper argues that in such conditions, the current period may still be one of transition and that the challenge to come of some major environmental threat may lead to a radical shift out of financialisation. The next two papers explore how the gap between reality and fiction was regulated in the development of 'real' and casino economies. Dannreuther examines how the invention, construction and extended deployment of the small firm as a political construct enhanced the agency of the state. Small firms did not have a stable meaning, but one that shifted by administration from legitimating a challenge to the state to becoming instruments for the delivery of public policy. The flexibility of this meaning allowed the Enterprise Act to exonerate bad lending, stimulate additional reckless lending practices and increasingly to redirect the costs of financialisation onto individuals and their homes. Palan calls attention to the inherent speculative aspect of the valuation of intangible assets under capitalism. …