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

ABSTRACT

Since 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.

KEYWORDS:

• Finance-dominated capitalism
• financialization
• distribution
• financial and economic crisis
• Kaleckian theory of distribution

Acknowledgments

For helpful comments, we would like to thank Rainer Kattel and two anonymous referees. Remaining errors are ours, of course.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. We follow Epstein’s (2005) widely quoted definition of financialization as ‘increasing [the] role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies.’

2. The terms ‘financialization’ and ‘finance-dominated capitalism’ are used interchangeably in this article.

3. Several econometric studies, partly with eclectically theoretical foundations, have confirmed some of these channels, too, as already reviewed in Hein (2015). See recently, for example, Alvarez (2015), Dünhaupt (2016), Köhler, Guschanski, and Stockhammer (2018), and Stockhammer (2017).

4. See, for Dutt (2005, 2006); Hein (2012b), Kapeller and Schütz (2014, 2015), Kim, Setterfield, and Mei (2014), Nishi (2012), Palley (1994), Setterfield and Kim (2016, 2017), and Setterfield, Kim, and Rees (2016).

5. Also, household debt-GDP ratios were at a very high and increasing level in this period (see Table 1). However, these ratios are referring to gross debt and are therefore no safe indicator for the level of net indebtedness.

6. For more detailed analysis of financialization processes and of macroeconomic policies leading to the crisis in these countries, see for example Juuse (2016) and Juuse and Kattel (2013) for Estonia, Kazandziska (2015) for Latvia, and Kattel (2010) for the Baltic States.

7. For further discussions see Juuse (2016), Kattel (2010) and Kattel and Raudla (2013), for example. Here is not the place to discuss these problems in detail.

Additional information

Notes on contributors

Petra Dünhaupt

Petra Dünhaupt is a researcher and lecturer at the Berlin School of Economics and Law (HWR) Berlin. She is a member of the Institute for International Political Economy Berlin (IPE), a corresponding member of the Turin Center on Emerging Economies (OEET) and a member of the Editorial Advisory Board of the Review of Political Economy. Her research focuses on financialization, income distribution and global value chains.

Eckhard Hein

Eckhard Hein is a Professor of Economics at the Berlin School of Economics and Law, the Co-Director of the Institute for International Political Economy Berlin (IPE), a Research Associate at the Levy Economics Institute at Bard College, a member of the coordination committee of the Research Network Macroeconomics and Macroeconomic Policies (FMM), and a managing co-editor of the European Journal of Economics and Economic Policies: Intervention. His research focuses on money, financial systems, distribution and growth, European economic policies and post-Keynesian macroeconomics.