Money Manager Capitalism and the Coronavirus Pandemic: A Post-Keynesian Institutionalist Analysis of Inadequate Industrial Capacity

Abstract

The COVID-19 pandemic shook the world economy and triggered one of the worst economic downturns in U.S. history. Fundamental features of the current economic era—known as “money manager capitalism” (MMC)—have contributed to the severity of the crisis, and this article focuses on the era’s extreme subordination of industrial production to financial pursuits. This post-Keynesian institutionalist analysis begins with a brief overview of MMC and then traces inadequate industrial capacity during the pandemic to several consequences of the single-minded focus on shareholder value: offshore outsourcing, corporate mergers and acquisitions, and stock buybacks. The article closes by stressing that it will not be easy to fix the systemic problems that the pandemic has exposed; the necessary reforms must be far reaching, and the opposition will surely remain fierce.

Keywords:

• money manager capitalism
• industrial capacity
• offshore outsourcing
• corporate mergers and acquisitions
• stock buybacks

JEL Classification Codes:

• B52
• L20
• O51

Notes

1 According to the most recent inflation report issued by the U.S. Bureau of Labor Statistics (2021c), consumer prices rose 6.2 percent over the twelve-month period ending in October 2021.

2 Accompanying MMC’s inattention to goods production is a corresponding neglect of services—of all sorts ranging from customer service to healthcare services. Although that matter certainly has relevance to the coronavirus pandemic, space limitations prevent its exploration here.

3 For details on the rising economic significance of institutional investors over several decades, as well as a broader discussion of MMC and the COVID-19 pandemic, see Liang and Whalen (2022).

4 In the era of managerial capitalism (which emerged during the New Deal and ended with the start of MMC), corporate managers (operating against the backdrop of macroeconomic stabilization by the federal government) were the dominant economic power group; see Whalen (2001, 813–814).

5 For an illustrative case study of how globalization of supply chains has allowed retailers to boost profitability even in the face of slowing sales growth, see Celine Baud and Cedric Durand (2012), which includes references to other research showing how corporations in a wide range of manufacturing and service industries have substantially increased profits in recent decades through offshoring.

6 Also contributing to the inadequacy of PPE stockpiles are hospital purchasing and budgeting systems that prioritize minimizing PPE expenditures, partly by keeping inventories low (Cohen and Rodgers 2020, 2–4).

7 The combination of overwhelming demand and reliance on arms-length relationships with offshore suppliers has also led to fraud—including sale of counterfeit, substandard, and even used medical gloves and other essential products—often on an “enormous scale” (McLean et al. 2021).

8 The New England Journal article also highlighted a shortage of beds in intensive care units, and it turns out that the shortage of hospital beds can be traced in large part to hospital M&As (Flynn and Knox 2020).

Additional information

Notes on contributors

Charles J. Whalen

Charles J. Whalen is a research fellow at the Baldy Center for Law and Social Policy, University at Buffalo. Yan Liang is a professor of economics at Willamette University. This article derives from the authors’ broader exploration of the contemporary economy: “Money Manager Capitalism and the Coronavirus Pandemic” (Liang and Whalen 2022). The authors thank Linda Whalen for helpful comments on the manuscript.

Yan Liang

Charles J. Whalen is a research fellow at the Baldy Center for Law and Social Policy, University at Buffalo. Yan Liang is a professor of economics at Willamette University. This article derives from the authors’ broader exploration of the contemporary economy: “Money Manager Capitalism and the Coronavirus Pandemic” (Liang and Whalen 2022). The authors thank Linda Whalen for helpful comments on the manuscript.