Abstract
We establish the link between rising shareholder power on the firm level, increasing pressure on labour, and redistribution at the expense of wages, with the macroeconomic effects on capacity utilisation, profits and capital accumulation. Three channels of transmission of ‘financialisation’ and increasing shareholder power, the ‘preference channel’, the ‘finance channel’ and the ‘distribution channel’, are introduced into two different variants of the Kaleckian distribution and growth model, the Kaleckian model and the Post-Kaleckian model. Within these models, three potential regimes of accumulation are derived, the ‘contractive’ regime, the ‘profits without investment’ regime, and the ‘finance-led growth’ regime. Only the ‘profits without investment’ regime generates a strict micro-macro identity, whereas the other two regimes are characterised by fallacies of composition, a ‘paradox of accumulation’ in the ‘finance-led growth’ regime and a ‘paradox of profits’ in the ‘contractive’ regime.
Acknowledgments
An earlier version of this paper (Hein & van Treeck, Citation2007) was presented at the conference ‘Finance-led Capitalism? Macroeconomic Effects of Changes in the Financial Sector’, 26–27 October 2007, in Berlin. For helpful comments on that version we would like to thank the participants in the conference. We are also most grateful for comments by an anonymous referee.
Notes
2Monetary and financial variables have been introduced into Post-Keynesian models of distribution and growth since the late 1980s, as is shown in the review by Hein Citation(2008a). However, the focus in these models was mainly on the integration of exogenous interest rates and endogenous credit. The integration of financialisation issues only started in the early 2000s. See for instance the early work by Aglietta Citation(2000) and Boyer Citation(2000), the papers with partial models on the effects of financialisation on investment by Stockhammer (Citation2004, Citation2005–06) and on consumption by Bhaduri et al.
Citation(2006) and Dutt Citation(2006), and the work on complete, stock-flow consistent models developed by Dallery & van Treeck Citation(2010), Hein (Citation2008c, Citation2010), Lavoie Citation(2008), Skott & Ryoo (Citation2008a, Citation2008b) and van Treeck Citation(2009b). For an overview see Hein & van Treeck Citation(2010).
3The following arguments on financialisation and the Post-Keynesian theory of the firm draw on Hein & van Treeck Citation(2010).
4The profit rate of the financial sector in the US, however, has increased significantly since the early 1980s exceeding the profit rate of the non-financial sector by a considerable amount since then (Duménil & Lévy, Citation2004a).
5The approach presented here is therefore different from the one in Hein & van Treeck Citation(2007) where we assumed the debt/capital and equity/capital ratios to be constant, which can only hold in a very special case or in the very short run. Here, we make no such assumption. The procedure is thus similar to the one in Hein Citation(2008b). For an explicit analysis of the debt and equity dynamics in otherwise similar Kaleckian models see Hein (Citation2008c, Citation2010).
6Of course, one may also consider the possibility that an increase in shareholder power reduces the rentiers' profit rate, when there are strong contractive macroeconomic effects on the overall profit rate. Here, we exclude this possibility for simplicity.
7In our model, we consider only rentiers' consumption out of current income flows. When shareholder value orientation is furthermore linked to increasing stock prices, it can be expected that rising stock market wealth further lowers the overall saving rate, in particular when households can borrow extensively against collateral, as described by Dutt Citation(2006) and Bhaduri et al.
Citation(2006). However, the expansive effects of increasing wealth-based and credit-financed consumption might only be temporary because of subsequent interest payments and repayment of credit, which dampen aggregated demand.
8Note that
, so that a strong effect via the ‘preference channel’ on firms' investment increases the value of the right-hand side of condition (15a′).
Eatwell
,
J.
and
Taylor
,
L.
2000
.
Global Finance at Risk
,
Cambridge,
, UK
:
Polity Press
.
Krippner
,
G. R.
2005
.
The financialization of the American economy
.
Socio-Economic Review
,
3
:
173
–
208
.
Orhangazi
,
Ö.
2008
.
Financialisation and capital accumulation in the non-financial corporate sector: a theoretical and empirical investigation on the US economy: 1973–2003
.
Cambridge Journal of Economics
,
32
:
863
–
886
.
Duménil
,
G.
and
Lévy
,
D.
2004a
.
The real and financial components of profitability (USA 1948–2000)
.
Review of Radical Political Economics
,
36
:
82
–
110
.
Duménil
,
G.
and
Lévy
,
D.
2004b
.
Neoliberal income trends. Wealth, class and ownership in the USA
.
New Left Review
,
30
:
105
–
133
.
Epstein
,
G. A.
2005
.
Financialization and the World Economy
,
Cheltenham
:
Edward Elgar
.
van Treeck
,
T.
2009a
.
The political economy debate on ‘financialisation’—a macroeconomic perspective
.
Review of International Political Economy
,
16
:
907
–
944
.
van Treeck
,
T.
,
Hein
,
E.
and
Dünhaupt
,
P.
2007
.
Finanzsystem und wirtschaftliche Entwicklung: neuere Tendenzen in den USA und in Deutschland
,
Duesseldorf
:
Macroeconomic Policy Institute (IMK) at Hans Boeckler Foundation
.
IMK Studies, 5/2007
Stockhammer
,
E.
2008
.
Some stylized facts on the finance-dominated accumulation regime
.
Competition and Change
,
12
:
189
–
207
.
Hein
,
E.
2008a
.
Money, Distribution Conflict and Capital Accumulation. Contributions to ‘Monetary Analysis’
,
Basingstoke
:
Palgrave Macmillan
.
Aglietta
,
M.
2000
.
Shareholder value and corporate governance: some tricky questions
.
Economy and Society
,
29
:
146
–
159
.
Boyer
,
R.
2000
.
Is a finance-led growth regime a viable alternative to Fordism? a preliminary analysis
.
Economy and Society
,
29
:
111
–
145
.
Stockhammer
,
E.
2004
.
Financialisation and the slowdown of accumulation
.
Cambridge Journal of Economics
,
28
:
719
–
741
.
Stockhammer
,
E.
2005–06
.
Shareholder value orientation and the investment-profit puzzle
.
Journal of Post Keynesian Economics
,
28
:
193
–
215
.
Bhaduri
,
A.
,
Laski
,
K.
and
Riese
,
M.
2006
.
A model of interaction between the virtual and the real economy
.
Metroeconomica
,
57
:
412
–
427
.
Dutt
,
A. K.
2006
.
Maturity, stagnation and consumer debt: a Steindlian approach
.
Metroeconomica
,
57
:
339
–
364
.
Dallery
,
T.
and
van Treeck
,
T.
2010
.
Conflicting claims and equilibrium adjustment processes in a stock-flow consistent macro model
.
Review of Political Economy
,
forthcoming
Hein
,
E.
2008c
.
‘Financialisation’ in a comparative static, stock-flow consistent Post-Kaleckian distribution and growth model
,
IMK Working Paper, 21/2008 (Duesseldorf: Macroeconomic Policy Institute (IMK) at Hans Boeckler Foundation)
Hein
,
E.
2010
.
Shareholder value orientation, distribution and growth—short- and medium-run effects in a Kaleckian model
.
Metroeconomica
,
61
:
302
–
332
.
Lavoie
,
M.
2008
.
Financialisation issues in a Post-Keynesian stock-flow consistent model
.
Intervention. European Journal of Economics and Economic Policies
,
5
:
331
–
356
.
Skott
,
P.
and
Ryoo
,
S.
2008a
.
Macroeconomic implications of financialization
.
Cambridge Journal of Economics
,
32
:
827
–
862
.
Skott
,
P.
and
Ryoo
,
S.
2008b
.
Financialization in Kaleckian economics with and without labor constraints
.
Intervention. European Journal of Economics and Economic Policies
,
5
:
357
–
386
.
van Treeck
,
T.
2009b
.
A synthetic stock-flow consistent macroeconomic model of financialisation
.
Cambridge Journal of Economics
,
33
:
467
–
493
.
Hein
,
E.
and
van Treeck
,
T.
2010
.
“
‘Financialisation’ in Post-Keynesian models of distribution and growth—a systematic review
”
. In
Handbook of Alternative Theories of Economic Growth
,
Edited by:
Setterfield
,
M.
Cheltenham
:
Edward Elgar
.
forthcoming
Hein
,
E.
and
van Treeck
,
T.
2010
.
“
‘Financialisation’ in Post-Keynesian models of distribution and growth—a systematic review
”
. In
Handbook of Alternative Theories of Economic Growth
,
Edited by:
Setterfield
,
M.
Cheltenham
:
Edward Elgar
.
forthcoming
Duménil
,
G.
and
Lévy
,
D.
2004a
.
The real and financial components of profitability (USA 1948–2000)
.
Review of Radical Political Economics
,
36
:
82
–
110
.
Hein
,
E.
and
van Treeck
,
T.
2007
.
‘Financialisation’ in Kaleckian/Post-Kaleckian models of distribution and growth
,
IMK Working Paper, 7/2007 (Duesseldorf: Macroeconomic Policy Institute (IMK) at Hans Boeckler Foundation)
Hein
,
E.
2008b
.
“
Rising shareholder power: effects on distribution, capacity utilisation and capital accumulation in Kaleckian/Post-Kaleckian models
”
. In
Finance-led Capitalism? Macroeconomic Effects of Changes in the Financial Sector
,
Edited by:
Hein
,
E.
,
Niechoj
,
T.
,
Spahn
,
P.
and
Truger
,
A.
Marburg
:
Metropolis
.
Hein
,
E.
2008c
.
‘Financialisation’ in a comparative static, stock-flow consistent Post-Kaleckian distribution and growth model
,
IMK Working Paper, 21/2008 (Duesseldorf: Macroeconomic Policy Institute (IMK) at Hans Boeckler Foundation)
Hein
,
E.
2010
.
Shareholder value orientation, distribution and growth—short- and medium-run effects in a Kaleckian model
.
Metroeconomica
,
61
:
302
–
332
.
Dutt
,
A. K.
2006
.
Maturity, stagnation and consumer debt: a Steindlian approach
.
Metroeconomica
,
57
:
339
–
364
.
Bhaduri
,
A.
,
Laski
,
K.
and
Riese
,
M.
2006
.
A model of interaction between the virtual and the real economy
.
Metroeconomica
,
57
:
412
–
427
.