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Financialized Economy, Imbalances, and Public Action in the Age of Uncertainty and Systemic Crises

Paper Session

Saturday, Jan. 5, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, Crystal C
Hosted By: Association for Evolutionary Economics
  • Chair: Ilene Grabel, University of Denver

From the Age of Rentier Tranquility to the New Age of Deep Uncertainty: The Metamorphosis of Central Bank Policy in Modern Financialized Economies

Mario Seccareccia
,
University of Ottawa

Abstract

The purpose of this paper is to offer some insights on the nature of central bank policy from the “age of uncertainty” of the 1970s to the new age of deep uncertainty that characterizes today’s financialized capitalistic economies. The inflationary episode of the 1970s prompted dramatic changes in the way central bank policy was subsequently framed. This changing monetary policy framework triggered some significant modifications in income distribution, which constituted the driving force in support of late twentieth-century and early twenty-first century financialization. Most of the changes in income distribution, whether measured by the decoupling of real wages and productivity since the late 1970s, or whether measured by the rising rentier vis-à-vis the labor share of national income before the global financial crisis, all suggest that monetary policy played an important contributing role in the transformation from the immediate postwar “golden age” of capitalism to that of a financialized (rentier) economy, with the latter displaying growing stagnationist tendencies since the 1980s. The global financial crisis of 2007-2008 forced changes in monetary policy initially to move away from sustaining rentier income to that of bolstering asset prices (Seccareccia 2017). In recent years, while trying to return to the institutional toile de fond of central banking policy of the era prior to 2008, current policy makers have been unable to do so after a decade since the financial crisis. Indeed, this effort has been largely futile internationally because of the deep systemic uncertainty and inherent stagnationist tendencies within contemporary financialized economies.

Transnationalization and Financialization: Understanding the Seventh Merger Wave

Avraham Izhar Baranes
,
Rollins College

Abstract

This paper examines the present wave of mergers and acquisitions within the context of a financialized economy. This seventh major merger wave combines elements of the waves preceding it, emphasizing the creation of networks of production, distribution, and innovation that span across international borders with the institution of the transnational corporation at the center. Building on previous work done by Serfati (2008), Mazzucato (2011), and Lazonick (2010), I argue that mergers and acquisitions in the context of financialization do not seek to create value. Rather, they are a tool used to extract it from where it is produced while reinforcing the position of dominant capital and existing international power imbalances. The purpose of this paper, then, is two-fold. First, explain how the development of the transnational corporation has played a major role in driving this wave of mergers and acquisitions. Second, show how this wave has continued to promote a transfer of income, wealth, and power from labor to capital and exacerbated existing economic imbalances on an international scale. Key to this argument is the importance of property right accumulation, the ability for dominant capital to design public policy (especially trade policy), and the persisting imbalances of international power. Overall, the paper provides an important step towards understanding the modern corporation in the era of financialization by putting mergers and acquisitions at the forefront of the analysis of enterprise activity.

Stabilizing Endogenous Instability: A Contradiction in Terms? Proposals for an Institutionalist Reform of Financial Regulation

Faruk Ülgen
,
University Grenoble Alpes

Abstract

This article suggests, in an Institutionalist vein, some relevant tracks for financial regulatory reforms to “stabilize an endogenously unstable economy”. Financialization of economies enlarged uncertainties that had huge impacts on the final adjustment of economic imbalances. Focusing on the monetary characteristics of a capitalist economy, Institutionalist approaches offer a relevant basis to frame a comprehensive analysis on the financialization process and its consequences for economic system’s stability. Such an analysis allows us to suggest structural changes in financial regulation as a serious alternative to neoliberal economics. In this vein, this article draws upon the institutionalist understanding of how a capitalist economy operates, with a focus on the characteristics of money and related financial markets. It argues that financial self-regulation that rests on market incentives often results in macro instabilities and threats the viability of the entire economy. That calls for alternative regulatory structures that should seek to achieve both objectives: to provide and preserve a public good (financial and macroeconomic stability) and contain the economy’s foremost public bad (systemic financial instability and crisis). A precautionary principle-based approach to financial regulation is then suggested as an alternative. A precautionary supervision and regulation seems to be an appropriate policy guide in the cases where significant societal damage may occur as it is the case in systemic financial crises. This would require a specific and reformed institutional framework able to permit a tight public supervision and regulation that could shape financial markets’ strategies so as to ensure macro-stability and societal viability-

Financial Inclusion and Financialization: LA’ Main Trends after the Great Crisis

Eugenia Correa
,
Mexico National University
Alicia Giron
,
Mexico National University

Abstract

In recent years, the WB and the IMF have promoted policies and programs for financial inclusion. This paper studies the meaning of the inclusion proposal as well as the main results. The most important argument of this policy is the increase of local savings as the basis of investment and growth. Although this objective has not been achieved, inclusion remains a current policy. In reality, financial inclusion has been driven by an underlying agenda, as has been the case of other policies from the same sphere of interests that the Washington Consensus authored at the beginning of the 1990s. Although this denomination has been abandoned due to the loss of prestige it has achieved in the region, its main objectives continue to be promoted by many governments. Financial inclusion has been a vehicle for deepening financialization. At the same time, it accompanies other goals such as the banking of the trade and capital operations and the control of taxation. The new drive towards demonetization, which was recently experienced in India, also represents, in the current institutional conditions of the developing world, an advance in financialization.

The Double Movement Ten Years After the Fall of Lehman Brothers

Gregorio Vidal
,
Autonomous Metropolitan University-Iztapalapa
Wesley Marshall
,
Autonomous Metropolitan University-Iztapalapa

Abstract

Ten years after the collapse of Lehman Brothers and the sharpest moments of panic within the global, and particularly the United States banking system, a somewhat strange dynamic has appeared. While the principal agents behind the crisis have collapsed their own institutions, the markets that they dominated, and even provoked what has been called the third crisis of economic theory, their political power has not waned. This theme has been well addressed by some academics such as Mirowski (2013), while it has flummoxed others. In this paper, we will argue that Karl Polanyi's theory of the "double movement" offers a coherent framework that is able to account for the history of the last ten years. Polanyi argues that different groups and members of society seek protection from the market, and that this search for protection has been the driving force between historical change. Polanyi does not ignore class; rather, he argues that different social classes can protect themselves in more or less effective ways. We argue that during the last ten years, the interests of globalized financial capital have been able protect themselves with utmost effectiveness, while all other classes have been trammeled, often not even recognizing how or why actions are taken against their general interest.
Discussant(s)
Faruk Ülgen
,
University Grenoble Alpes
JEL Classifications
  • B5 - Current Heterodox Approaches
  • E0 - General