Financialization and Macroeconomics: The Impact on Social Welfare in Advanced Economies

215 Pages·2022·2.391 MB·English

by  Giovanni Scarano

Financialisation and
Macroeconomics
Financialisation has become a widely discussed and debated term leading to a
plurality of perspectives, but no fixed definition or single reading. This book
presents a critical exploration and review of the current literature on finan-
cialisation, focussing on the financialisation of NFCs and its possible impli-
cations for the macroeconomic and financial stability of advanced countries.
Starting from this critical analysis, it proposes some new readings of the
process of financialisation, linking it directly, on the one hand, to the evolu-
tion of interest-bearing capital and the credit system, and, on the other hand,
to the historical tendencies of monopoly capital towards financial arrange-
ments to manage corporate control. Finally, a conceptual scheme for interpre-
tation and a mathematical model of corporate portfolio choice is developed to
explain how the tendency in developed countries to place growing shares of
social surplus in speculative financial channels can contribute to their long-
term real stagnation. The book also underlines the excessive attention usually
being paid to some micro-epiphenomena that show a fallacy of composition
at the macroeconomic level and can lead to some misunderstandings of the
general trends in capitalist evolution. Moreover, some doubts are raised about
the extent to which financialisation actually represents a change to the pres-
ent regime of accumulation.
The book targets all the scholars who are interested in better understand-
ing whether financialisation constitutes a profound change in the functioning
of capitalist economic systems and what effects it can produce in social wel-
fare in the advanced countries.
Giovanni Scarano is Professor of Economics at Roma Tre University
and a member of STOREP (Italian Association for the History of Political
Economy).
Routledge Critical Studies in Finance and Stability
Edited by Jan Toporowski, School of Oriental and African Studies,
University of London, UK
The 2007–8 Banking Crash has induced a major and wide-ranging discussion
on the subject of financial (in)stability and a need to revaluate theory and pol-
icy. The response of policy-makers to the crisis has been to refocus fiscal and
monetary policy on financial stabilisation and reconstruction. However, this
has been done with only vague ideas of bank recapitalisation and ‘Keynesian’
reflation aroused by the exigencies of the crisis, rather than the application of
any systematic theory or theories of financial instability.
Routledge Critical Studies in Finance and Stability covers a range of issues in
the area of finance including instability, systemic failure, financial macroe-
conomics in the vein of Hyman P. Minsky, Ben Bernanke and Mark Ger-
tler, central bank operations, financial regulation, developing countries and
financial crises, new portfolio theory and New International Monetary and
Financial Architecture.
Financialisation in the European Periphery
Work and Social Reproduction in Portugal
Edited by Ana Cordeiro Santos and Nuno Teles
Emerging Economies and the Global Financial System
Post-Keynesian Analysis
Edited by Bruno Bonizzi, Annina Kaltenbrunner and Raquel A. Ramos
Financialisation in Emerging Economies
Changes in Central Banking
Juan Pablo Painceira
Financialisation and Macroeconomics
The Impact on Social Welfare in Advanced Economies
Giovanni Scarano
For more information about this series, please visit: www.routledge.com/
series/RCSFS
Financialisation and
Macroeconomics
The Impact on Social Welfare in
Advanced Economies
Giovanni Scarano
First published 2023
by Routledge
4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2023 Giovanni Scarano
The right of Giovanni Scarano to be identified as author of this
work has been asserted in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic, mechanical,
or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Scarano, Giovanni (Professor of economics), author.
Title: Financialization and macroeconomics : the impact on social welfare
in advanced economies / Giovanni Scarano.
Description: Abingdon, Oxon ; New York, NY : Routledge, 2023. |
Series: Routledge critical studies in finance and stability | Includes
bibliographical references and index. |
Identifiers: LCCN 2022035389 (print) | LCCN 2022035390 (ebook) |
ISBN 9781032121307 (hardback) | ISBN 9781032121321 (paperback) |
ISBN 9781003223221 (ebook)
Subjects: LCSH: Financialization—Case studies. | Financial services
industry—Case studies. | Macroeconomics—Case studies.
Classification: LCC HG173 .S263 2023 (print) | LCC HG173 (ebook) |
DDC 332—dc23/eng/20220923
LC record available at https://lccn.loc.gov/2022035389
LC ebook record available at https://lccn.loc.gov/2022035390
ISBN: 978-1-032-12130-7 (hbk)
ISBN: 978-1-032-12132-1 (pbk)
ISBN: 978-1-003-22322-1 (ebk)
DOI: 10.4324/9781003223221
Typeset in Bembo
By codeMantra
To my wife Valeria, who supports my life and work with her love
and patience, and to my parents, who taught me to be myself in every
circumstance.

Contents
List of illustrations ix
Introduction 1
1 Post-Keynesian approaches 7
The rise of finance in neoliberal era 7
Financial investment vs real investment 12
The shareholder revolution 16
The role of mutual and pension funds 21
The false myth of managerial capitalism 28
Who managers really are and how they run corporations 34
NFCs as main actors of their own financialisation 37
2 The French Regulation School and the Social
Structures of Accumulation Approach 49
Accumulation regimes and stages of capitalism development 49
Modes of regulation and social structures of accumulation 53
Finance-dominated capitalism 58
Does a new accumulation regime really exist? 62
3 Classical Marxist approaches 73
Finance capital 73
Bukharin’s and Lenin’s “Imperialism” 77
Monopoly capital according to the American neo-Marxists 82
Financial oligarchies and rentiers 87
Monopoly capital, corporate control and the evolution of large
industrial holding companies 93
4 Interest-bearing capital vs industrial capital 100
Money capital and productive capital 100
The role of credit in capitalist production 104
viii Contents
Fictitious capital and the promoter’s profit 109
Shadow banking and capitalist production 111
5 Financial rentiers and the revenant conflict between
rent and profit 116
The conflict between rent and profit in classical political economy 116
Financial rent and accumulation of capital 119
Financial rent and economic stagnation 123
6 Corporate saving glut and liquidity holding 131
Hoarding and economic crises 131
Liquidity holding and corporate saving 135
Some views on corporate savings and liquidity holding around the
Great Depression 138
Some American views on corporate savings and cash holding
in the 1940s 142
Corporate savings during the Golden Age 151
NFC savings around the financial crisis of 2007–2008 153
The rise of NFC liquidity holdings 163
7 Financialisation of NFCs, globalisation and growth 172
Investment choices and investment theories 172
Financial investment and the term structure of interest rates 177
The contribution of free movement of capital 179
An interpretation model 182
8 Conclusion 191
Index 197
Illustrations
Figures
1.1 Stock Market Capitalisation to GDP ratio (1975–2020) 13
1.2 Stock Market Capitalisation to GDP ratio in main OECD
countries (1975–2020) 13
1.3 Gross capital formation as a percentage of GDP (1975–2020) 14
1.4 Total assets and nonfinancial assets in the US NFCs (1945–2020) 15
6.1 NFC gross saving as a share of gross national saving 154
6.2 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in the United States 155
6.3 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in the United Kingdom 155
6.4 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in Canada 156
6.5 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in Japan 156
6.6 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in Germany 156
6.7 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in France 157
6.8 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in Italy 157
6.9 Gross saving, capital expenditure and net lending of NFCs
as a share of GDP in China 158
6.10 Changes in net lending between 2001 and 2005 ($ billion) 160
7.1 Flow-chart of the conceptual scheme of the model 183
Table
3.1 Top holding companies and conglomerates in the world (2022) 96