Financialization of Non-Financial Corporations in the US: Implications on the Labor Market
By: Jana Mudronova*
Financialization of Non-Financial Corporations in the US: Implications on the Labor Market
Abstract: By entering into new relations, financial services ceased to be a domain of the banking system and has proliferated to the activities of non-financial corporations. The increasing investment in financial assets impacts job creation, production activities, innovation and the competitiveness of U.S. corporations. A rising share of internal funds paid to financial markets in the name of increasing shareholder value is at the expense of declining real wages. The management goal of meeting the expectation of financial markets reinforces short-termism in decision-making and results in the slowdown of real capital accumulation.
Introduction
The financial sector is at the center of the debate on the current economic crisis. I will leave the complexities of how financial institutions contributed to this situation for other researchers, as well as why, in the middle of the crisis in 2010, hedge fund managers reported the highest earnings in history and bank managers received generous bonuses. I also will not address the ability of the financial sector to take advantage of its political power and demand public bailouts. Rather, I direct your attention to finance as an immanent characteristic of the existing economic system. The financial sector has been an important part of economics since its origin, but only recently has it transcended all relations, including personal, leading to a change in economic and social production.[1] Financial services ceased to be a domain of the bank system but became an intrinsic feature of new financial corporations, funds, households and nonfinancial corporations. The purpose of this article is to shed light on the penetration of finance into the activities of nonfinancial corporations, so I will focus on the relations of finance with productive activities.
Financialization and its Effects
Financialization is understood as a rise in investment in financial assets along with a decline in accumulation of physical assets, which has been a feature of recent decades. This shift toward domination of financial investment over real investment cannot be separated from its connection to other processes of past decades, which contributed to the current situation. Market deregulation was complemented by the deregulation of the banking sector in the early 1980s[2], along with privatization and increased commercialization. Market logic and reliance on the private sector have gone beyond the sphere of economics and subordinated social policies, such as education, housing and health sectors. Financial assets not only expanded in volume but more importantly proliferated into new spheres in which they were previously absent.[3]
For mainstream economic theory, easy access to finance equates with the expansion of productive activities of firms. However, problems arise when financial investments bring higher profits than real investments.[4] Additionally, decision making in light of such profitability is facilitated by a new shift in corporate governance. In the 1970s, a principle of shareholder value transformed the way companies derive their profits, accumulate assets and perceive their own roles. Increased capital mobility changed the perception of firms, which came be regarded as “bundles of assets to be traded,” capturing the value as opposed to creating it.[5]
*Jana Mudronova is a researcher and holds a MA in Development Studies from the Institute of Social Studies in the Netherlands. She has held positions in numerous non-governmental organizations centering around public relations, project management and research.
