Facing now suddenly a much more active market for corporate control, underperforming corporations have to worry about shareholder revolts, takeover bids by competitors, leveraged buy-outs by private-equity funds wishing to take them private and/or break them up, and pressure from well-funded corporate raiders. Mergers and acquisitions are preferred as method for growth over investment in new, additional production capacity. Thus subject to intense market pressure, managers prioritize short-term results over long-term activities which would be far more productive for growth – research and development, renewal of plant and equipment, skill formation of its work-force, nourishment of long-term relations with suppliers. They often use their ownership rights to impose a financial logic rooted in quarterly per-share earnings as defining measure of performance, a logic pervading corporate boardrooms and governance rules (Aglietta & Rebérioux, 2004). The rapid growth of these so-called institutional investors over the last quarter of a century has turned them into the principal shareholders of large firms across the globe. This change came about with the emergence of different types of funds – pension funds, mutual funds, more recently also hedge funds – which pool together smaller investors for the benefits of scale (better diversification, more information, lower transaction costs, etc.). Shareholder Value MaximizationĤOn the level of the firm, financialization refers above all to the dominance of shareholder value maximization among corporate objectives. Its central attribute is a process widely referred to as financialization which Epstein (2005, p. 3) has defined as “ the increasing role of financial motives, financial markets, financial actors and financial institutions in the operations of the domestic and international economies.” When looking at it in the concrete, financialization is a complex process comprising many different facets 1. No matter what name it gets referred to, the new regime is driven by finance (Tabb, 2007). FinancializationģRegulationists and other heterodox economists have in recent years recognized the arrival of a qualitatively different type of capitalism, one termed alternately “patrimonial capitalism” (Aglietta, 1998), “finance-led growth regime” (Boyer, 2000), or “finance-dominated accumulation regime” (Stockhammer, 2007). We want to shed light on this significant moment. In other words, we are facing a systemic crisis, always an event of epic proportions and lasting impact. Not only has it emanated from the center rather than hit somewhere at the periphery, but it also has revealed deep structural flaws in the institutional architecture of contracts, funds, and markets that have made up the new, deregulated system of finance.
The current crisis, however, is different.
But those crises were passing affairs, mechanisms of re-equilibration for integrating those countries into the world economy. True, FLC always has had a propensity for financial crises at key moments of its territorial expansion when bringing hitherto state-run economies into the orbit of market regulation, as was the case with the LDC debt crisis of the 1980s, the Mexican peso crisis of 1994/95, or the turmoil hitting emerging markets – from Thailand to Argentina – in the late 1990s. By organizing new ways to fund debt we have been able to smoothen out the business cycle and accommodate much larger external imbalances between countries, major achievements in our perennial stabilization efforts.ĢBut this system is now in crisis. Over the last quarter of a century its propagation has helped the integration of half of the planet’s human race into our private market economy, financed a new technological revolution, and pushed along the globalization process at a rapid clip. Representing a new accumulation regime in the sense developed first by the originators of the French Regulation School (Aglietta, 1976 Boyer & Saillard, 1995), finance-led capitalism (FLC) has spread its relentless logic of free-market regulation and shareholder value maximization across all corners of the world. 1Ever since we responded to the worldwide stagflation crisis of the 1970s and early 1980s by deregulating banks and letting them reshape the workings of our economy, we have lived in a system dominated by finance.
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