Deregulated finance has been associated to great transformations in the models of economic growth. As Bello (2006) warned, in the 1980s, Reaganism and structural adjustment were not successful attempts to overcome the post-war accumulation crisis. One decade later, the Clinton administration embraced globalization as an American strategy. First, this strategy aimed to accelerate the integration of production and markets by transnational corporations. Secondly, it aimed to create a multilateral system of global governance centered on the World Trade Organization, the International Monetary Fund and the World Bank. In this scenario, global liquidity, stimulated by the evolution of the American monetary policy since the early 1990s, favored the expansion of private capital flows and deepened the interconnections between national financial systems (Chesnais, 1998).
Accordingly Stockhammer (2009), the notion of a “finance dominated” accumulation regime highlights that the current global financial set up has decisively shaped a pattern of accumulation where different growth models could be identified. While some countries have presented a consumption-driven growth model fueled by credit, generally followed by current account deficits, other countries have shown an export-driven growth model, mainly characterized by modest consumption growth and large current account surpluses.
In spite of the coexistence of different growth models, the financial-led accumulation regime has presented some distinctive features:
- A redefinition of the role of the state that has been justified by the deregulation process in financial, product and labor markets.
- Changes in macroeconomic policies that turned out to focus fiscal adjustments instead of employment goals.
- The centralization of capital, trough waves of M&A and the expansion of sub-contracting schemes (outsourcing) that has been nurtured by short-term profit goals. In fact, one of the most important changes in investment decisions resulted from the increased pressure of shareholders. Managers and owners of firms have come to view their organizations in terms of their short-term financial performance. Assets, debts, current stock market evaluation, mergers and acquisitions have overwhelmed the practice of investment decisions. Indeed, the financial conception of investment has increased in the context where financial innovations (debt and securities) could be used to achieve fast growth with lower capital requirements.
- The redefinition of labor and working conditions that has been at the center of increasing inequality. In truth, the evolution of the capitalist relations of production has revealed changing labor organizing principles in order to cope with the dictates of capital mobility and competition: automatic production control; redefinition of workers’ skills and tasks in the context of new management practices, job rotation and suppression of rights. Besides, attacks on labor unions and the diminishing organizational strength of collective demands need to be underlined. In this context, the deterioration of income distribution and the weak perspectives of job creation are continuously putting a downward pressure on consumption and, therefore, on economic growth.
Indeed, these world-wide evidences reinforced deep menaces to social cohesion and justice in the context of the current financial-led accumulation regime. Considering these menaces, Hobsbawm sharply notes that:
“They seem to reflect the profound social dislocations brought about at all levels of society by the most rapid and dramatic transformation in human life and society experienced within single lifetimes. They also seem to reflect both a crisis in traditional systems of authority, hegemony and legitimacy in the west and their breakdown in the east and the south, as well as a crisis in the traditional movements that claimed to provide an alternative to these.” (Hobsbawm, 2007: 137).
Definitely, teaching economic growth should emphasize the interconnections between power, finance and global governance as related issues that shape livelihoods.
Bello, W. (2006). “The Capitalist Conjuncture: over-accumulation, financial crises, and the retreat from globalization”, Third World Quarterly, Vol. 27, No. 8, pp. 1345 – 1367.
Chesnais, F. (1998). “Mundialização financeira e vulnerabilidade sistêmica”. In: Chesnais, F. (Ed.). A mundialização financeira- gênese, custos e riscos. São Paulo: Xamã.
Hobsbawm. E (2207). Globalisation, Democracy and Terrorism. London: Abacus.
Stockhammer, E. (2009). “The finance-dominated accumulation regime, income distribution and the present crisis”, Department of Economics Working Paper Series, Vienna: Vienna University of Economics & B.A.