创新和金融化 监管来实现经济再工业化

Innovation Dynamics and Financialisation: Is Another Regulation Possible to Re-Industrialise the Economy?

https://www.cairn.info/revue-journal-of-innovation-economics-2019-2-page-133.htm

BY Faruk Ülgen

Journal of Innovation Economics & Management 2019/2 (n° 29), pages 133 à 158

Innovation is the source of the capitalist dynamics of accumulation mainly initiated by entrepreneurial expectations. Schumpeter termed this process of change “Creative Destruction” and regarded the entrepreneur as the source of the storm of innovation that generates novelties, replacing the usual ways of doing, the “old things”, and making society progress beyond existing structures. At the same time, Schumpeter stated that the entrepreneurial adventure of innovation also relied on close support to be provided by the headquarters of a capitalist economy, the money markets. Recent research on economic development and innovations ?[1][1]See, for example, Levine (2005) and Chiu, Meh and Wright… has also placed the focus on financial innovations that would improve and enlarge the role played by financial markets and financing conditions in the process of economic change. From this perspective, financial liberalisation (and the so-called “financial deregulation”) era of the 1990s and 2000s is considered as a growth and innovation period. A positive relationship is then assumed between financial innovations and entrepreneurial innovations as follows:

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1. Entrepreneurial (real sector) innovations require financial support
2. Financial markets could give such a support if they are organised in an efficient way
3. An efficient market organisation requires good incentives that a regulatory environment should generate through stronger competition among economic actors
4. An efficient financial market means a developed market that calls for financial liberalisation and openness
5. In such a competitive environment, financial institutions would innovate more and then supply new/renewed products and processes
6. These innovations would encourage entrepreneurial innovations by supplying better and more efficient ways of funding real activities. In the peculiar case of small-sized entrepreneurial innovations (for example, startups and the like), some specific internal and external forms of financing can be studied through state funds or market funds (Ülgen, 2017) ?[2][2]This article does not seek to explore different ways of funding….

 

3However, in the last few decades, financial innovations produced an economy-wide financialisation process that reduced the share of productive real activities and innovative entrepreneurial engagements in economic evolution. Such a process relied on the assertion that liberalised financial systems and international financial integration were prerequisites for economic growth and development. This assertion also advocated a sharp reduction in government intervention in the economy since the late 1970s that led to a structural de-industrialisation in major mature economies. The real economy has been largely incorporated within world-wide speculation-based and low-real-growth machinery, which then suffered the 2007-2008 systemic crisis with persistent unemployment and cumulated disequilibria. This crisis encouraged financial actors to protect their positions and then reduced the access of risky innovative projects to advantageous financial structures.

4Three effects of the crisis can be observed on the evolution of real innovative activities.

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• The first is the pro-cyclical nature of some innovative investments: crisis conditions discourage new engagements (Aghion et al., 2010) whether related to demand or to supply factors.
• The second is credit rationing: it occurs when banks and other providers of funds restrict their commitments in the face of increasing uncertainty. Innovative activities, which are more uncertain, suffer more from such a context since financial turmoil sharply reduces fundraising (Pierrakis, Westlake, 2009; Peia, 2017).
• The third is the financialisation effect: investors’ preferences are directed towards short-term speculative commitments with high returns at the expense of long-term investments in innovative projects (Gleadle et al., 2012).

 

6Therefore, the role (and then the organisation) of the financial sector to support real innovative activities in a Schumpeterian way becomes a core issue in the analysis of alternative economic recovery models. From this perspective, the importance of the financial sector for innovation is not only related to its role as a funding engine of growth, but also as a buffer to tackle crisis periods (Filippetti, Archibugi, 2011). From the point of view of new opportunities, this role can also be developed in order to support a new stream of innovation and to upgrade the wealth creation process (Archibugi, 2017). One could also expect a new institutional framework to reward value creation activities over value extraction activities (Mazzucato, 2013).

7The purpose of this article is to bring forth the financial dynamics of a perverse economic evolution over the last decades and to suggest an alternative regulatory environment that could incentivise financial markets to adopt strategies in order to encourage sustainable entrepreneurial innovation rather than short-term rentier strategies that structurally impede growth. I argue that re-industrialisation might be seen as another way of organising financial markets that requires an alternative and state-oriented financial regulation. I then suggest directions for possible recovery policies in major financialised economies that suffered recurrent systemic crises and persistent unemployment since the late 1970s. Financialisation can be interpreted as a specific de-industrialisation process and de-financialisation as a possible re-industrialisation process. They are alternative models of capitalist accumulation that call for different market organisations and may generate opposed outcomes. De-financialisation is a necessary condition for a possible re-industrialisation and requires an alternative financial regulation. The latter should be mainly lying in two pillars: a tight public supervision of systemic risk-generating speculative activities and an incentive-framework, able to lead financial institutions to support long-term activities that could result in sustainable development.

创新是主要由企业家期望引发的资本主义积累动力的源泉。 熊彼特将这一变化过程称为“创造性破坏”，并将企业家视为创新风暴的源头，创新风暴会产生新奇事物，取代通常的做事方式、“旧事物”，并使社会进步超越现有结构。 同时，熊彼特表示，创新的创业冒险也有赖于资本主义经济总部——货币市场提供的密切支持。 最近关于经济发展和创新的研究 [1][1]参见，例如，Levine (2005) 和 Chiu、Meh 和 Wright……也将重点放在金融创新上，这些创新将改善和扩大金融市场和融资所发挥的作用 经济变化过程中的条件。 从这个角度来看，1990 年代和 2000 年代的金融自由化（以及所谓的“金融放松管制”）时代被视为增长和创新时期。 然后假设金融创新和创业创新之间存在正相关关系，如下所示：

2个

创业（实体部门）创新需要资金支持
如果以有效的方式组织起来，金融市场可以提供这样的支持
一个有效的市场组织需要良好的激励，监管环境应该通过经济参与者之间更激烈的竞争来产生这种激励
高效的金融市场是指要求金融自由化和开放的发达市场
在这样的竞争环境中，金融机构会更多地创新，然后提供新的/更新的产品和流程
这些创新将通过提供更好、更有效的方式为实际活动提供资金来鼓励创业创新。 在小型创业创新（例如初创公司等）的特殊情况下，可以通过国家基金或市场基金研究一些特定的内部和外部融资形式（Ülgen，2017）[2][2]本文 不寻求探索不同的筹资方式……。

3然而，在过去几十年中，金融创新产生了一个经济范围内的金融化过程，减少了生产性实体活动和创新创业活动在经济发展中的份额。 这一进程依赖于这样一种说法，即自由化的金融体系和国际金融一体化是经济增长和发展的先决条件。 这一论断还提倡政府自 20 世纪 70 年代末以来大幅减少对经济的干预，导致主要成熟经济体出现结构性去工业化。 实体经济在很大程度上被纳入了全球范围内基于投机和低实际增长的机器，然后遭受了 2007-2008 年的系统性危机，持续失业和累积失衡。 这场危机鼓励金融参与者保护自己的地位，然后减少了风险创新项目进入有利金融结构的机会。

4 可以观察到危机对实际创新活动演变的三种影响。

5个

首先是一些创新投资的顺周期性：危机条件阻碍了新的参与（Aghion 等人，2010 年），无论是与需求还是供应因素有关。
第二种是信贷配给：当银行和其他资金提供者面对越来越多的不确定性限制他们的承诺时，就会发生这种情况。 更不确定的创新活动在这种情况下受到的影响更大，因为金融动荡会大幅减少筹款活动（Pierrakis、Westlake，2009 年；Peia，2017 年）。
第三是金融化效应：投资者的偏好指向具有高回报的短期投机性承诺，而牺牲了对创新项目的长期投资（Gleadle 等人，2012 年）。

6因此，金融部门以熊彼特的方式支持真正的创新活动的作用（以及组织）成为分析替代经济复苏模型的核心问题。 从这个角度来看，金融部门对创新的重要性不仅与其作为增长融资引擎的作用有关，而且还作为应对危机时期的缓冲（Filippetti、Archibugi，2011 年）。 从新机会的角度来看，也可以发展这一角色以支持新的创新流和升级财富创造过程（Archibugi，2017 年）。 人们还可以期待一种新的制度框架来奖励价值创造活动而不是价值提取活动（Mazzucato，2013 年）。

8To support such assertions, this article is divided into four sections. The first summarises the arguments about the finance-growth nexus and underlines links between banks/financial system and the financing of productive activities. It shows that from the 1970s and 1980s advanced capitalist economies have witnessed an economy-wide financial liberalisation process that transformed them into financialised structures at the expense of the real sector. Debt-led rent-seeking activities created old but renewed speculative rent sectors (real estate) and tax structures have been modified to give (bad) incentives (low capital taxation) to the use of capital and bank credit. The second section states that this evolution resulted in a new finance-led accumulation regime that generated a job-destructive de-industrialisation process. The entire economic structure has been transformed into a finance-dominated rentier economy. The third section maintains, in the light of subsequent crises, that financialisation is not the panacea for growth and for entrepreneurial innovation. The latter requires long-term engagements that cannot be funded through speculative strategies. Therefore, a structural modification of financial systems under the regulation of public supervision is required in order to redirect markets’ strategies towards sustainable long-term productive activities. The last section concludes by pointing to some policy measures.

Liberalisation, Financial Development and Growth

9A substantial strand of the academic literature maintains that financial markets would improve productivity and support industrialisation thanks to the multiple functions ?[3][3]Such as mobilisation of savings and their efficient allocation… they would perform in the process of economic development and growth. Financial markets are expected to spur economic growth thanks to their effects on the real economy either on the supply side and the demand side. On the supply side, financial markets are expected to allow market actors (investors, enterprises and savers) to have access to innovative and efficient products and processes. On the demand side, they would generate financial tools in accordance with the demand of entrepreneurs who need further specific finance. Consequently, the development of financial markets should matter for economic development.

10In a comprehensive survey of these arguments, Barajas et al. (2012), state: “Through these functions, a country providing an environment conducive to greater financial development would have higher growth rates, with much of the effect coming through greater productivity rather than a higher overall rate of investment”.

11In the same vein, Dorrucci et al. (2009, p. 19) maintain that a (domestic) financial market is developed when it consists of complete markets that must allow economic agents to have access to different assets to protect their positions against adverse shocks and lead to an equilibrium price for every asset in every state of the world. Such markets also have other important features such as transparency (and reduction of informational asymmetries), competition and the rule of law. A developed financial market would therefore channel savings into investments efficiently and effectively thanks to relevant institutional and regulatory framework, the size and the liquidity of financial markets, and the diversity of available financial instruments. Financial development – also called financial modernisation – then refers to “the process of financial innovation as well as institutional and organisational improvements in a financial system that reduce asymmetric information, increase the completeness of markets, add possibilities for agents to engage in financial transactions through (…) contracts, reduce transaction costs and increase competition” (Hartmann et al., 2007, p. 5).

12Drawing upon the Giant Literature (Sel?ah Pa?al?, 2013; Ülgen, 2013; Popov, 2017) on the finance-growth nexus, one can define financial development mainly through four conditions that would lead financial markets to operate in an efficient way:

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1. 1. Breadth: broad markets letting a large number of actors undertake numerous transactions at a large scale without restrictions.
2. 2. Depth: deep markets with wide range of diversified products allowing actors to take and cover various positions and to arbitrage according to their expectations.
3. 3. Liquidity: liquid markets provide all transactions with required liquidity without any restriction. This means that public authorities do not put regulatory pressure on market activities.
4. 4. Feasibility: To become effective and feasible, the aforementioned characteristics need a specific institutional infrastructure that is consistent with the rules and values that underlie such market environment (market-friendly institutions and regulatory rules).

 

14It is worth noting that financial development heavily draws upon the liberalisation of markets. Following the well-known works of Goldsmith, McKinnon and Shaw in the 1960s and 1970s, it is asserted that liberalised finance would improve the competitive incentives leading to innovations and then allowing banks to provide more efficient financial services (Levine, 2005). Consequently, more competition and open markets would foster growth and improve economic stability, at least in the long run. Therefore, one can draw from this analysis the following critical assertions:

15

1. 1. Financial development does mean financial liberalisation since it is assumed to rest on the opening of the capital account (Chinn, Ito, 2005).
2. 2. There is a positive (and sometimes causal) relationship between financial development and economic growth.

 

16Klein and Olivei (1999) maintain that capital account liberalisation can accelerate economic growth through financial development and the intensification of competition as well as the importation of efficient financial services from abroad. Bekaert et al. (2005) then argue that liberalised capital account does directly spur economic growth. La Porta et al. (2002) explore the effect of state ownership of the banking sector in economic growth and show that state ownership and control of banks in the 1960s and 1970s was associated with slower subsequent growth. It is assumed that the publicly owned banks prevent the development of financial markets and hamper the reallocation of capital (Hartmann, 2007).

17In this vein, it is asserted that liberalised markets could self-regulate in case of imbalances so as to lead to an optimal equilibrium without prudential regulatory mechanisms and government bailouts. Greenspan (1997) maintained that the main regulatory rule must be to assure that effective risk management systems were in place in the private sector in order to foster financial innovation without imposing rules that would inhibit it.

18Therefore, the rules of the game changed in favour of much more flexible, light-touch financial regulation, and more decentralised and private control practices (micro-prudential mechanisms) substituted for macro-prudential public supervision rules. The New Basel Capital Accord allowed banks to manage their risks through their own internal models ?[4][4]Banks are allowed discretion in estimating the key inputs of… and “invited” them to purchase rating services from rating agencies on the securities they would issue ?[5][5]These securities were often co-designed and co-issued with…:

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“The New Basel Capital Accord is based around three complementary elements or “pillars”. Pillar 3 recognizes that market discipline has the potential to reinforce capital regulation and other supervisory efforts to promote safety and soundness in banks and financial systems. Market discipline imposes strong incentives on banks to conduct their business in a safe, sound and efficient manner. It can also provide a bank with an incentive to maintain a strong capital base as a cushion against potential future losses arising from its risk exposures. The Committee believes that supervisors have a strong interest in facilitating effective market discipline as a lever to strengthen the safety and soundness of the banking system” (Basel Committee on Banking Supervision, 2001, p. 1).

 

 

20Van Hoose (2010) stated that although market imperfections could require more public oversight on financial activities, tight regulation may generate some sunk fixed-costs for the banking industry and affect its competitive structure.

21In the same vein, Greenspan (2005) maintained that a loosening of regulatory restraint on business would improve the flexibility of the economy and allow financial markets to enhance the innovative dynamics like in the Schumpeterian creative destruction process:

22

“These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago. After the bursting of the stock market bubble in 2000, unlike previous periods following large financial shocks, no major financial institution defaulted, and the economy held up far better than many had anticipated.”

 

 

23The IMF (2006, p. 1) firmly argued:

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“The positive assessment contained in the September 2005 GFSR that “the global financial system has yet again gathered strength and resilience” has been validated by recent developments. (…) globalization and financial innovations have advanced the scope for capital markets to channel credit to various users in the economy. In particular, the emergence of numerous, and often very large, institutional investors and the rapid growth of credit risk transfer instruments have enabled banks to manage their credit risk more actively and to outsource the warehousing of credit risk to a diverse range of investors. A wider dispersion of credit risk has “derisked” the banking sector(…) It is true, as mentioned below, that the details of who holds which risk and in what amount are less transparent outside the banking system because of less stringent reporting requirements. On balance, however, it is the wider dispersion of risks, as such, that increases the shock-absorbing capacity of the financial system. As with a reinsurance system, the risk diversification and dispersion aspects matter more than the precise details of who is the ultimate risk bearer.”

 

 

25Analysing the stability concerns of financial markets’ evolution the European Commission also stated that a suitable equilibrium has been reached between the market legislation and the self-regulatory system without necessitating further macro regulatory rules (Official Journal of the European Union, 2006). In this same vein, the UK Financial Services Authority (FSA, 2007, p. 6), declared:

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“We believe regulation that focuses on outcomes rather than prescription is more likely to support this development and innovation. Any set of prescriptive rules is unable to address changing market circumstances and practices at all times, and it inevitably delays, and in some instances prevents, innovation.”

 

 

27Therefore, liberalisation and international integration of national financial systems were considered as the prerequisites for economic growth and development. These assertions were obviously backed by the assumption that (free) market price mechanisms were the best way to let economy efficiently operate at lower transaction costs and higher supply and demand equilibrium. This is the well-known perfect competitive (and Pareto optimal) equilibrium schema. ?[6][6]This schema includes free (real and financial) markets and is…

28This market-friendly (liberal) theoretical and policy perspective is at the core of the liberal regulation policies implemented since the late 1970s. Major regulatory barriers that isolated different financial activities from each other (such as financial engineering, advise, investment banking, sector-specific banking, savings and loan associations, insurance companies, etc.) have been removed. Such regulatory change let new financial products and processes proliferate and then enlarged financial markets, multiplied diversified operations and allowed actors to undertake complex and various engagements without sensitive regulatory constraints.

29This new financial environment is assumed to support the Schumpeterian vision of the creative destruction process by which innovations replace old methods and products with better process, commodities, and services. Ülgen (2014) offers a critical analysis on this assumption and points to the fact that in the Schumpeterian analysis, financial innovations have not the same characteristics as the entrepreneurial innovations, if they are not regulated by a tight public supervision. They may lead to a destructive creation process that harms the long-term perspectives of the real economy. Financial innovations change the path of economic development as much as the entrepreneurial innovations. They change monetary and financial conditions since they increase the elasticity of finance. However, they do not obviously lead to better financing conditions of economic activities.

30The recent evolution of capitalism generated an unsustainable accumulation regime, an expansive financialisation, that does not obviously improve the financial conditions required for real growth. In this new macroeconomic context, economic decisions mainly rely on expected short-term speculative returns at the expense of long-term engagements in productive activities (Epstein, 2005; Palley, 2007; Hein, Detzer, 2014). The financialisation process is built on the assumption that financial development that entrepreneurial innovations would need could come from liberalised markets and should not rely on public intervention and supervision. In this direction, most emerging economies experienced several crises in the 1990s while hi-tech and mortgage bubbles provoked systemic crises in advanced economies in the 2000s. The implementation of this regime since the late 1970s has fuelled the process of de-industrialisation and transformed major mature economies into speculative open markets with low wages and low real growth that finally resulted in persistent unemployment and cumulative global imbalances.

Speculative Accumulation Regime: A New De-Industrialisation Pattern

31De-industrialisation is usually defined as the relative decline of the share of industrial activities in total output and employment, replaced by service activities even if in most modern economies industrial activities are in strong interdependence with service activities. Furthermore, the de-industrialisation phenomenon is studied as a major economic concern when the service sectors are not able to generate employment and growth to compensate for the structural transformation of modern economies in their transition from agricultural to industrial and from industrial to service activities dominated societies.

32In the theoretical framework of de-industrialisation (Rowthorn, Wells, 1987; Maroto-Sanchez, 2010, to quote but a few), two ways of de-industrialisation are usually considered:

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• positive de-industrialisation due to productivity growth differentials between the manufacturing industry and the service industry such that higher productivity growth in the manufacturing industry generates a shift of employment into the service industry; and
• negative de-industrialisation due to the recession in the manufacturing industry that would make (only) part of unemployment move from the manufacturing into the service industry.

 

34Studies on de-industrialisation and re-industrialisation in advanced economies gained renewed interest in the aftermath of the 2007-2008 crisis and in the wake of subsequent worldwide recession that provoked persistent unemployment in most mature economies (Tregenna, 2011).

35Parallel to this, some works related to the links between finance and financing conditions of innovative productive activities again gain ground. These works aim at studying the recurrent debate on the finance-growth nexus (Mina et al., 2012) and on financing constraints and frictions in the credit markets which might preclude high-quality productive entrepreneurial plans (Kerr, Manda, 2009; Ülgen, 2017).

36From the same perspective, the theory of regulation (Boyer, Saillard, 2002) can be used to apprehend the de-industrialisation of the 1990-2000s that lies in a structural change of regime of accumulation in capitalist (and related peripheral) economies. As synthesised by Tahara and Uemura (2013), in a Fordist schema of accumulation, productivity gains are distributed into wages and profits. Profit increase positively affects the expected investment since there is a cumulative causality between the profit rate and the accumulation rate. Parallel to the profit side, an increase in wages leads to more consumption demand that would increase the capacity utilisation in the manufacturing industry. If the consumption is continuously increasing, the long-run expected returns on investment would be higher and lead to a continuous increase in investment, thereby generating an accelerator effect. In this schema, two different patterns of growth may determine the path of evolution, the profit-led growth and the wage-led growth. The former prevails over the economy if investments are highly sensitive to profits while the latter holds if investments are sensitive to demand expansion. These linkages – mainly based on the links between productivity gains and demand – give a specific accumulation regime called the demand regime. As stated by Petit (1986), in the de-industrialisation process, contrary to the strong causation between output growth and productivity growth in the manufacturing industry, the cumulative causation is rather weak in the service industry. Therefore, if the service industry expands with a long-term shift of demand from the manufacturing industry to the service industry, the cumulative causation may become weaker in the economy as a whole.

37Rowthorn and Coutts (2004) show that de-industrialisation primarily rests on the internal evolution process of capitalism as a secular phenomenon of decline in the share of manufacturing in total employment in favour of service sector ?[7][7]As it was the case when economic development got under way, the….

38However, the specific case of the 21st century capitalism is the transformation of market economies into financial services dominated rent economies. Tahara and Uemura (2013) maintain, in their study of the transformation of the growth regime in Japan in the 1990s, that structural changes were caused by institutional changes in both the financial system and wage-labour nexus without the re-establishment of the mode of regulation. During the last 40 years, the financial sector has grown in a drastic way whatever the ratio used to measure its share in the economy. Phillipon and Reshef (2009) show that in 1980, the financial services employee earned about the same wages as his counterpart in other industries; by 2006, employees in financial services earned an average of 70 percent more.

39Greenwood and Scharfstein (2013, P. 3) document that:

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“At its peak in 2006, the financial services sector contributed 8.3 percent to US GDP, compared to 4.9 percent in 1980 and 2.8 percent in 1950. (…) the financial sector share of GDP increased at a faster rate since 1980 (13 basis points of GDP per annum) than it did in the prior 30 years (7 basis points of GDP per annum). The growth of financial services since 1980 accounted for more than a quarter of the growth of the services sector as a whole.” ?[8][8]Greenwood and Scharfstein (ibid., p. 5) also remark that:…

 

 

41Eckhard (2011) then argues that finance-dominated capitalism modified the redistribution schema at the expense of the labour income share that increased inequality in household income and worsened the growth conditions:

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“Given that aggregate demand and capital accumulation, and hence growth, in most of the economies examined here have found to be wage-led in recent empirical research, this should have had a depressing effect on economic performance”.

 

 

43This weak performance of lower income and real investment, the phenomenon of “decoupling of profits and investment” (Guttmann, 2008), was compensated by the financialisation of aggregate demand and growth that partly relied on the increase in household debt ratios that coincided with property bubbles (Stockhammer, 2010). Thus it appears that for the past decades (in the aftermath of the dotcom crash of the early 2000s), the U.S. economy growth has been driven by a real estate bubble that continued to fuel the financialisation process and financial gains, started in the late 1970s.

44Hudson (2010) notes that “mortgages account for 70 percent of the U.S. economy’s interest payments, reflecting the fact that real estate is the financial system’s major customer”. Economic evolution was then such that the entire U.S. economy, and in its lap, all the world economy, had become a real estate agency, completely involved in continuous speculative operations. In a similar way, Stockhammer (2010) remarks that financialisation was one of the key components of a broader societal shift in social and economic relations from a Fordist accumulation regime to a new (neoliberal) regime where the increasing role of finance was a remarkable evolution. Activity in financial markets increased faster than real activity; financial profits got an increasing share of total profits, and households as well as the financial sector engaged in large debt operations. Stockhammer also documents that according to data for the USA, from the late 1990s, stock market capitalisation exceeded GDP with a spectacular turnover (383% in 2008), the share of financial profits and profits from abroad to total corporate profits has risen from just above 12% in 1948 to a peak of 53% in 2001.

45The same trend can be observed in the UK economy. In the late 1970s bank assets were about 100% of British GDP while at the end of the 2010s, they reached 500% of GDP and more than 2/3 of profits accrued to the financial sector (Bayer, 2009).

46Although financialisation has become a general trend in most market economies, it still remains stronger in the US and UK economies than in the rest of the OECD countries:

 

47As the increase in investment is mainly in the FIRE sector (finance, insurance and real estate), there is no necessary causality that should go from an increase of investments to an increase of industrial productivity which would rest on the introduction of new capital goods and the scrapping of old ones as in the Schumpeterian entrepreneurial innovations. Therefore, one can remark a financial scissors effect so that the share of the value added of the FIRE sector in % of GDP becomes higher than the share of the manufacturing sector:

 

48This evolution still holds in 2017 despite the consequences of the 2007-2008 crisis that hit the US financial system hard:

 

49In the financialisation process, the accumulation regime is founded on the expectations that rely on speculative positions. These positions are related to the likelihood of short-term high rents whatever the industrial-productive linkages behind the process. Furthermore, the sense of the cumulative causation is different since the ripple effects of changes in the economy might be such that new practices and financial innovations could cause a cascade of other changes that would not necessarily be positive for the system’s long-run stability. The financialisation process of capitalism reduces the attractiveness of traditional productive activities that often require medium/long term financial and organisational engagements. It then substitutes the low wages and low real growth to increasing wage-and-employment-based growth. Finance replaces production and rent-seeking replaces long-term profit expectations as the core dynamics of economic evolution.

50Lapavitsas (2011, pp. 622-623) argues that financialisation is a systemic transformation of mature capitalist economies with three distinguishing features that change the sources of capitalist accumulation:

51

“First, relations between large non-financial corporations and banks have been altered as the former have come to rely heavily on internal finance, while seeking external finance in open markets. Large corporations have acquired independent financial skills – they have become financialised. Second, banks have consequently transformed themselves. Specifically, banks have turned towards mediating transactions in open markets, thus earning fees, commissions and trading profits. They have also turned towards individuals in terms of lending and handling financial assets. The transformation of banks has relied on technological development, which has encouraged ‘hard’ as opposed to ‘soft’ practices of risk management. Third, workers have become increasingly involved with the financial system both with regard to borrowing and to holding financial assets. The retreat of public provision in housing, health, education, pensions and so on has facilitated the financialisation of individual income, as have stagnant real wages. The result has been the extraction of bank profits through direct transfers of personal revenue, a process called financial expropriation”.

 

 

52Considering the macroeconomic consequences of such an evolution, Palley (2007) states:

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“The last two decades have been marked by rapidly rising household debt-income ratios and corporate debt-equity ratios. These developments explain both the system’s growth and increasing fragility, but they also indicate unsustainability because debt constraints must eventually bite. The risk is when this happens the economy could be vulnerable to debt-deflation and prolonged recession”.

 

 

54Jorda?, Taylor, and Schularick (2014) report, for a sample of 17 countries, an increase from 30 to 60 percent in household mortgage credit as share of GDP since 1900 (with by far most of that increase since the 1970s).

55It is also worth noting that governance and management structures changed with the financialisation process. Woolley and Vayanos (2012, p. 59) argue that value managers are replaced by growth managers as the technology bubble inflated in 1999-2000 and “once mispricing gets into the system, investors are tempted to ride the trends for short-term advantage instead of investing patiently on the basis of underlying worth”. Financial speculative opportunities become more and more attractive in the new accumulation regime. An obviously related question is “Has society benefited from the recent growth of the financial sector?” Turner’s (2010, p. 6) answer is rather negative:

56

“There is no clear evidence that the growth in the scale and complexity of the financial system in the rich developed world over the last 20 to 30 years has driven increased growth or stability, and it is possible for financial activity to extract rents from the real economy rather than to deliver economic value.”

 

 

57From the same perspective, Bezemer et al. (2016) find, for a panel of 50 countries, between 1971 and 2011, that credit was no longer good for growth since it was extended increasingly to households, not business. The total credit stock expanded enormously in the 1990s and 2000:

58

“total domestic bank debt rose from below 80% to over 120% of GDP, with mortgage credit rising from 20% to 50% and credit to nonfinancial business remaining stable around 40% of GDP. Credit booms in the 1990s and 2000s caused credit to asset markets to become a large (in some countries, the largest) part of bank credit.” Bezemer et al. (2016, p. 653)

 

 

59Cecchetti and Kharroubi (2015) also document that higher growth in the financial sector reduces real growth and credit booms harm the engines for growth, the R&D intensive activities:

60

“financial booms are not, in general, growth-enhancing, likely because the financial sector competes with the rest of the economy for resources”. In the light of this evidence together with 2007-2008 financial crisis, they conclude: “there is a pressing need to reassess the relationship of finance and real growth in modern economic systems.” (ibid., p. 24)

 

 

61In the finance-dominated regime, manufacturing activities are mainly shaped by financial aims and operations as the short-term horizon of speculative rent positions decides of the best way of governing enterprises, and directs financial mechanisms towards immediate gain potentials without worrying about the long-term needs of production plans.

62Gleadle et al. (2012, p. 16) maintain that in contrast to the liberal beliefs, the impact of financialisation has been to focus the transfer of financial resources towards opportunities with short-term near market opportunities, instead of supporting long-term innovation projects:

63

“Although the UK private equity industry grew dramatically in the years preceding the financial crisis, the proportion of investment in UK biotech remained small. Furthermore, even in advanced venture capital markets, such as the US, as a result of financialisation, the speculative behaviour of investors has in fact put the development of important innovation at greater risk and greater cost after investors have extracted returns. In the biotech industry which is heavily reliant on public investment in basic R&D, it raises important questions about the trade-offs inherent in financialisation, if this has neither resulted in an increased flow of capital to innovative firms, nor contributed to lower treatment costs.”

 

 

64Therefore, the prevalence of the financialised accumulation regime comes into conflict with the requirements of job-creating and sustainable economic growth and destabilises innovative engagements.

In Search for a System-Consistent Financial Regulation

65The early 2000s dotcom bubble crisis and the last 2007-2008 financial crisis are both related to the transformation of capitalist growth regime into a short-sighted speculative casino and to the weaknesses of its regulation rules. Boyer (2000) asks if a finance-led growth regime can be a viable alternative to Fordism and states that the viability of a finance-led growth regime rests on a consistent monetary and financial policy able to maintain the new system in a stable path against all odds.

66The stable and durable functioning of a capitalist economy largely rests on the stability and durability of its financial system. Davidson (2002, pp. 104-105) states that financial markets are a double-edged sword for the real economy. The good edge lies in the fact that:

67

“very large investment projects –projects often too large to be funded by any single individual or small group of partners – can be funded by pooling the small sums of many savers. (…) In the absence of liquid financial markets, the small sums of many savers could not be readily pooled and mobilized to fund the accumulation of large capital-using projects.”

 

 

68The bad edge is that:

69

“the existence of financial markets makes investments that are fixed for the community only appear to be liquid for the individual. (…) When fear of the uncertain future is rampant, many holders of financial assets may simultaneously rush for the exit. The result is a market liquidity crisis. The resulting market crash adds to the instability of the real economy”.

 

 

70In the liberal era of the last four decades, the dominant wisdom was that free and open markets would be able to self-adjust in case of disequilibria. In this vein, regulatory reforms of the 1980s and 1990s encouraged new financial norms ?[9][9]Such as shareholder value, new distribution rules relying on… and resulted in a structural shift from manufacturing to financial services and speculation-led sectors. Liberal economic policies – resting on the New classical economics ?[10][10]Which asserts that fiscal and monetary policies are neutral… – heavily supported this evolution and changed the regulatory framework in markets. However, recurrent emerging and transition markets’ crises of the 1980s-1990s and the advanced economies’ crashes of the 2000s cast doubt on the relevance of such policies. Goodhart (2010) indeed remarks that in the course of the years 1998-2006, central bank interventions strongly anchored on the price stability without paying due attention to another major core purpose: maintaining financial stability. Epstein (2002) also offers a critical analysis of such a policy orientation in a financialised environment. From this perspective, the problem was not a lack of foresight about dangers of the massive credit expansion and housing bubble, but a lack of willingness to design and to use preventive rules and tools against possible market failures. The blind ideological faith was much stronger than the scientific logic about the potential of malfunctioning of decentralised and deregulated financial markets and the irrelevance of partial micro-decisions-based self-regulation with regard to systemic stability. House of Representatives (2008, p. 6) noted how the ideology prevailed and “trumped governance: “regulators became enablers rather than enforcers”.

71Although the forerunner signs of an increasing systematic risk became perceptible ?[11][11]Through the increase of the amounts marketed and the number and…, regulation schemas remained loyal to the rules of market self-regulation. A contradiction results from this because the regulatory system in force lets market mechanisms self-correct their own failures. Ülgen (2015, p. 380) then argues:

72

“The efficiency of such a mode of regulation is extremely reduced because of the limits of decentralised self-assessment/regulation models that naturally come from the absence of long-term mac­roeconomic vision and the lack of consideration of the interconnectedness among private actors. The interconnectedness has a macroeconomic char­acter while the systems of self-regulation, based on individual evaluation, do not include, by definition, a mechanism of systemic macro-regulation”.

 

 

73While the usual rule of every regulation lies in a separation between regulators and regulatees, financial self-regulation assumes the coincidence between both. However, as the latter is more intended to protect the private interests of regulated institutions and actors according to their own strategies, the whole regulatory system is put out of the domain of systemic stability. The adoption of international accounting standards, the participation of private rating agencies to the accountability and compliance (conformity of the operations with the standards) are rules of the art supposed to ensure the efficiency and the soundness of this new structure.

74US Securities and Exchange Commission (2003) already questioned the risks inherent to the current mechanisms further to the scandals of Enron and WorldCom and underlined conflicts of interests and exclusively micro-prudent nature of self-evaluations. Sy (2009) and Cantor and Mann (2009) show that the principle of self-regulation, through the private rating agencies involved themselves in the market activities of banks, generates a pro-cyclical movement by feeding the financial growth during the periods of boom and by abruptly stopping the evolution of asset prices during the periods of distress. They do not play a stabilising role against the systemic bubbles swelling.

75The usual models of risk and crisis – which are the formal references of the dominant regulatory schema – do not take into account the interconnectedness among actors’ decisions in markets. ?[12][12]These decisions are assumed to follow a Gaussian normal… Therefore, they do confuse micro-prudential regulation with macro-prudential regulation and then fall in the fallacy of composition (incompatibility between micro-rational behaviour and macro-consistency). Micro-prudential regulation is about variables which concern directly individual risks of banks and other financial intermediaries whereas macro-prudential regulation considers the factors that affect financial system’s stability as a whole. A critical component of macro-prudential regulation is to balance opposed risk changes in markets in periods of expansion and contraction. The basis of macro-prudential regulation is that financial institutions that can adopt individually prudent strategies can also collectively generate systemic risks. Private actors as well as regulators try to adopt strategies that could extend the period of expansion of speculative positions. A macular degeneration then settles down by making actors unable to consider the evolution beyond the peripheral opportunities they immediately expect. Macular degeneration prevails over the behaviour and expectations of agents, and transforms into blindness to the disaster (Orléan, 2009).

76Minsky’s most fundamental hypothesis about capitalism, which seems to be relevant in the capitalist evolution, is the statement that:

77

“Legitimate or not as ‘Keynesian doctrine’, the financial instability hypothesis fits the world in which we now live. In a world with sharp turnabouts in income, such as that experienced in 1974-75, the rise and fall of interest rates, and the epidemic of financial restructuring, bailouts, and outright bankruptcy, there is no need to present detailed data to show that a theory which takes financial instability as an essential attribute of the economy is needed and is relevant” (Minsky, 1982, p. 69).

 

 

78Subsequent and successive crises seem to point to the fact that financialisation is not the panacea for growth and cannot obviously satisfy the conditions to support entrepreneurial innovations. The latter requires long-term engagements and cannot be funded through speculative strategies. Therefore, a structural modification of financial systems under the supervision of a consistent financial regulation is a necessary condition in order to redirect markets’ strategies towards sustainable long-term financing mechanisms. It is worth noting that such an organisation should also take into consideration sector characteristics of productive activities. Cosh et al. (2009) note the vulnerability of small and medium sized enterprises to the globalisation of financial markets and the diversification of banking institutions across a wide range of activities. This could call for a closer level of interaction and information flows between small businesses and the institutions providing them with finance and retail banking services. Cosh et al (ibid., p. 29) suggest, for instance, two institutional possibilities. The first is the creation of more locally based lending and retail service institutions that could “strengthen the quality of information flows upon which decision taking can be based, linked to a detailed knowledge of specific locations and associated sectoral specialization.” The second would be “the creation through the current public sector holdings in commercial banks of a specialised small business lending programme focused on the provision of finance for the sector. One possibility would be for this government backed small business loan programme to be delivered through the existing banks retail outlet structure. Another would be to use another existing network (e.g. the Post Office) to deliver a government backed small business finance and retail service. In either case consideration could be given to using the current public sector holdings in banks in a creative way to release assets to establish a more specialised small business finance function.”

79Mazzucato (2013, p. 863) also maintains that:

80

“Regulation of financial markets must go hand in hand with policies that are aimed at innovation and industrial policy. The problem is not one of the big bad banks and dodgy financial innovations (e.g. hedge funds and credit default swaps) versus the (potentially) innovative ‘real economy’ – restraining the former and liberating the latter. The key problem is how to de-financialize real economy companies, and to find ways that value creation activities (in both the financial sector and real economy) are rewarded over value extraction activities.”

 

 

81A possible re-industrialisation process cannot ignore the necessary transformation of financial markets into more stable mechanisms and tools of financing of productive activities, able to create sustainable employment. But in this aim, one has to rethink financial regulation in terms of macro-prudential framework. The main argument to support such a proposal is that the system is endogenously unstable and the market mechanisms cannot provide economic agents with relevant incentives and capacity to ensure macroeconomic stability in a decentralised way. Macroeconomic (systemic) stability logically relies on supra-market foresight and external supervision that usually rest on non-market (public or collective) institutions.

Conclusion

82Last decades witnessed structural changes in emerging as well as advanced market economies. Domestic economies were liberalised and opened to international competition, financial markets deregulated and financial innovations proliferated. Such changes resulted in a perverted growth regime that rested on increasing financial rents at the expense of real activities-related profits while labour-related income remained relatively constant if not decreased at a persistent high level of unemployment. This unsustainable speculation-based new accumulation regime was mainly allowed by financial liberalisation. A system-wide financialisation then prevailed and provoked expansive de-industrialisation. This structural change resulted in recurrent financial and economic crises that slowed down the world growth and worsened the living conditions for billions of citizens all around the world. Although assumed to generate financial innovations, the balance of this regime is negative.

83Liberally developed financial markets are related to poorly performing production, and the recovery and stabilisation policies, implemented in the aftermath of the 2007-2008 crisis, did not succeed in mitigating cumulated disequilibria and giving markets relevant incentives to support entrepreneurial innovations and job-creating productive activities.

84This article stated that in the face of such recurrent instabilities, supporting innovation dynamics of capitalism is a paradoxical issue. This situation is indeed a real challenge since it is closely related to systemic stability issues while financial development and financialisation do not obviously lead to better financing conditions of efficient economic activities and then to economic growth.

85This article argued that financialisation (de-industrialisation) and de-financialisation (re-industrialisation) were alternative models of capitalist accumulation that require peculiar market organisations and generate different outcomes. The article showed that one of the possible structural measures to be designed and implemented for economic recovery is to de-financialise the economy. This necessary condition for a possible re-industrialisation calls for an alternative financial regulation that should be mainly lying in two pillars:

86* A tight public supervision of systemic risk-generating speculative activities. In line with a macroprudential regulation framework, the alternative could consist in reframing financial markets and institutions according to collectively consistent rules in order to ensure more stability in financial markets;

87* An incentive-framework able to lead financial institutions to accompany, in the Schumpeterian sense, innovative entrepreneurial activities that could potentially generate sustainable growth.

Notes

• [1]
  See, for example, Levine (2005) and Chiu, Meh and Wright (2011), among others.
• [2]
  This article does not seek to explore different ways of funding entrepreneurial innovations. Its purpose is more global and aims at assessing the effects of the financialisation of the last few decades on economic evolution and the possible role of alternative financial regulation (the de-financialisation process) in order to redirect financial operations towards innovative and sustainable activities.
• [3]
  Such as mobilisation of savings and their efficient allocation to productive uses, facilitating (and reducing the costs of) transactions, and improving risk management and corporate control.
• [4]
  Banks are allowed discretion in estimating the key inputs of their Internal Ratings-Based (IRB) approaches for the calculation of the regulatory capital regarding the credit portfolio
• [5]
  These securities were often co-designed and co-issued with rating agencies.
• [6]
  This schema includes free (real and financial) markets and is expected to provide the economy with good incentives, be they provided by market itself (a perfectly liberal case of efficient market hypothesis) or through pro-market government interventions (a New Keynesian case of imperfect but better-then-the-state market hypothesis). Innovations, be they real or financial- are then related to market decisions and assumed to support economic development.
• [7]
  As it was the case when economic development got under way, the share of agriculture in national employment felt in favour of the employment in manufacturing in the process of industrialisation.
• [8]
  Greenwood and Scharfstein (ibid., p. 5) also remark that: “Attracted by high wages, graduates of elite universities flocked into the industry. In 2008, 28 percent of Harvard College graduates went into financial services, compared to only 6 percent between 1969 and 1973 (Goldin, Katz, 2008). Graduates from the Stanford MBA program who entered financial services during the 1990s earned more than three times the wages of their classmates who entered other industries”.
• [9]
  Such as shareholder value, new distribution rules relying on financial-rent seeking governance of firms, higher flexibility and system-wide liberalisation in labour market, etc.
• [10]
  Which asserts that fiscal and monetary policies are neutral with regard to the conditions of real equilibrium. That is, respectively, Ricardian equivalence and super-neutrality of money within a market economy.
• [11]
  Through the increase of the amounts marketed and the number and the nature of participants in these markets, which were unable to bear the constraints of a rapid self-adjustment process.
• [12]
  These decisions are assumed to follow a Gaussian normal distribution.

 

Mis en ligne sur Cairn.info le 15/05/2019

https://doi.org/10.3917/jie.029.0133