>Special Report (ECONOMIC RESEARCH)

Is the problem really "financial capitalism"?

The term "financial capitalism" describes a situation where companies are managed based solely on shareholders’ objectives, and not the objectives of wage earners, governments, suppliers, consumers, researchers developing new products, etc. Distortions can then result from the existence, during the cycles, of an abnormally high and stable return on equity target chosen by the shareholders, which in principle leads to decisions that give priority to achieving short-term profits, increasing debt leverage and risk, and squeezing wages, especially during a recession period.

We can date the beginning of the changeover to financial capitalism in the United States and the United Kingdom to the late 1980s, and to the mid-1990s in Spain, Italy and France; but it is not clear whether this changeover has occurred in Germany, and the case of Japan is even less clear.

In order to identify the effects of financial capitalism, we can therefore look at:

- whether there was a change in corporate management in the mid-1980s in the United States and the United Kingdom; and in the mid-1990s in Spain, Italy and France;

- whether we see a difference between the management of companies in Germany and Japan and the way it is carried out in the United States and the United Kingdom.

We find:

- that the signs of financial capitalism (debt leverage, rise in profits and dividends, offshoring, etc.) did appear at the expected dates in the countries where financial capitalism clearly set in;

- but that they also appeared in Germany and in Japan, which casts a doubt: are we seeing the effects of "Anglo-Saxon capitalism" or of the new global corporate management model?

"Financial capitalism" is a system where corporate management decisions are taken solely in the interest of shareholders, and not the company’s other stakeholders: wage earners, governments, suppliers, consumers, researchers, etc.

Moreover, company shareholders are currently formulating demands for high and stable return on equity despite economic cycles, which in theory implies:

- giving priority to projects that provide short-term profits;

- increasing debt leverage and risk in order to boost the return per share;

- squeezing wage costs, particularly in a period of economic slowdown.

We will try to examine the reality of these supposed effects of financial capitalism.


To see full report: SPECIAL REPORT