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The effects of financial capital accumulation on employment and wealth distribution

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Exploring the negative consequences of financialisation

Recent history has taught us how the transition from a productivity-based capitalism to a financial capitalism results in more instability, less equitability and a system turning its back on the redistribution of wealth. The FUSION project decrypted this transition and explored its consequences.


Attempts at reform have so far failed to reverse the trend: with each year that passes, economic growth is increasingly driven by financial markets. If anything, the 2007-2008 crisis was a nail in the coffin of the productivity economy: the lower and middle classes keep working more for less, and finance went from a tool used to provide capital for the production economy to an end in itself, where speculators can even make a living off public and private debt. As Dr Matilde Massó, Marie Curie Research Fellow at the University of Leeds puts it, “financial capitalism is far less equitable and distributive than the productive economy at the heart of the economic growth between 1950 and 1970. Dividends and financial investments rise while salaries and long-term investments in equipment, plant and machinery go down or keep steady.” The result is a growing salary gap between the top and bottom segments of corporations, as well as increasingly precarious employment. Although this phenomenon had been studied before, most of these efforts failed to provide a systematic explanation of the relationship between financialisation, employment and income distribution. This is due both to the lack of access to reliable information on finance and investment variables from firms and industry, and also to the absence of consensus on how to measure financialisation and what type of indicators can be used to study it from a historical perspective. Closing this gap was the main purpose of FUSION (The effects of financial capital accumulation on employment and wealth distribution). Working with Dr Mark Davis at the University of Leeds, and focusing on Spain and the UK, Dr Massó aimed to produce a unique and valuable dataset using publically available information. The point was to compare an already finance-led capitalism (the UK) with one seemingly following another trajectory (Spain). “We have analysed to what extent we could identify a convergent process towards a financial model of capitalism in the UK and Spain, because they are two different models of economic organisation and culture. We focused on non-financial corporations, grouped them by type of industry and offered new insights into the hypothesis of a global convergence towards a financialised model of monetary capital accumulation of NFCs at national and industry level,” Dr Massó explains. All in all, the project team studied the evolution of balance sheets and capital income accounts for the first 100 indexed companies between 2000 and 2016, in both countries. They found that there was indeed a convergent trend in both countries at industry level, which sees financial capital increase not only when the net profits of companies rise, but also when they collapse in a context of severe economic crisis, precariousness and high unemployment. “This is a striking finding, as it implies that production has become increasingly dependent on financial income, either as a substitute of, or a supplement to, earnings from the production of goods and non-financial services,” says Dr Massó. The project also demonstrated how financial capitalism affects industries differently based on their structural characteristics. In the case of the UK, the more financialised the industry, the stronger the negative impact on employment growth and salary. In Spain, however, there is no significant association between those variables, although Dr Massó says this is most likely due to difficulties in separating the effects of the 2007-2008 financial crisis from the net effect produced by the process of financialisation itself. “We have also seen an inverse and strong relationship between dividends paid and salaries between 2000 and 2016 in both countries. In other words, big corporations are spending more capital on distributing dividends than on salary, even in a context characterised by a severe economic crisis. This has obviously alarming consequences for millions of workers across Europe who can only increase personal debt to deal with the rising cost of living,” says Dr Massó. In the future, Dr Massó and Dr Davis want to explore new models of money-currency that allow for a more balanced relationship between the process of monetary accumulation and the generation of employment. They have been evaluating the wide range of alternatives given by the maturing European FinTech sector and its potential to offer new models of democratic finance.


FUSION, financialisation, capitalism, financial markets, productive economy, salaries, investment, employment, Spain, UK

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