Why 'financialisation' hasn't depressed US productive investment

The rate of capital accumulation in the USA has fallen markedly in recent decades. Works in the financialisation literature have tried to explain this phenomenon by arguing that rising financial payments and purchases have come at the expense of productive investment. This article shows that such ar...

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Bibliographic Details
Published in:Cambridge journal of economics 2015-01, Vol.39 (1), p.67-92
Main Authors: Kliman, Andrew, Williams, Shannon D.
Format: Article
Language:English
Subjects:
Capital accumulation
Decades
Investment
Neoliberalism
Payments
Portfolio investments
Profit
Profitability
Studies
Trade-off
Tradeoff analysis
U.S.A
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Summary:The rate of capital accumulation in the USA has fallen markedly in recent decades. Works in the financialisation literature have tried to explain this phenomenon by arguing that rising financial payments and purchases have come at the expense of productive investment. This article shows that such arguments are not supported by the data. It also explains theoretically why rising dividend payments and the growth of corporations' portfolio investment are compatible with the fact that corporations' productive investment did not decline during the first two decades of 'neoliberalism' in the USA. There would necessarily be a trade-off between these uses of funds if they were all funded out of current profits, but there is no necessary trade-off because borrowed funds are an additional source. Finally, the article shows that the fall in US corporations' rate of profit (rate of return on investment in fixed assets) fully accounts for the fall in their rate of capital accumulation.
ISSN:0309-166X
1464-3545
DOI:10.1093/cje/beu033