Financialization is one of the important features of capitalist development and it can be described as the most fundamental element that enables profit making in a neo-liberal time before the occurrence of global predicament that the world is currently experiencing (Guglielmo Forges Davanzati, 2008). The Neo-Keynesian view of financialization is majorly based on the opinion that all agents operating in the financial field tend to look for the most efficiently operating firms. The preferences of these agents strike the balance in the financial platform and decide where the financial weight will fall. The investors willing to invest in various firms are also on the decline and thus the few investors have to look for the most efficient firms to reduce the risk associated with the firm on their money. The Neo-Keynesian viewpoint on financialization has a diverse look into various aspects of the economy as explained in the sections below.
In the view of individual firms, Neo-Keynesian views dictate that the aims of the firm and the constraints of the firm may be affected as a whole. One way in which it can be affected is through increased shareholder power. This increased shareholder power will look down upon the preferences of the management and the employees in terms of distribution of the profits (Eckhard Hein, 2008). It can also be affected by increasing the amount of dividends paid; this will affect the amount of working capital available for the firm.
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"Financialization from Neo-Keynesian Viewpoint".
Another implication of financialization from a Neo-Keynesian point of view is the development of new opportunities for households in terms of increased loan finance and finance from accumulated resources (Eckhard Hein, 2008). The cause of this increased financing is due to increased credit facilities availed to households by profit-seeking banks and also from the bias of firms towards shareholder value.
Distribution of income is another implication of financialization according to the Neo-Keynesian view (Eckhard Hein, 2008). The distribution of income may be affected by changes in the power relations between the shareholders, the firm management and the employees. Dynamics in distribution will in turn affect the investment value and the pattern of consumption (Eckhard Hein, 2008). This distribution patterns, if not well checked, may lead to the collapse of a firm or reduced shareholder confidence in the firm.
The personal saving rate goes on declining because of the increased culture of consumerism; even the high-income earners are increasingly having very low saving rates. Low-income earners mostly try to fit into this culture through borrowing which is encouraged by the increased culture of financial institutions to lend more in order to make profits (Treeck, 2009).
The owner-manager conflict is also highlighted in the Neo-Keynesian point of view. It comes about due to the supposition of profit growth trade off. It indicates that the orientation of the shareholder value is inclined towards short-term profitability for the benefit of the shareholders and a low tendency for investment in capital stocks by the companies (Hein, 2009). The orientation of the owners is mostly on the long-term growth of the firm and its survival other than short term profits. According to Neo-Keynesian theory of financialization, financialization is the tool through which important mechanisms have been developed to serve the purpose of placing restrictions on the management in their quest to seek expansion of the firm and on the other hand, give insight to the management from self-preference and put into consideration the objectives of the shareholders which are based on profit maximization (Treeck, 2009).
- Eckhard Hein, T. v. (2008). Financialisation in Post-Keynesian models of distribution and growth. Duesseldorf: Hans Boeckler Foundation.
- Guglielmo Forges Davanzati, A. P. (2008). Financialization, Ostentative Consumption and Macroeconomic Instability. Lecce: University of Salento.
- Hein, E. (2009). A (Post-)Keynesian perspective on ‘financialisation’. Düsseldorf: Hans Boeckler Foundation.
- Treeck, T. v. (2009). The macroeconomics of ‘financialisation’. Oldenburg: Carl von Ossietzky University.
