Cambridge Journal of Economics 2019, 43, 799–804

doi:10.1093/cje/bez029

Financialisation and the new capitalism?

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Giuseppe Fontana, Christos Pitelis and Jochen Runde*

1. Introduction
This Special Issue brings together contributions on financialisation and the prospects
for a new capitalism. Our aim in putting it together was to stimulate debate on how
finance and financial markets and institutions might better serve the real economy and
foster economic, social and environmental sustainability.
According to one of its better-known definitions, financialisation is ‘the increasing
importance of financial markets, financial motives, financial institutions and financial
elites in the operations of the economy and its governing institutions, both at the na-
tional and international levels’ (Epstein, 2001, p. 1). While aspects of financialisation in
this broad sense have been a feature of industrialised capitalism for a long time (Argitis
and Pitelis, 2008; Orhangazi, 2008; Vercelli, 2017; Fasianos et al., 2018), most of the
current literature focuses on specific features of financialisation that have emerged
since the 1980s. The proliferation of securitisation and other new financial instru-
ments, together with the substantial expansion of credit to households (Sawyer, 2018),
are a particular focus here. There has also been a lot of work on the extent to which
the present era of financialisation has coincided with and possibly been facilitated by a
parallel ‘liberalisation’, de-regulation and move to self-regulation of financial markets
and the economy more widely, and how these developments have gone hand-by-hand
with the rise of globalisation, neo-liberalism and growing inequality (Palley, 2013).
Most of the contributions to this Special Issue continue to explore these and re-
lated themes, but with a number also examining additional issues such as the role of
local government and cities, the scope for de-financialisation, digital platforms and
the so-called ‘new economy’ or ‘new capitalism’. We provide a brief introduction to
and summaries of the papers in the next section, and then close with some concluding
remarks.

Manuscript received 6 June 2019; final version received 6 June 2019.

Address for correspondence: Jochen Runde, Cambridge Judge Business School, Trumpington Street,
Cambridge, CB2 1AG, UK; email: j.runde@jbs.cam.ac.uk
*University of Leeds (GF); University of Sannio (GF); Brunel University London (CP); and University of
Cambridge (JR). We are grateful to Sue Konzelman, Tony Lawson, Stephen Pratten and participants in nu-
merous conferences and workshops, notably of the FESSUD project, for useful comments and discussion.
All remaining errors are ours alone. Finally, we thank the EU FESSUD project (Project no. 26680, FP7
Theme SSH-2010-1.2-1) for funding.
© The Author(s) 2019. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
All rights reserved.
800   G. Fontana et al.
2.  The papers in this special issue
2.1  Distributional consequences of financialisation
The first two contributions focus on the impact of financialisation on the wage share.
The first, by Pasquale Tridico and Riccardo Pariboni (2019), considers the decline of
the labour share in OECD countries since the 1980s, and the associated increases in
income inequality and negative macroeconomic knock-on effects. They depict all this
as a product of the emergence of what they call financial capitalism, a new form of

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macroeconomic regime characterised by reduced trade union power, increased labour
flexibility and an accelerated shift from manufacturing to services in rich countries. The
analysis begins with a survey of the literature on financialisation and its consequences,
before moving on to some of the evidence of structural changes, financialisation and
trends in the labour share in OECD countries. This is followed by a theoretical discus-
sion of the determinants of the decline in the wage share, and an econometric model
in which the main determinants of labour share decline are synthesised.
The second paper, by Karsten Köhler, Alexander Guschanski and Engelbert
Stockhammer (2019), covers similar ground and seeks to provide a theoretical clarifi-
cation and empirical investigation of how financialisation has affected the wage share.
The theoretical clarification is to disentangle strands of heterodox political economy
and mainstream accounts of the determinants of the functional income distribution.
Four possible ‘channels’ drawn from the political economy literature are then proposed
as hypotheses: enhanced exit options of firms; rising price mark-ups due to financial
overhead costs for businesses; increased competition on capital markets; and house-
hold debt increasing workers’ financial vulnerability and undermining their class con-
sciousness. The empirical test involves a panel regression of 14 OECD countries over
the 1992–2014 period, using a specially compiled set of measures of financialisation.
The principal finding is that financial liberalisation and the financial payments of
non-financial corporations has a strong negative impact on the wage share.
The following paper by Guglielmo Forges Davanzati, Andrea Pacella and Angelo
Salento (2019) adopts a radical institutionalist/endogenous money theoretical frame-
work to explore the causes and consequences of increasing financial accumulation in
Italy. This shift is traced primarily to attempts by the largest Italian firms to increase
their profits through speculation in the aftermath of protracted strikes and the rising
wages experienced in Italy over the 1970s. The account of the roots of financialisation
in this paper is more country specific and reaches further back in time than the pre-
ceding papers. But like these papers and others in this special issue, it shines further
light on how financial accumulation has exacerbated income inequalities and reduced
economic growth.

2.2  A macroeconomic perspective

The next paper by Eckhard Hein (2019) traces the re-emergence of stagnation ten-
dencies to financialisation and macroeconomic failures that led to the 2007–09 crisis,
and then especially to the macroeconomic responses and regime shifts they precipi-
tated. The paper focuses on the latter, and specifically on regime changes in six mature
capitalist economies, the two liberal Anglo-Saxon economies of the USA and the UK,
Sweden as a representative of the Nordic welfare states, France and Germany and
Spain as the three main Eurozone countries, as well as the core Eurozone (EA-12) as
 Financialisation and the new capitalism?    801
a whole. The argument begins with a review of the concept of macroeconomic regimes
under conditions of financialisation, which is then applied, first to the period before
the crisis, and then to regime changes during and after the crisis. Hein argues that the
tendency towards export-led mercantilism, in particular in the Eurozone and its main
member countries, has imposed an aggregation problem on the global economy that
contributes to stagnation and rising global macroeconomic risks. He closes with some
thoughts on short- and long-run policy alternatives to deal with these problems.

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2.3 Financial stress
Michael McCormack’s (2019) ‘Financial markets and the working class in the United
States: an empirical investigation of financial stress’ investigates how financial stress
has affected the working class in the USA. Financial stress here is regarded as that
emanating, not from the exploitative relation between capitalists and workers, but from
factors such as being late on payments, having or fearing having credit applications re-
jected, bankruptcy and so on—all symptoms of financial expropriation or ‘the general
phenomenon of the subsumption of labor to finance and debt.’ On the basis of a finan-
cial stress index created from the Survey of Consumer Finances, McCormack shows
that between 1992 and 2016, working class households were nearly twice as likely to be
financially stressed than their wealthier, non-working class, counterparts. McCormack
contends that, in addition to lacklustre wage growth and a reduced safety net, this dif-
ference may be due to this relatively higher financial expropriation of the working class
as compared with wealthier classes.

2.4  Financial institutions

The following four papers examine various institutional aspects of financialisation.
Eugenio Caversazi, Alberto Botta and Clara Capelli (2019) focus on shadow banking
and its role within the financial system, and how it has been central to the way in
which financialisation has unfolded and exacerbated income and wealth inequalities.
The paper makes two broad contributions. The first is to show how securitisation pro-
vided the financial system with the ‘raw materials’ to manufacture the complex struc-
tured financial products that made it possible for traditional banks to expand their
business and widen the pool of apparently creditworthy borrowers. The second is to
counter the view of commercial and shadow banks as two parallel and alternative sys-
tems. The authors argue instead that the two forms of bank play separate roles in a
mutated financial system, and specifically that financialisation has done less to alter
the role of commercial banks as money creators than it has to divert endogenously
created money to, and thereby feed the expansion of, the financial sphere. The paper
closes with policy recommendations for de-financialising the economy: the adoption of
some form of universal banking to regulate the activities of financial institutions, and
progressive taxation aimed at reducing income and wealth inequality.
Charilaos Mertzanis (2019) uses firm-level data from the World Bank Enterprise
Surveys to explore the impact of financialisation on firms’ access to finance in 138
developing countries. The rationale is that access to finance is one of the main bar-
riers to firm growth in developing countries, where financialisation is a key factor af-
fecting firms’ access to finance in helping meet the information, collateral and other
requirements firms seeking external finance need to satisfy. Financialisation is proxied
802   G. Fontana et al.
by cross-country measures of financial depth, where the proxies capture separately
the role of bank-based and market-based financing. Mertzanis finds these proxies of
financialisation to be broadly robust predictors of financing constraints on firms in the
countries considered, but that its effects are mitigated by a host of firm-level, institu-
tional and country-level factors. He concludes that his results confirm the importance
of taking an institutional perspective when attempting to understand how finance,
investment and growth are related, and that effective policy directed at improving ac-
cess to finance in the developing world requires being cognizant of specific economic,

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financial architecture and social and institutional-related factors in each country.
In the next paper, Stephen Diamond (2019) investigates a new form of stockholder ac-
tivism that is gaining ground in the USA and elsewhere. He points out that while both ac-
tivist hedge funds and large union-sponsored pension funds use governance mechanisms
to influence corporate behaviour, they have different motivations. In particular, whereas
‘traditional’ hedge fund activism is generally aimed at maximising short-term shareholder
value, the new ‘transformative’ institutional investor activism is aimed at achieving a wider
social agenda more in line with the interests of workers. Diamond argues that this wider
agenda is largely ignored in the existing literature, because of its commitment to the share-
holder value perspective on the firm. He goes on to provide an account of the growing
potential of ‘transformative’ activism as a means for organised labour to use its influence
over pension funds to encourage progressive change by corporations.
The final paper in this group, by Gary Dymski, Nicole Cerpa Vielma, Hasan Comert,
Carmela D’ Avino, Annina Kaltenbrunner, Eirini Petratou and Mimoza Shabani
(2019), argues that the financialisation literature lacks adequate microfoundations
and overemphasises macro-level drivers of financialisation. The paper is an attempt
to begin redressing these shortcomings by foregrounding what the authors regard as
a key microeconomic driver of financialisation: attempts by US money-centre banks
to break free of Depression-era restrictions on their size, activities and markets. It is
argued that these attempts have led to an important institutional shift, namely the
rise of a too-big-to-manage, megabank-centred shadow banking system, with a corres-
ponding rise in the fragility and instability of the global financial system.

2.5  Cities and the platform economy

Priya Gupta (2019) considers the interrelationships between financialisation and cities,
and how cities can regulate financialisation. Her focus is on local government, where she
argues financialisation is felt predominantly through local governments’ regulation of real
estate and the shrinking of public space. She is especially concerned with the relationship
between public space and democracy, and the role of law as the underlying structure by
which urban space is divided between the competing ends of public use and the private
real estate sector. She concludes with a discussion of ways to manage excessive private real
estate development and the resulting reductions in public space and affordable housing:
zoning and building codes, financial regulation and tax, and direct market interventions.
Matthieu Montalban, Vincent Frigant and Bruno Jullien (2019) consider how the
rise of digital platforms like Airbnb and Uber are transforming capitalism. They adopt
the perspective of the French Régulation school and ask whether this development
constitutes a new process of embeddedness in Polanyi’s (1944) sense of generating new
non-market and social links, or whether it is the next stage of de-régulation following
the crisis of the financialised regime of accumulation (régulation here is understood
 Financialisation and the new capitalism?    803
as the rules, norms or mechanisms that underpin the coordination of agents and the
reproduction of prevailing capitalist social relations). After examining the nature and
transformations of the form of competition inherent in platforms, the authors conclude
that, although the platform economy may favour certain forms of re-embeddedness,
it is in fact predominantly a dysfunctional dis-embeddedness transformation linked
to the crisis of the financialised regime of accumulation. They close by raising various
questions about information technology, productivity growth and how much platforms
will be able to contribute to stable long-run growth.

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2.6 De-financialisation
The final two papers offer different angles on the question of de-financialisation. The
first, by Robert Sweeney (2019), focuses on the transformation of banking and offers
a cautionary note on how far de-financialisation might go. Sweeney begins by noting
that the financialisation literature has as yet failed to explain the transformation of
banking, and then especially the expansion of investment banking. In his view neither
disintermediation processes nor liberalisation of financial service activities are suffi-
cient to explain the increase in scale and scope of the sector. He suggests instead that
the growth in investment banking activities should be seen in terms of the overall ex-
pansion of financial markets. In particular, he argues that demographic pressures and
neoliberal restructuring led to the growth of capital markets, and that this in turn led
to the associated growth of asset management, money and derivatives markets putting
pressure on the banking system for expanded investment services. He concludes that
understanding financialisation more broadly as a structural change implies limits on
the extent to which economies can be ‘de-financialised’.
The closing paper by Ewa Karwowski (2019) is premised on the idea that successful
de-financialisation efforts require a thorough understanding of the nature of state
financialisation, and her aim is to promote such an understanding by way of a system-
atic survey of the emerging literature on the topic. After providing broad definitions
of financialisation and state financialisation, she identifies four avenues through which
financialisation has spread in public institutions and policies: the adoption of financial
logics, the promotion of financial innovation, embracing financial accumulation strat-
egies and directly financialising citizens’ lives. Then, drilling down into the two main
policy domains of fiscal and monetary policy, she arrives at four definitions—or spe-
cific manifestations—of financialisation in the context of public policy and institutions.
In the case of fiscal policy, these are the transformation of public expenditure on social
provisions into the basis for actively traded financial assets, and the state becoming a
financial market player via the process of creating and deepening secondary markets
for public debt. In the case of monetary policy, these are financial de-regulation and
inflation targeting and the encouragement, or outright pursuit, of market-based short-
term liquidity management among financial institutions.

3.  Concluding remarks

The papers in the special issue highlight the importance of finance and financialisation in
today’s economies. They also point to the need for further research, and we close simply
by mentioning what we see as three particularly promising avenues for future work. The
first is the potential impact of financialisation on environmental sustainability (Fontana
804   G. Fontana et al.
and Sawyer, 2016). The second is new developments in digital technology, especially
those relating to Fintech and digital currencies, and their regulatory implications. And fi-
nally, there is the so-called new platform economy and the ‘new capitalism’, in many ways
shaped by—but at the same time shaping—the course of financialisation.

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