Vested Interests, Financialized Capitalism and Regulation

Paper Session

Friday, Jan. 6, 2017 2:30 PM – 4:30 PM

Swissotel Chicago, St Gallen 2
Hosted By: Association for Evolutionary Economics
  • Chair: Eugenia Correa, National Autonomous University of Mexico

Financialization and Vested Interests: The Irrelevance of Self-Regulation and Financial Stability as a Public Good

Faruk Ulgen
,
Grenoble Alpes University

Abstract

From a critical perspective on market fundamentalism, this article maintains that Veblen institutionalism offers analytic and policy alternatives to money and finance in order to deal with recurrent systemic crises that threaten the viability of democratic societies. The article then suggests an institutionalist analysis of financialization through the lens of Veblen who puts the emphasis on the peculiar nature of money (and related financial relations) in capitalism. Veblen states that the network of ownership over holdings controls “the conditions of life for the common man”. In modern capitalism the financiers and their (economic/political/social) relatives are the barons who control the society’s destiny through their control over money and finance. This article argues that modern capitalism is a financialized society that is dominated by vested interests. Those latter rely on speculative expectations that often result in systemic crises. As in the case of the overcapitalization of farmlands studied by Veblen in The Vested Interests, financial liberalization leads to the speculative overcapitalization of every aspect of Common Man’s life and provokes systemic catastrophes. Therefore systemic stability cannot be ensured through liberal markets and privatized self-regulatory mechanisms which are not able to deal with society-level issues. Financial stability must be regarded as a public good and a specific public regulatory action must be designed to maintain society (and dominant vested-interests) within some viability limits.

An Institutional Perspective of the International Financial Governance: How Much Has Happened After the Crisis

Eugenia Correa
,
National Autonomous University of Mexico
Alicia Giron
,
National Autonomous University of Mexico

Abstract

This article studies the main trends in international financial regulation after the 2007-2008 great crisis. It supports the idea that largest financial corporations are working to have several components for an international self-regulation. With the support of governments, private firms compose the architecture of this global and complicated mechanism. Meanwhile all this built-up mechanism is supported by several assumptions about the origins of the great financial crisis, and also about the capabilities of governments to reach the objectives they are expected to achieve. The article argues that such a private vested-interests-based regulatory framework is not able to deal with systemic financial instabilities. We then conclude that new financial crises will develop and the “too big to fail” financial corporations are preparing break-in-pieces strategies as possible exit solutions.

Which Vested Interests Do Central Banks Really Serve? Understanding Central Bank Policy Since the Financial Crisis

Mario Seccareccia
,
University of Ottawa

Abstract

Central bank policies have gone from a neo-Wicksellian incomes policy of sustaining and stabilizing rentier incomes during most of the quarter century prior to the global financial crisis to something which appears much closer to Keynesian policy in favor of the euthanasia of the rentiers, with persistently negative real interest rates since the financial crisis. Except for a short interval during which bona fide fiscal stimulus was implemented, the biggest job of dealing with the financial crisis has been left to monetary policy. However the so-called “unconventional” monetary policy pursued since 2009 was more of a disguised fiscal policy for the banks. Under the monetarist pretense that sustained expansion of base money would support overall spending, this policy served a somewhat different purpose. Quantitative easing can be seen as an extension of the bank bailouts in sustaining asset prices, especially through the purchases of mortgage back securities held by banks as well as agency debt. At the same it led to a cut and maintenance of both nominal and real interest rates at their lower bound, while inadvertently and negatively affecting bank profitability. It is the latter effect that may well have led to QE’s ultimate demise by 2014. What we have seen since then is an attempt to revive rentier income once again in a desperate attempt to reflate the economy that remains stuck in a relatively stagnant state, because of lack of a desire to engage in sufficient fiscal stimulus or what some have referred to peoples’ QE.

The Vested Interests and the Common Man as Seen Through Monetary Policy: Flooding Wall Street or Main Street?

Gregorio Vidal
,
Metropolitan Autonomous University
Wesley C. Marshall
,
Metropolitan Autonomous University

Abstract

There are many angles through which a critical observer can analyze the divergent class interests in most aspects of macroeconomic management. This paper examines the insistence of the financial authorities of all major economies in reviving economic activity through monetary and not fiscal policy, as a particularly clear example of favoring the vested interests over those of the common man. Close to a century after Veblen's writings on the subject, one can find many rhyming elements to the political landscape of the times. Today, the common man is often expressed by the 99%, and many accept that the dominant vested interest is that of global banks. Unlike Veblen's times, today's economists now have many historical experiments in economic management from which to consult. Employing logic, historical experience, and an understanding of our current global finance led capitalism, this article offers a preliminary institutionalist analysis of the mechanisms of current monetary policy that “flood” Wall Street while leaving employment, production and investment -Main Street- all but forgotten. The article then explains the dynamics of the monetary policy in today's financial structures, and argues that the vested interests have abandoned fiscal policy in an attempt to impose a deflationary macroeconomic environment.

Oligopolistic Cooperation and the Financialization of the Pharmaceutical Industry

Avraham Izhar Baranes
,
Rollins College

Abstract

Veblen’s Vested Interests and the Common Man discusses how those in power use their position to reinforce and maintain their dominance. From this perspective, the concept of oligopolistic cooperation and centralized private sector planning can be seen as the method with which the vested interests reinforce their position. Under money manager capitalism, then, this is reflected in the encapsulation of industrial interests by financial interests and firms come to take a more intangible character. This essay examines the issue of oligopolistic cooperation in the pharmaceutical industry, emphasizing the importance of board of director intralocks and intangible assets. There are two key questions that will be addressed: First, to what degree can the pharmaceutical industry be considered oligopolistically cooperative? This has important ramifications for the public, particularly as it reflects the access to pharmaceuticals. Second, to what degree has the pharmaceutical core become financialized? In other words, in what ways has the pharmaceutical industry taken on a more intangible characteristic? It will be argued here that with the emergence of oligopolistic cooperation in the pharmaceutical industry, firms have become more akin to rent-collectors than productive enterprises, relying on their accumulation of intangible assets as a means to maintain themselves as vested interests.
Discussant(s)
Wesley C. Marshall
,
Metropolitan Autonomous University
JEL Classifications
  • B5 - Current Heterodox Approaches
  • F5 - International Relations, National Security, and International Political Economy