The Neoliberal Paradox:
The Impact of Destructive Product Market Competition and Impatient Finance on
Nonfinancial Corporations in the Neoliberal Era
Research Brief 2003-5
The emergence in the late 1970s of the global neoliberal economic order has had a
number of negative effects on general economic performance. This Research Brief focuses on its
effect on large US nonfinancial corporations (NFCs). In this Brief, I accept the thesis associated
with Joseph Schumpeter and Alfred Chandler that large NFCs operating in oligopolistic markets
were the main source of most of the capital investment, technological change and productivity
growth in the Golden Age. I argue that NFC performance was adversely affected by two major
changes created by neoliberal globalization: (1) a slowdown in the rate of global growth and an
increasing intensity of competition in key product markets that caused a downturn in NFC profit
rates; and (2) a shift from “patient” finance to impatient financial markets that raised real interest
rates, forced NFCs to pay an increasing share of their cash flow to financial agents, drastically
changed managerial incentives, and helped shorten NFC planning horizons.
NFCs were eventually placed in a neoliberal paradox: intense product market
competition made it impossible for most NFCs to achieve high earnings most of the time, but
financial markets demanded that NFCs generate ever-increasing earnings and ever-increasing
payout ratios to financial agents or face falling stock prices and the threat of hostile takeover.
In several recent papers I used insights from Schumpeter, Keynes and Marx to explain
why key nonfinancial product markets in the neoliberal era have been characterized by low profit
rates, high leverage and chronic excess capacity (Crotty 2000a, Crotty 2000b, Crotty 2002a, and ...
As I see it, the excess capacity was caused by a lack of 'demand'. Remember demand is defined as being created by buyers with money who want to buy.
What caused the lack of demand? IMHO, it was 2 things. 1] Falling wages, and 2] the neo-liberal system that gave gov. directly spending to the rich and their corps; and not to the masses. Giving it to the masses would have provided the masses with money to create demand for the things that the corps wanted to sell to them.
The workers reacted to this situation by borrowing from banks. This can't be sustained because someday the workers can't borrow more because they can't afford higher payments. This time can with the GFC/2008.
. . . The system was saved by bailing out the rich and not the masses. This helped the financial part of the economy but not the corps making things. The system was otherwise not fixed in 2009 or so.
So, over time the workers became more desperate, and so many voted for a politician who sold them a dream. His name was Obama, and then came the inevitable conman who was Trump.
The result now, is a nation that is divided by the facts they believe.
This division may be fatal, because it makes it almost impossible for the nation to react to ACC.
And no effective action on ACC will be fatal to civilization. Since this includes the owners of the corps that make things, these owners have shot themselves (and their children and all possible descendants), not in the foot, but in the head. They are just dead men walking unless effective action on ACC is taken very soon.
I know there are 40% of the US population who's facts don't include the threat that is ACC. I would hope that they would not reply because frankly their opinions are not correct on this subject. But, some will reply. They can't help themselves.