The Financialization of the U.S. Corporation: What Has
Been Lost, and How It Can Be Regained
I. INTRODUCTION: WHAT HAPPENED TO ECONOMIC PROSPERITY?
Many of us know what a prosperous economy looks like. People who want to work have no problem finding jobs. People who want to build careers can accumulate the necessary work experience over time. People who want to start their own businesses can tap into sources of committed finance enabling them to get their firms up and running. When the work has been done, careers have been built, and businesses have become going concerns, the prosperous economy yields a distribution of income that most people regard as fair. The prosperous economy has a large and stable middle class, with hard-working and dedicated people finding opportunities to climb up the economic ladder. The intergenerational expectation is that children will do better than their parents. And after several decades of remunerative work, their parents can retire with enough savings to at least remain in the middle class for the rest of their lives.
Many of us know what a prosperous economy looks like because, for people who are old enough to remember, it is what the U.S. economy used to be. For most college-educated people that economy existed as recently as the 1990s, while for most high-school-educated people, it disappeared a decade before that. More generally, the past thirty years or so have seen an unrelenting disappearance of middle-class jobs accom*
Professor, Department of Economics, University of Massachusetts Lowell; President, The Academic-Industry Research Network; email@example.com. The concepts discussed in this paper were presented at The Future of Financial and Securities Markets: The Fourth Annual Symposium of the Adolf A. Berle, Jr. Center for Corporations, Law and Society of the Seattle University School of Law. The Symposium took place in London on June 14–15, 2012. The research in this paper has been funded by the Ford Foundation project on Financial Institutions for Innovation and Development, the INET project on the Stock Market and Innovative Enterprise, the European Commission project on Finance, Innovation, and Growth, and the Connect Innovation Institute project on Innovation and Production: Reviving U.S. Prosperity. Mustafa Erdem Sakinç has coordinated the development and maintenance of the stock-buyback database, and Dongxu Li, Qiaoling Ma, Xiahui Xia, and Yue Zhang have provided research assistance.
Seattle University Law Review
panied by ever-growing economic inequality with an increasingly extreme concentration of income and wealth among a very small number of people at the top. As the Occupy Wall Street movement recognized, the prosperity of the top one percent is antithetical to a prosperous U.S. economy.
As the U.S. economy struggles to recover from the Great Recession, the erosion of middle-class jobs and the explosion of income inequality have endured long enough to raise serious questions about whether the U.S. economy is beset by deep structural problems. My research on the evolution of the U.S. economy over the past half-century shows that this is indeed the case.1 Since the beginning of the 1980s, employment relations in U.S. industrial corporations have undergone three major structural changes—which I summarize as “rationalization,” “marketization,” and “globalization”—that have permanently eliminated middle-class jobs.2 From the early 1980s, rationalization, characterized by plant closings, eliminated the jobs of unionized blue-collar workers. From the early 1990s, marketization, characterized by the end of a career with one company as an employment norm, placed the job security of middle-aged and older white-collar workers in jeopardy. From the early 2000s, globalization, characterized by the movement of employment offshore, left all members of the U.S. labor force, even those with advanced educational...
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