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The Neoliberal Paradox: The Impact of Destructive Product Market Competition and „Modern

By James Crotty

Abstract

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, an

Year: 2005
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