Dorothy Power

Gerald Epstein

English

Research Papers in Economics

 
 
 
 
The Return of Finance and Finance's Returns:  
Recent Trends in Rentier Incomes in OECD Countries, 1960-2000 
 
Gerald Epstein and Dorothy Power
1 
November, 2002 
 
Research Brief 2002-2 
 
 
I. Introduction 
 
Few contemporary observers would deny that, in the last several decades, the role of 
financial firms, financial markets and financiers has grown dramatically in many parts of the 
globe.  This rise of finance represents a dramatic return to the global stage after the debacle of 
the Great Depression of the 1930's – for which finance was widely blamed – and the postwar 
dominance of Keynesian, Socialist, and “welfare state” economic regimes during which finance 
was held under tight rein (see, for example, Crotty and Epstein, 1996). 
 
However, despite the increased role of finance and the greater attention economists have 
paid to it, there has been relatively little empirical work measuring the income accruing to those 
engaging in financial market activity and owning financial assets. Exceptions include the 
important work of Krippner (2002) and Crotty (2002), who have looked carefully at the 
increasing importance of finance in the U.S. economy, and Dumenil and Levy (2001) and Felix 
(1998), who have presented comparative data on the role of finance internationally, but only for 
a few countries.   For example, Dumenil and Levy (2001) find that in the U.S. and France, the 
income accruing to finance – or the rentier's, as Keynes' (1936) referred to them – has increased 
significantly during the last several decades.  
 
How widespread is this trend?  Has there been a general return of finance, and, if so, does 
finance have the returns to show for it? In this research brief we present some new evidence 
which bears on these questions. We have constructed measures of the “rentier share” of income 
for twenty-nine OECD countries, some of them going back forty years. We then compare trends 
in this rentier share with the share of income accruing to non-financial corporations. We find 
that, indeed, the rentier share has been rising in many, though not all, of the OECD countries, 
while the non-financial corporate share has held more or less steady or declined. It is important 
                                                 
1 Gerald Epstein is Professor of Economics and Co-Director of PERI, University of Massachusetts, Amherst; 
Dorothy Power is in the Economics graduate program, University of Massachusetts, Amherst. to note that, simultaneously, the labor share has been eroding in many of these same countries 
(see, for example, Serres, et al., 2002; Mishel, et al., 2003; Harrison, 2002). 
 
II. Data Definitions
2 
 
There is no commonly accepted definition of “rentier” income. Most authors use a 
definition to capture income that accrues from financial market activity and the ownership of 
financial assets, rather than activity in the “real sector” or the holding of “real” assets such as real 
estate or capital equipment.  
 
Following this general practice, we define rentier income as the profits realized by firms 
engaged primarily in financial market activities plus interest income realized by all non-
financial, non-government resident institutional units, i.e. the rest of the private economy, plus 
capital gains on financial assets realized by all non-financial non-government resident 
institutional units. By this definition, someone does not need to be employed by the “financial” 
sector to receive “rentier income”. For example, a non-financial corporation that holds net 
financial assets or engages in financial activity would, according to our definition, receive rentier 
income. Now, in practice, we were able to implement this definition only imperfectly. For 
example, because of data limitations, we must unfortunately exclude capital gains from the data 
presented here, unless otherwise noted.  
 
Rentier Income: Entrepreneurial income in the financial sector, the first component of rentier 
income, is used as a measure of profits for the corporate financial sector. According to the 
OECD, entrepreneurial income is “a concept that is close to the concept of profit and loss as 
understood in business accounting”
3.  Entrepreneurial income was calculated by summing 
property income and operating surplus for the financial sector and then subtracting reinvested 
earnings on foreign direct investment, property income attributed to insurance policy holders, 
interest payable, and rents payable for the financial sector. Rentier income was calculated by 
adding to entrepreneurial income interest income realized by the rest of the economy (excluding 
government). Interest income realized by the rest of the economy is defined as the sum of 
interest receivable for the corporate non-financial sector, the household sector, and the non-profit 
institutions serving the household sector.  Information on capital gains on financial assets 
realized by the rest of the economy is not currently available for most of the countries and 
therefore has been omitted unless otherwise stated. 
 
                                                 
2 Because of differences in data availability across countries, several methods and sources were used to calculate 
rentier income. Whenever possible, we used the 2001 revision of the national accounts data published by the OECD; 
when these were not available we used the 1997 revision of the national accounts data published by the OECD 
(OECD, 2002).  These data are equally comprehensive, but of an earlier revision, which made for considerable 
differences in many of the series.   When these data were not available we used bank profitability data. Data on bank 
profits were obtained from the 2000 edition of the OECD publication Bank Profitability: Financial Statements of 
Banks. Data for non-financial corporate profits and GDP were also taken from the OECD National Accounts. For 
more information on the sources and methods used to construct these data see Power, Epstein and Abrena, 
forthcoming 2003. 
 
3 United Nations, 1993, System of National Accounts Section 7.18. Rentier share is defined as rentier income as a share of GDP measured according to the 
expenditure approach less government sector GDP. 
 
Non-financial Corporate Profit Share: Non-financial corporate income and share were defined 
in an analogous way to the entrepreneurial income and share for the financial sector, except that 
interest payments were not included in non-financial corporate profits. 
 
III. Trends in Rentier Income 
 
  Table 1 presents our estimates of the share of rentier income and the non-financial 
corporate profit share of (non-government) GDP for all OECD countries for which we have data 
– twenty-nine countries in all.  In most of the countries for which we have data going back at 
least to the 1970’s, the rentier income share rose dramatically between the decades of the 1960’s 
and/or 70’s, on the one hand, and the 1980’s and 90’s, on the other. In some cases – namely, 
Denmark, France, UK and the U.S. – these increases were almost 100% or more. In others – 
namely Australia, Belgium, Germany, Luxembourg and Norway – they were greater than 50%.  
In only four cases, Iceland, Korea, Spain and Sweden, did the rentier share fall, on average, over 
this period. Korea, the site of a major financial crisis in the 1990’s, saw the most spectacular 
decline of rentier share of the group, a decline of over 200%. 
 
  As for non-financial corporate profits, in several countries the share declined over the 
period – Australia, Finland, Germany and Japan – and in only one country, Korea, did the non-
financial share do better than the financial share. However, as we just saw, in the case of Korea 
the decline in the rentier share was catastrophic over this period. 
 
  In short, the increase in the share of income going to financial activities that observers 
have noted in the U.S. and France appears to be rather widespread.  And while the rentier share 
has been increasing over this period, the share of income going to traditional non-financial 
corporate activities has, with few exceptions, gone up but little, stagnated, or even declined. 
 
The Case of the U.S. 
 
Disaggregating the data in the case of the U.S. will give additional insight into the 
evolution of rentier and non-financial corporate shares over the post-War period. Figure 1 
presents the rentier share, its two components – entrepreneurial income of the financial sector 
and interest receivable – and the non-financial corporate profit share for the period 1960-1999.  
The main picture that emerges from this graph is that, while the rentier share was gradually 
increasing throughout the 1960’s and 1970’s, the big acceleration in its rise began around 1979 
or 1980. During the period of the Volcker monetary policy of high real interest rates and the 
Reagan policy of large budget deficits, the rentier share leaped. It declined during the early 
nineties but then started to increase again, driven mostly by an increase in the share of 
entrepreneurial income. 
 
 TABLE 1. Rentier Income in Selected OECD Countries, 1960-2000 
 
Country Years  Reported 
Average Decade 
Share 1960s 
(Percent of GDP) 
Average Decade 
Share 1970s 
(Percent of GDP) 
Average Decade 
Share 1980s 
(Percent of GDP) 
Average Decade 
Share 1990s 
(Percent of GDP) 
Percentage Change 
over the Period 
1960s/1970s and 
1980s/1990s 
 
Rentier 
Income 
Share 
Non-
Financial 
Sector 
Profit 
Share 
Rentier 
Income 
Share 
Non-
Financial 
Sector 
Profit 
Share 
Rentier 
Income 
Share 
Non-
Financial 
Sector 
Profit 
Share 
Rentier 
Income 
Share 
Non-
Financial 
Sector 
Profit 
Share 
Rentier 
Income 
Share 
Non-
Financial 
Sector 
Profit 
Share 
Rentier 
Income 
Share 
Non-
Financial 
Sector Profit 
Share 
AUSTRALIA  1969-1998  1969-1995  6.67 12.66 7.92  8.10 14.50 5.24 12.97  7.91  76.55  -26.76 
AUSTRIA  1987-1999  1995-1999  --- --- --- ---  8.53  ---  6.34  13.49  ---  --- 
BELGIUM  1970-1999  1970-1999 ---  ---  11.69 11.66 21.81 12.92 21.28  14.66  84.36  18.30 
CANADA  1982-1999  ---  --- --- --- ---  12.22  ---  13.15  ---  ---  --- 
CZECH  REPUBLIC  1993-1999  ---  --- --- --- --- --- ---  -0.64 ---  ---  --- 
DENMARK 1970-1999  1981-1999  ---  ---  4.94  ---  11.62  6.45  11.75  16.05  136.69  --- 
FINLAND  1960-2000  1960-2000  5.61  14.28  6.04 7.37 6.58 6.72 8.75 10.56 32.39 -19.33 
FRANCE  1970-1999  1970-1995  ---  ---  6.24  6.39 10.62 5.97 21.19 11.07 155.00  23.25 
GERMANY  1960-1999  1960-1999  2.98 16.23 5.02 12.09 7.83  9.80  7.43  11.16 90.87  -26.02 
GREECE  1989-1998  ---  --- --- --- ---  0.29  ---  0.59 ---  ---  --- 
HUNGARY  1994-1999  ---  --- --- --- --- --- ---  0.24 ---  ---  --- 
ICELAND  1979-1999 ---  ---  --- 0.65 --- 0.34 --- 0.34  --- -47.11  --- 
IRELAND  1995-1998  ---  --- --- --- --- --- ---  2.72 ---  ---  --- 
ITALY  1980-1999  1980-1999  --- --- --- ---  18.77  11.68  18.08  16.12  ---  --- 
JAPAN  1960-1999  1960-1998  9.00 11.96  12.30 9.02 14.27 9.91 11.22  8.25  19.69  -12.54 
KOREA  1975-1999  1975-1995  ---  ---  4.70 7.32 8.63 7.93  -18.21 8.23  -201.90 9.90 
LUXEMBOURG  1979-1999  1979-1999  ---  ---  6.14 6.14 6.43 6.43  12.41 12.41 53.31  53.31 
MEXICO  1989-1999  1993-1999  --- --- --- ---  1.52  ---  6.74  23.92  ---  --- 
NETHERLANDS  1977-1999  1977-1999 ---  ---  13.47  9.86  18.69 13.06 20.97  15.33  47.17  43.90 
NEW  ZEALAND  1990-1999  ---  --- --- --- --- --- ---  7.71 ---  ---  --- 
NORWAY  1978-2000  1978-1999 ---  ---  6.03  10.74 10.45 12.44  9.56  15.20  65.60  29.31 
POLAND  1993-1999  ---  --- --- --- --- --- ---  0.63 ---  ---  --- 
PORTUGAL  1986-1998  1986-1998  --- --- --- ---  15.92  14.90  16.90  11.87  ---  --- 
SPAIN  1979-1999  1985-1999  ---  --- 14.47 --- 12.53  8.70  13.21 9.22 -11.05  --- 
SWEDEN  1979-1998  1980-1999  ---  --- 13.61 --- 12.34  2.95  12.30 5.51 -9.47  --- 
SWITZERLAND  1979-1999  1990-1995  ---  --- 5.61 --- 7.34 --- 9.14 7.34  46.81  --- 
TURKEY  1983-1999  ---  --- --- --- ---  0.70  ---  1.19 ---  ---  --- 
UK  1968-2000  1968-2000  3.97  14.82  6.33  13.45 10.85 15.83 14.16  15.95 112.13  16.19 
US  1960-1999  1960-1995  14.81 11.31 22.47 10.65 38.26 12.18 33.49  10.33  92.43  4.62  
FIGURE 1 
 
Components of Rentier Income Not Including Capital Gains in the United States 1960-1999 
0
5
10
15
20
25
30
35
40
45
1960 1965 1970 1975 1980 1985 1990 1995
Year
S
h
a
r
e
 
o
f
 
G
D
P
Profits of Financial Firms as a Share of GDP
Interest, Receivable as a Share of GDP
Profits of Non-Financial Firms as a Share of GDP
Rentier Income Share
 
Capital Gains 
 
  Figure 2 shows the U.S. rentier share, this time including two different measures of 
capital gains on financial assets.
4 Not surprisingly, including capital gains leads the rentier share 
to continue increasing in the late 1990’s, a reflection of the stock market boom of the period. 
Otherwise, although it is considerably less stable, the general trend in the U.S. rentier share is not 
much altered by inclusions of capital gains on financial assets. 
 
Conclusion 
 
As these data show, finance has, indeed returned. The data also suggest several important 
questions for future research. First, what accounts for this widespread increase in rentier share? 
Certainly, the increase in real interest rates first initiated by Paul Volcker in the late 1970’s, and 
widespread financial liberalization associated with neo-liberalism have played an important role. 
Second, what is the impact of this shift in the distribution of income on important economic 
outcomes, such as investment and growth? Using different data, Stockhammer, 2000, for 
example, estimates the impact of this shift on the investment equation for several OECD 
                                                 
4 One measure estimates capital gains by subtracting net issues of financial assets from the annual change in the 
value of total financial assets; the second measure adds financial asset holding gains of the household and non-
financial corporate sectors. Both sets of  estimates are constructed are from  the U.S. Flow of Funds Accounts: http:// 
www.frb.gov. countries and finds that productive investment suffers as a result of the change in income 
distribution.  It would be important to see how robust and widespread these results are. And, 
finally, if this shift in income distribution is in fact found to be detrimental to economic growth, 
what policies can be undertaken to reverse these deleterious effects? One important suggestion, 
for example, is to impose a securities transaction tax to reduce the amount of speculative 
financial trading (Pollin, et al., 2001) and, presumably, the share of returns flowing to the 
financial sector. 
 
FIGURE 2 
Rentier Income Share Calculated Using Two Measures of Capital Gains on Financial Assets:
 US 1960-1999
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
1960 1965 1970 1975 1980 1985 1990 1995 2000
Year
R
e
n
t
i
e
r
 
I
n
c
o
m
e
 
S
h
a
r
e
 
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P
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G
D
P
 
P
l
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s
 
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Capital Gains: Change in Financial Assets Less New Issues
Capital Gains: Sum of Holding Gains on Financial Assets
 
 
References 
 
Crotty, James. 2002. "The Effects of Increased Product Market Competition and Changes in 
Financial Markets on the Performance of Nonfinancial Corporations in the Neoliberal Era." 
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Crotty, James and Gerald Epstein. 1996."In Defense of Capital Controls", The Socialist Register. 
 
Dumenil, Gerard and Dominique Levy, 2001." Costs and Benefits of Neoliberalism:  A Class 
Analysis." http://www.umass.edu/peri/finagenda.html#alphalist 
 
Felix, David. 1998. "Asia and the Crisis of Financial Globalization." In Dean Baker, Gerald 
Epstein and Robert Pollin, eds. Globalization and Progressive Economic Policy. Cambridge: 
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http://www.oecd.org/eco/eco 
 
Stockhammer, Engelbert. 2000. "Financialization and the Slowdown of Accumulation".  Vienna 
University of Economics and Business Administration. Working Paper No. 14. http://www.wu-
wien.ac.at/inst/vw1/gee/workp.html  
 
 

Costs and Benefits of Neoliberalism: A Class Analysis.&quot; http://www.umass.edu/peri/finagenda.html#alphalist Felix,

Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence&quot;, mimeo,

Organization of Cooperation and Development (OECD).2002. National Income and Product Accounts: Detailed Tables. http://www.sourceoecd.org

Sectoral Shifts In Europe And The United States: How They Affect Aggregate Labour Shares And The Properties Of Wage Equations&quot;

The Effects of Increased Product Market Competition and Changes in Financial Markets on the Performance of Nonfinancial Corporations in the Neoliberal Era.&quot;

The General Theory of Employment, Interest and Money.

What is Financialization&quot;.

The Return of Finance and Finance's Returns: Recent Trends in Rentier Incomes in OECD Countries, 1960-2000

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The Return of Finance and Finance's Returns: Recent Trends in Rentier Incomes in OECD Countries, 1960-2000

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