Money Manager Capitalism and the New Diseases of Capitalism

Abstract

Capitalism is an evolving system. While managerial capitalism was the dominant form of capitalism in the post-war era, money manager capitalism emerged in the 1980s. In this paper, we focus on two important topics related to the latter.

First, we note the evolution of the economic system responsible for creating money manager capitalism. Managerial capitalism is a product of heavy and chemical industries. However, after the two oil crises in the 1970s, heavy and chemical industries became less important to advanced economies, particularly the U.S. and this was accompanied by rapid growth of the financial sector. Moreover, financial innovation and deregulation of the financial sector helped various funds and other institutional investors speculate and earn enormous profits. The role of economic theory in this process is also noteworthy. In postwar capitalism, financial systems were strictly regulated because of the influences of Keynes and the memories of the Great Depression of the 1930s. However, from the 1970s, Friedman and other anti-Keynesian economists started gaining more influence. The combination of their support for speculation and the special interests of money managers led Wall Street to loosen financial regulations and to create money manager capitalism.

Second, money manager capitalism changed the rules of the game and created new economic and social diseases. Galbraith once noted three diseases in post-war capitalism: the dependence effect, social imbalance, and inflation. It cannot be said that we have overcome these older diseases, and three new diseases have become widespread, too: destruction of enterprise, poverty and economic inequality, and financial crises. In the late 1960s, several economists thought that financial crises and poverty would in time become lesser problems in advanced economies. Unfortunately, these optimistic views have turned out to be wrong. Money manager capitalism has survived the old diseases.