1982-2000 can be taken as the era of the great US financial boom, with the DJIA hitting a trough of 776 in late 1982 before rising to roughly 11,500 by 2000.
(The boom is framed by a decade of stagnation in equities prices on both ends).
And the rate of profit in the US did rise from 1982-1997: from about 8% to about 12.5% for the nonfinancial sector, and from about 9% to about 20% for the manufacturing sector. But this trough to peak analysis ignores the prior decline in profitability ca. 1965-1982: from about 18% to about 8% for the nonfinancial sector, and from about 30% to about 9% for the manufacturing sector. So, the recovery from 1982-1997 was only a partial recovery, and the very significant decline in profitability before 1982 would certainly have given investors reasons to seek higher rates of return elsewhere.
I'm not sure that it was financialization alone that forced restructuring on the productive sector; surely competition from abroad had something to do with it.
But I think it is true that the declining rates of return before 1982 gave financial capital an incentive to profit through a restructuring strategy. With stock prices and price-to-earnings ratios at low levels, equities had to look like a winning investment IF profitability could be restored, and Yves Smith's book (ECONNED) certainly makes the case that restructuring and the elevation of return on stockholder equity as the holy grail of corporate management must have had something to do with it. So, yes, I think there's a case that financialization had something to do with the 1982-1997 rise in profitability, but that is consistent with the case that the earlier decline in profitability created incentives for financialization.
There's also a serious question about the sources of the renewed profitability from 1982-1997. "Non-financial" firms increasingly found themselves restructured around financial strategies, and often the financial arms of the firms became the main profit centers (GE's various financial arms, GMAC, Ford Credit, etc.) One indicator of this is what non-financial firms did with their retained earnings. In the 1950s and 1960s, nonfinancial corporations spent about $4 in capital investment for every $1 in purchase of financial assets plus nonfinancial corporate equities. That ratio steadily declined in the 1970s, 1980s, and 1990s, until from 2001-2007 nonfinancial corporations spent only about 10% more on capital investment than on purchase of financial assets plus nonfinancial corporate equities. So, it looks to me like the profitability of even "nonfinancial" firms came to rely increasingly on asset price inflation.
Things may be different since 2008, with asset price collapse driving profits down rapidly, combined with a rapid increase in profits since 2009 that I think can only be attributed to an unprecedented squeeze on labor. But a speed-up of this sort can be a medium-term strategy at best; there has to be some kind of upper bound on how tightly you can squeeze labor before diminishing returns set in.
Longish answer, but I think that's the core of the "how".
----- Original Message ---- From: Doug Henwood <dhenwood at panix.com> To: lbo-talk at lbo-talk.org Sent: Fri, March 4, 2011 8:44:08 PM Subject: Re: [lbo-talk] An Orgy of Speculation?
On Mar 4, 2011, at 9:23 PM, michael perelman wrote:
> Low profits did cause the shift to
> financialization
How?
Profitability rose from 1982 to 1997, as financialization proceeded apace. Financialization assisted the rise in profitability, by forcing restructuring on the productive sector.
Doug ___________________________________ http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk