GLOBAL ECONOMIC GROWTH: TRANSITORy DECELERATION OR THE NEW NORM?
1.5 Absence of “patient” financing – the shorttermism of the financial market
Explanations other than those voiced by the advocates of secular stagnation have also been provided for the moderate investment activity, which also characterised the pre-crisis period. It is easy to explain that amidst the uncertainties of the crisis, liquidity demands soared and investors refrained from investments requiring a long-term financial commitment.24 On the other hand, it was already observed before the crisis that companies – primarily large enterprises – had substantial liquid assets and corporate savings,25 as they used a decreasing portion of their profits for capital investments, i.e. for the development of their own physical and human capacities, and for R&D activities. Instead, they used an increasingly large portion of their funds for financial market activities, the payment of shareholder dividends, and the amounts used for share buy-backs, serving as remuneration for the corporate managers, reached unprecedented heights.26 For example, in the USA large enterprises account for about eighty per cent of private investments, while small and medium-sized enterprises – in the case of which the shortage of financial funds may be justified – accounted for only the remaining part thereof.27 This confirms that the shortage of financial funds alone does not explain either the moderate development of innovations or the decelerating investments. In the past, research results on the financial structure of modern corporations, and the connection between the financial structure and investment, employment and research and development activity were rarely presented in the macroeconomic literature – these
remained within the mostly microeconomic approaches of the financial markets and corporate finance. These treated the financial sector, as well as corporate finance only as a “veil”, which facilitate the optimal allocation of the available (treated as real) scarce resources. It is not possible to present the literature in detail, and thus we highlight only two aspects thereof relevant for the debates on secular stagnation.
1.5.1 finAnCiAL ConDiTion of LArGe CorPorATionS Over past decades, substantial changes have occurred in the financing structure and managerial incentives of large corporations, which account for the bulk of private sector investments. The “managerial” corporations, which were typical in the decades that followed World War II, gradually gave way to large corporations managed in the spirit of “shareholder value”. The ownership (shareholders) and the actual governance (management) of the company was already separated in the case of the managerial corporations as well; the literature analysed this relationship as an “agent – principal” relation.28 The key question was what ensured that the corporate managers, being better informed than the owners holding small shares (who may be more interested in accumulating internal reserves and increasing the size of the company than in enhancing efficiency, etc.) would represent the interest of the owners in their business decisions (e.g. on investment, financing and profit sharing issues). The practice according to which
Mason (2015), p. 4. IMF (2006). The analysis added that in 2003-2004 the G7 countries’ corporate savings were twice as high as the current account surplus accumulated by the less developed countries toward them, which represented a “paradox” capital flow from the less developed toward the developed. On the current liquidity situation, see Tett (2015) and the report underlying the paper: Association for Financial Professionals (2015). According to this, the European large enterprises hold liquid assets of about EUR 1.1 trillion at very low yields in the banking sector, which roughly corresponds to the additional liquidity that ECB intends to provide for the stimulation of the economy until autumn 2016 within the framework of its asset purchase programme. 26 Lazonick (2014a and 2014b), Mazzucato and Wray (2015). 449 companies, belonging to S&P 500 and listed on the stock exchange between 2003 and 2012, used 54 per cent of their total profit for share buy-backs on the open markets and 37 per cent for dividend payment. Thus, not too much profit was left for the financing of the developments. 27 Mason (2015), p. 2. 28 Berle and Means (1932). 24
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GROWTH REPORT • 2015
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