Income Dynamics, Economic Rents and the Financialization of the ...

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nancial crisis. Our analyses suggest, however, that employee compensation is only between 26 and 40% of the long-term income transfers into the finance sector. The 2008 collapse of the finance sector is clearly important in a historical sense. It is also, potentially a moment of rent destruction for this sector. We already know that in 2008 profits fell into the negative range across the industry but rebounded strongly in 2009. Philippon and Reshef (2007) show a tremendous drop in finance sector rents during and after the Great Depression of the 1930s. Clearly some of this was the shock of the collapse of the banking system, but much reflected the ensuing regulation of the industry. Thus the contemporary collapse of the finance sector and re-inflation through the federal bailout is likely to be interesting theoretically and politically as a potential moment of rent destruction. At this point we know little about the consequences of the collapse of this sector, but sociological rent theory would suggest that politically more powerful actors (banking, insurance and securities) may be able to defend and perhaps pre- serve their existing market institutions and the resulting capacity to extract rents. This is certainly what national politics in late 2009 and 2010 looked like. We see repeated media and political attention to the high wages and bonuses paid to employees in the finance industry. We also see major banks and bank holding companies struggling to repay federal bailout money as quickly as possible, often rationalized as necessary in order to pay high salaries to their top employees. Finally, and most consequentially for future income distributions there is a struggle between banks and other actors over the appropriate form of new regulations to manage systemic risk and protect consumers from rent extraction. What form these regulations take will likely determine the degree to which the finance sector will be able to continue to accumulate large proportions of the national income. 40
Our analysis points to the federal government as both the source of the deregulation of the finance sector and as failing to regulate emerging financial markets and innovative financial instruments. If neoliberalism was a policy and intellectual movement away from state regulation and towards markets, financialization was perhaps its most fundamental product. Certainly the transfer of national wealth into the finance sector was one of its most dramatic consequences. Now that that same sector has crippled the world economy while creating conditions of profound economic uncertainty for investors, unprecedented federal spending deficits in the US and else- where, and intense suffering for households, it seems clear that both the economic power of the finance sector and the consequences of that power for income distributions should become cen- tral to future economic policy. It may be the case, however, that the neoliberal cultural embrace of markets in general and financial markets in particular will prevent the recognition of both the risk associated with pooling so much of national wealth in the hands of a few actors in the finance sector and the con- templation of any solutions other than market solutions. In this vein Krippner (fc) points out the problematic nature of post-crisis efforts to regulate the finance sector “Under neoliberal economic management… the state’s avoidance of responsibility for economic outcomes may shield policy makers from public scrutiny, but it does not build a foundation for state action” (Krippner fc, p. 230). The neoliberal obscuring of the essentially political basis of market institutions robs state actors of a language with which to lead reform. In this sense, the political choices of the Federal Reserve to obscure its role in creating the economy may prevent it from acting to save it. We can be sure from our analyses that the generous compensation of employees in the Securities Industry is a result of financialization, but it also stands out for being embedded in a labor centered model of rent extraction. In the securities industry partners and powerful em- 41
Page 1 and 2: Income Dynamics, Economic Rents and
Page 3 and 4: “I think everybody a few years ag
Page 5 and 6: economic sociology and political ec
Page 7 and 8: tion but since the two trends are l
Page 9 and 10: their profits as taxable income. Th
Page 11 and 12: While we have established that the
Page 13 and 14: ployees, a lower capital share of i
Page 15 and 16: income dynamics, which should follo
Page 17 and 18: serve Bank, led by Paul Voker, foug
Page 19 and 20: anks profitability, the second and
Page 21 and 22: Together these shifts in the instit
Page 23 and 24: nancial engagement of non-financial
Page 25 and 26: count suggests a certain happenstan
Page 27 and 28: The other finance sector industries
Page 29 and 30: from the society overall. The emplo
Page 31 and 32: as dramatic. In the Security indust
Page 33 and 34: egulatory relaxation and a general
Page 35 and 36: occurred if finance sector actors h
Page 37 and 38: of total national profits in the fi
Page 39: swaps. Clearly, the market and poli
Page 43 and 44: ents from other actors in the econo
Page 45 and 46: Krippner, Greta. 2005. “The Finan
Page 47 and 48: Stockhammer, Engelbert. 2004. “Fi
Page 49 and 50: %GDP 10 15 20 25 30 35 Figure 1. Fi
Page 51 and 52: Ratio 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1
Page 53 and 54: %Profits 0 5 10 15 20 Figure 5. Fin
Page 55 and 56: Ratio 1.0 1.5 2.0 2.5 3.0 Figure 7.
Page 57 and 58: Table 1. Summary of Institutional A
Page 59 and 60: Appendix A. Industry classification
Page 61 and 62: Appendix B. Sector and industry shi

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