Grace Blakely - A slowing economy shows the US must break free from the curse of financialisation

An excellent article about what went wrong with American capitalism. She says how by investing less American companies were able to keep their prices up because it lessoned supply.

As China zooms ahead, the US answer is more gunboats. 

Private investment fell sharply in the US over the course of the 1980s — from 20 per cent of GDP in 1984 to 15 per cent in 1991. And as corporations have cut costs in an attempt to boost profits, wages have fallen too. The average worker in the US is no better off today than they were in 1978. The incentives to focus on the share price became so entrenched that corporations would often take out debt to boost their share price, which effectively involved extracting profits from the future to pay to shareholders today.

The actors that epitomised the logic of shareholder value were the corporate raiders who took over Wall Street in the 1980s. They would load up on cheap debt before buying entire corporations, stripping out and selling off their assets, and using the returns to repay bondholders and dish out money to shareholders. Carl Icahn was one of the most notable American corporate raiders, who made famous the practice of “greenmailing” — buying up shares in a company and threatening a hostile takeover unless the company repurchased the greenmailer’s shares at a premium.

In the 1990s and 2000s corporate raiding gave way to private equity, mega-mergers and debt-leveraged buyouts. The value of M&A activity in the US more than trebled between the end of the 1980s and the early 2000s. The result was the concentration of American capitalism in ever fewer hands and the rise of some of the largest monopolies in the world.

The New Statesman

Grace Blakely - A slowing economy shows the US must break free from the curse of financialisation