new publication (May 2023)
ONdernemingsbeleid in een wereld van financialisering
Topics in corporate finance Issue 30
With this new publication (in Dutch) Ondernemingsbeleid in een wereld van financialisering from Dirk Bezemer (Rijksuniversiteit Groningen), Kees Cools (Tilburg University) and Arnoud Boot (University of Amsterdam) the Amsterdam Center for Corporate Finance seeks to contribute to the current debate on the concept of financialization within society.
Our financial economies have experienced unprecedented growth in recent decades. This has not only manifested itself in a growing role for the financial sector over time, but also in a stronger focus on financial incentives. This is referred to as financialization. The often heated social debate focuses on questions such as: do we live in a world where finance rules, and financial standards and instruments dominate the economy? And is shareholder capitalism, aimed at financial gain, rampant, or do companies guarantee broader social interests?
In three contributions, respectively by Dirk Bezemer (University of Groningen), Kees Cools (Tilburg University) and Arnoud Boot (University of Amsterdam), this problem is analyzed in different ways and positions are taken. The authors are active participants in the current social debate about the role of the financial sector, shareholders and companies in society. All in all, the three contributions offer a rich variety of perspectives that focus on the relationship between the financial and real economy, and by extension how companies should act in a world in which they are expected to perform financially while at the same time fulfilling their social responsibility.
Dirk Bezemer examines the macroeconomic context of financialization. He shows that financial flows have gained importance. Debt levels are historically high and property income has become increasingly important. The conclusion from his analysis is that the importance of the financial economy has become too large. It is no longer that financial development contributes to economic growth, but rather that the tumultuous growth of finance skims the real economy and hinders it, and is therefore harmful.
Kees Cools' contribution is also very critical and focuses on shareholder capitalism, which in his view has become very dominant, more or less as a symptom of financialisation. He calls for a paradigm shift to a more sustainable and inclusive model. Cools argues that the shareholder model has turned the management of companies into shareholders' bosses and – despite fine words that sometimes suggest a greater sense of social responsibility – bombards profit maximization as an exclusive objective. He is skeptical about the broader prosperity story propagated by entrepreneurs. He does not consider this possible within the current shareholder capitalism. He also formulates a number of thoughts on how to arrive at a more sustainable economic paradigm.
In the last contribution, Arnoud Boot makes some nuances. He sees fewer contradictions, but does recognize that opportunistic financial gain at the expense of the public interest is a problem and can affect the social fabric of society. He places a much greater responsibility on directors. In his view, long-term value creation and related broader social interests can indeed be steered, but company boards are distracted far too much by short-term motives. He sees shareholders as ‘the source of evil’ as far too easy; their interests need not be at odds with long-term value creation.