Firm financial income diverts resources from core production and shifts bargaining power upward

Evidence

We expect this reliance on financial income has profound distributional consequences. First, the reliance on financial income implies that resources are reallocated away from workers and production to the financial unit and financial markets, decreasing the potential growth and stability of the core business. In the case of Sears, because a significant proportion of the cash flow generated by retail outlets was channeled into financial operations, fewer resources were available for store improvement and advertisement. One example is that Sears spent only 1.5–2 per square foot to update their stores, in contrast to the industry standard of 6–8 ðLahart 2011Þ. Second, unlike production and sales, financial income is nominally external and independent of the production workforce. Thus, this stream of revenue decouples surplus and production and, we suspect, enhances the negotiating power of owners and executives in the compensationsetting and surplus distribution process. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 50

Categorization

• XREF: Krippner’s financialization account and Davis 2009 on finance as ascendant cultural value; ties to the reader’s theory bibliography on the separable-financial-profits thesis. — connects to: Financial income reallocates resources away from workers and strengthens owner bargaining power; Financial earnings at nonfinance firms raise executive bargaining power with boards. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 56; Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector — Greta R. Krippner, The Financialization of the American…, 84 (+6 more)

Broader Connections

• Financial income reallocates resources away from workers and strengthens owner bargaining power #corroborates (0.95)
• Financialization shifts firm investment from core business toward finance, weakening workers’ claims on revenue. #corroborates (0.90) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 54
• Financialization channels income toward the wealthy and depresses productive investment and wages. #corroborates (0.90) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 24
• Financial earnings at nonfinance firms raise executive bargaining power with boards. #expands (0.85) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 56
• Income distributions reflect actors’ relative bargaining and claimsmaking power. #corroborates (0.82)
• Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector #exemplifies (0.80) — Greta R. Krippner, The Financialization of the American…, 84
• Heightened competition redistributed income upward despite energizing growth #complicates (0.78) — David Harvey, The Condition of Postmodernity, 1046
• Financialization theory links wage-compromise collapse and shareholder value to inequality #expands (0.75) — Natascha van der Zwan, Making Sense of Financialization, 109
• Financialization marks a decisive shift from production-based to finance-driven accumulation. #responds-to (0.72) — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 19