Nonfinancial firms’ portfolio income relative to cash flow surged by the late 1980s

Evidence

Figure 4 shows the ratio of portfolio income to corporate cash flow among nonfinancial firms between 1950 and 2001.19 A 5-year moving average is shown with the annual data. An increasing trend indicates a higher share of revenues coming from financial relative to non-financial sources of income and hence is consistent with a greater degree of financialization.The ratio is remarkably stable in the 1950s and 1960s,but begins to climb upward in the 1970s,and then increases sharply over the course of the 1980s. In the late 1980s, the ratio peaks at a level that is approximately five times the levels typical of the immediate post-war decades. The ratio retreats somewhat from the high levels obtained during the 1980s in the first half of 17In particular, the BEA’s capital consumption adjustment converts depreciation from a historical-cost to a replacement-cost basis. — Greta R. Krippner, The Financialization of the American…, 56

Categorization

• DEFINE: Defines the portfolio-income-to-cash-flow ratio as the operational indicator of financialization.
• ADDENDUM: Provides the quantitative backbone for ‘Grafting & Growth’ analogies about shifting infrastructural bases — here capital shifting from productive to financial channels.
• XREF: connects to: Nonfinance firms increasingly derived income from financial markets — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 18; Stagnating growth plus deregulation pushed firms from production into financial investment — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 41; Nearly 40% of S&P 500 earnings came from financial activities by 2000 — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 49 (+6 more)

Related

• Financialization can be measured by comparing non-financial firms’ portfolio income to their cash flow. (similarity 0.92)
• Nonfinance firms increasingly derived income from financial markets (similarity 0.91)
• Financial profits relative to non-financial profits rose three to fivefold by the late 1990s. (similarity 0.89)
• Corporate spin-offs inflate portfolio income measures independently of financial orientation (similarity 0.84)
• Financialization comprises both finance-sector dominance and nonfinance firms’ financial investing. (similarity 0.84)
• Stagnating growth plus deregulation pushed firms from production into financial investment (similarity 0.83)
• Nearly 40% of S&P 500 earnings came from financial activities by 2000 (similarity 0.83)
• Financialization cannot be reduced to stock market developments. (similarity 0.82)
• Major nonfinancial corporations shifted their earnings toward financial operations (similarity 0.81)
• Financialization is measured as the ratio of financial receipts to business receipts. (similarity 0.81)
• Depreciation allowances bias both profit and cash-flow measures of financialization in opposite directions. (similarity 0.80)
• Financialization must be measured by profit generation, not employment or output (similarity 0.79)
• Nonfinance firms’ financial gains are funded by production-derived cash flows, not new productivity (similarity 0.78)
• Financialization does not measurably raise firm profits or financial-asset productivity. (similarity 0.78)
• Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector (similarity 0.78)

Broader Connections

• Corporate spin-offs inflate portfolio income measures independently of financial orientation #complicates (0.80) — Greta R. Krippner, The Financialization of the American…, 90
• Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector #qualifies (0.78) — Greta R. Krippner, The Financialization of the American…, 84
• Financialization accelerated through 1970s-80s deregulation and state support #expands (0.72) — Andrew deWaard, Derivative Media, 488