Distribution, 'financialisation' and the financial and economic crisis: Implications for post-crisis economic policies

The severity of the financial and economic crisis which started in 2007 cannot be understood without examining the medium- to long-run developments in the world economy since the early 1980s. The following long-run causes for the crisis can be identified: inefficient regulation of financial markets, increasing inequality in the distribution of income, and rising imbalances at the global (and at the Euro area) level. The focus of the paper is on the changes in distribution triggered by 'finance-dominated capitalism' embedded in a 'neo-liberal' policy stance since the early 1980s. The three dimensions of re-distribution in the course of 'financialisation' and 'neo-liberalism' are examined: functional distribution, personal distribution and the development of top incomes. Since the development of functional income distribution is considered to be most important, the channels through which 'financialisation' and 'neo-liberalism' have contributed to the tendency of the labour income share to fall are identified, the effects of re-distribution on aggregate demand and growth are discussed, and the relationship between re-distribution at the expense of labour and regional (Euro area wide) and global current account imbalances are addressed. Finally, economic policy conclusions with respect to a sustainable income- or wage-led recovery strategy embedded in a 'Keynesian New Deal at the global and the European level' are drawn.