Literature Review On Neoliberalism

1. Introduction

Over the last decade and a half, there has been a growing literature on ‘financialization’ and its impact on corporate behavior and the economy as a whole. It is most broadly understood as a process in which the financial markets and financial institutions grow in size and influence in an economy at the expense of the real sector. Epstein (2001, pg. 3) defines it as “the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its growing institutions, both at the national and international level”. Krippner (2005, pg. 174) defines it “as a pattern of accumulation in which profits accrue primarily through financial channels rather than through

The Fordist era was marked with high growth rates and high levels of accumulation. Neoliberal economic policy was brought to the fore when the Reagan-Thatcher governments brought in a fundamental change in monetary policy regime, which started targeting price stability as oppose to the earlier objective of full employment. As Dumenil and Levy put it, “neoliberalism is the ideological expression of the return to hegemony of the financial fraction of ruling

With such a short-term strategy of running itself down, growth of firms seems impossible. However, this can be explained to some extent with the rise of global value chains which was largely coincidental with the emergence of financialization. Since the 1980s was a growing tendency by firms to break up the process of producing goods and services and locate different parts in different locations depending on costs, markets, logistics or politics. This globalization of production has been variously described as “slicing up the value chain,” “vertical disintegration,” “offshoring,” and the “globalization of production.” Global value chains are production processes which are managed by lead firms through vertical integration or by subcontracting the production of goods to supplier firms in different countries. For example, Apple is a vertically integrated company which controls many aspects of the production of its products such as sourcing materials and manufacturing, which were mostly done outside the US until quite recently, while it subcontracts the hardware production to companies like