The Effects of Increased Product Market Competition and Changes in Financial Markets on the Performance of Nonfinancial Corporations in the Neoliberal Era

Abstract

This paper begins with a summary of arguments in support of the thesis that neoliberal policies have altered the competitive environment within which large nonfinancial corporations operate by slowing global aggregate demand growth and removing national barriers to trade and direct investment. These changes spawned destructive competition in key global industries, leading to low profits, high leverage and chronic excess capacity. It then argues that the evolution of financial markets in the last quarter century has strongly affected nonfinancial corporate structure and performance. Financial market changes led to shorter corporate planning horizons and weaker allegiance of key stakeholders to long-term corporate goals, and they dramatically altered management compensation criteria in ways that aligned top managers' interests with those of institutional investors concerned only with short-term stock price movements. Financial market pressures also led to an enormous increase in the percent of nonfinancial corporations' cash flow disgorged to financial market agents.