Abstract: Marketization, Globalization, Financialization: The Fragility of the U.S. Economy in an Era of Global Change

William Lazonick


In the 1980s and 1990s the rise of the "New Economy business model" (NEBM), characterized by marketization and globalization, enhanced the potential of the U.S. economy to upgrade its innovative capability in response to international competition. (By marketization, I mean that competitive market processes play a heightened role in the allocation of inputs to a company and the sale of outputs by a company. By globalization, I mean the breaking down of national barriers that face a company in the movement of goods, people, and money around the world.) In the presence of marketization and globalization, however, the achievement of equitable and stable economic growth in the United States required more, not less, coordinated investment by business and government in developing the capabilities of the U.S. labor force as a whole and in ensuring the availability of new employment opportunities. In the 2000s the financialization of the U.S. business corporation undermined the innovative potential of marketization and globalization. The manifestation of the financialization of the U.S. economy is the obsession of corporate executives with distributing "value" to shareholders, especially in the form of stock repurchases, even at the expense of investment in innovation and the creation of U.S. employment opportunities. In this paper I analyze how the marketization and the globalization of corporate resource allocation contributed to the success of the NEBM in international competition. Then I show how the financialization of corporate resource allocation under the dominant U.S. business model that arose out of the processes of marketization and globalization is now resulting in a massive misallocation of resources and that, as a result, the U.S. economy has become a very fragile economy. Under the "Old Economy business model" (OEBM), the industrial corporation performed critical collective functions in ensuring economic security in employment and retirement to U.S. households that it no longer performs. Under NEBM there is a much greater need for the government to perform these collective functions. Yet the trend of government involvement in the provision of economic security has moved in just the opposite direction. It will require, I contend, a radical transformation of U.S. economic institutions and government policies to provide equitable and stable growth.