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

Abstract

Neoliberal policies altered the competitive environment within which nonfinancial corporations operate by slowing global aggregate demand growth and removing national barriers to trade and direct investment. These changes spawned destructive competition, leading to low profits, high leverage and chronic excess capacity. Meanwhile, financial market changes strongly affected nonfinancial corporate behavior. Planning horizons were shortened, the allegiance of key stakeholders to corporate goals declined, a dramatic change in management compensation took place, aligning top managers' interests more tightly with the short-term speculative interests of institutional financial investors, and the percent of cash flow disgorged to financial agents skyrocketed. The result was a "neoliberal paradox": financial markets demanded ever higher profits while product markets tightly constrained earnings.