The financial sector has made deep inroads into the overall makeup of the economy across the world over the past three decades. This financialization has happened due to the combined effects of technological change and deregulation. As a result, contractual arrangements have now become common place, having trickled down to other levels in the economy. Supporters of this development point out that it leads to an improved allocation of resources to people or firms that deserve it. The failure and success of firms already going down that direction accelerates as a result of intervention by banks. More turbulence is generated within the economy, where the churn leads to only a handful surviving. Thus, funds get reallocated to the better firm from the next-best one. Especially taking the case of France but also extending to other industrial economies, one notices that family-run firms tend to do better in the long-run. This is because family firms’ corporate strategy is geared towards parsimony. They control finances tightly, ending up paying lower wages, but also investing conservatively. Such firms avoided the market meltdown of 2008.

Source:http://news.mit.edu/2018/does-flow-capital-make-economy-efficient-0927

Uploaded Date:10 November 2018