Anglo-Saxon Capitalism Gets the Blame for Financial Crises

(Bloomberg) -- What causes financial crises? If you live in an English-speaking country, your economic system is probably the problem.

Anglo-Saxon capitalism leads “inexorably” to such crises, according to Natixis chief economist Patrick Artus. He defines the model, which is typically associated with countries such as the U.S. or U.K., as one where shareholders’ interests are prioritized over those of workers.

What this means, Artus says, is that when companies are required to deliver higher return on equity, they tend to do so by distributing income to the detriment of wage earners. This has led to “abnormally high” levels of return on equity:

Squeezing wages, however, depresses domestic demand, especially for low-income households, Artus wrote in a note to clients published Monday. That means economic policies need to kick in to counter that weakness.

“To offset this risk of weak demand, economic policies in Anglo-Saxon countries become abnormally expansionary, leading to excessive debt and asset-price bubbles, ultimately leading to financial crises.”

Artus concludes that different objectives than enriching shareholders – such as reducing inequalities or encouraging long-term investment horizons – might be the better choice for societies that wish to reduce the likelihood of self-induced financial shocks.

To contact the author of this story: Carolynn Look in Frankfurt at clook4@bloomberg.net.

To contact the editor responsible for this story: Lucy Meakin at lmeakin1@bloomberg.net, Paul Gordon

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