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Political Economy Research Group (PERG)

PERG is a group of researchers who believe that effective demand, institutions and social conflict are of fundamental importance for the understanding of economic relationships and outcomes. Furthermore economic analysis should be embedded in a pluralist approach, allowing different schools of thought providing a broad basis for scientific progress.

About PERG

The Political Economy Research Group (PERG) takes a political economy approach to analyse the role of effective demand, finance institutions and social conflict in the economy. We start from the premise that economic processes are embedded in social relations that can only be successfully analysed in the context of historical considerations, power relations and social norms. This requires building on insights from history, sociology and other social sciences. This approach enables a better understanding than neoclassical theory based on rational agents, optimization and self-equilibrating markets. PERG advocates a pluralist approach to economics and has notable strengths in Post-Keynesian theory. Research areas include economic crisis and financial instability, financialisation, income inequality, distribution and growth, and economic development. Members have published in journals like Cambridge Journal of Economics, New Political Economy, Environment and Planning A or African Affairs.

PERG maintains strong links to the student community. The research group supports the MA cluster in Political Economy, which is part of the EPOG masters programme (Economic Policy in the Age of Globalisation). This masters degree programme is financially supported by the European Commission and jointly awarded by different partnering intuitions. In addition, four PhD students with scholarships are currently associated with PERG.

Our goals

The aim of PERG is to further research in the area of Political Economy at Kingston University by bringing together active researchers in the field. We organise academic workshops, round tables and provide resources for interested students such as a summer school on Political Economy and an overview of relevant academic journals, associations and newsletters in the heterodox/political economy tradition. Beside of that, PERG has also been instrumental in developing the Kingston MA cluster in Political Economy.

PERG members

Professor Engelbert Stockhammer has worked extensively on the determinants of European unemployment, the demand effects of changes in income distribution and the macroeconomics effects of financialisation. He has published numerous articles in international peer-refereed journals including the Cambridge Journal of Economics, the Journal of Post Keynesian Economics, and the Review of Radical Political Economics. He is author of The Rise of Unemployment in Europe (Edward Elgar, 2004) and co-editor of Macroeconomic Policy on Shaky Foundations: Whither Mainstream Economics?(Metropolis 2009) A Modern Guide to Keynesian Economics and Economic Policies (Edward Elgar 2011) and Wage-led Growth. An Equitable Strategy for Economic Recovery (Palgrave 2013). His research areas include macroeconomics, applied econometrics, financial systems and heterodox economics. Engelbert is also research associate at the Political Economy Research Institute at the University of Massachusetts at Amherst (PERI), member of the coordination committee of the Research Network Macroeconomics and Macroeconomic Policy (FMM) and chair of the Post Keynesian Economics Study Group (PKSG). He has worked with NGOs such as ATTAC and carried out research for the Austrian Chamber of Labour, the ILO and INET.

Professor Steve Keen was one of the handful of economists to realise that a serious economic crisis was imminent, and to publicly warn of it, from as early as December 2005. This, and his pioneering work on complex systems modeling of debt-deflation (Keen 1995), resulted in him winning the Revere Award from the Real World Economics Review for being the economist "who first and most clearly anticipated and gave public warning of the Global Financial Collapse and whose work is most likely to prevent another GFC in the future". Keen's research specialty is monetary macroeconomic modeling. With the support of INET, he developed Minsky, an Open Source, cross-platform, visual monetary macroeconomic modeling program. It was selected as Project of the Month of January 2014 from amongst SoureForge's 22,000 projects, and it is now available for use by other researchers.

Dr. Simon Choat is a senior lecturer in Politics and International Relations. He joined Kingston in 2010, having previously taught at the University of Reading and Queen Mary, University of London, from where he received his PhD. His research interests centre on political theory, with a special emphasis on Marx and Marxism in relation to post-Structuralism. He has published numerous articles in international peer-refereed journals including Capital and Class, New Political Science and Political Studies. Simon is the author of two monographs: Marx Through Post-Structuralism: Lyotard, Derrida, Foucault, Deleuze (2010) and Marx's 'Grundrisse': A Reader's Guide (2016).

Jennifer Churchill has been a lecturer at Kingston University since 2015 and works on issues relating to welfare state provision in financialised capitalism with special focus on pensions systems in the EU as well as developing economies. Her other research areas include critical appraisals of contemporary economic philosophy, in particular the American philosophy of pragmatism and critical realism. Her work has been published in Revista de Economia Mundial and Finance and Society.

Dr. Andrew Higginbottom is associate professor in Politics and International Relations with research interests in Marxism, development theories and policies, and imperialism. He has published journal articles on the structure and essence of Marx's Capital 1, on imperialist rent and on foreign investment in Latin America and South Africa from the dependency perspective. His current research projects are a dialogue with Capital concerning the theorisation of US cotton slavery and British industrial capitalism; and an exploration of Marini's concept of labour super-exploitation and Marx's theory of surplus-value. Andy is an international solidarity campaigner as well as an academic, he is active in support of social movements in Colombia, South Africa and the Eelam Tamils.

Dr. Rex McKenzie is a senior lecturer in Economics. His approach to research is influenced by different social and economic ideas, including political economy, international political economy, economic geography, economic sociology, history of economic thought and development economics. Previously he has conducted research on industrial policy in South Africa, and the political economy of Africa, Latin America and the English speaking Caribbean. His current research focuses on the offshore world, real estate in contemporary capitalism, global wealth chains and social network analysis. In addition, he has an ongoing interest in the use of qualitative research methods in economics.

Dr. Richard van den Berg is associate professor at Kingston Business School. He joined Kingston University in 2002 and specialises in the history of economic thought, in particular on economic thought of France and Britain in the 18th century. His work is widely published including in the European Journal of the History of Economic Thought, History of Political Economy, Cahiers d'Economie Politique and Économies et Sociétes.

Dr. Christina Wolf is a lecturer in Economics and works on the dynamics of structural transformation in sub-Saharan Africa, focusing specifically on how these are shaped by the state and spending patterns in the economy as well as external or systemic influences like the intensification of South-South economic ties and financialisation. Christina obtained a PhD from the School of Oriental and African Studies and has published amongst others in African Affairs and the Third World Quarterly.

Associated members

Dr Paul Auerbach obtained a PhD in Economics from the University of Wisconsin in 1973 and since 1990 has been reader in Economics at Kingston University. He is the author of Competition: the Economics of Industrial Change (Oxford: Basil Blackwell 1988). Recent work has been directed at the relationship between education (and human development, broadly considered) and economic development. He is the author of Socialist Optimism An Alternative Political Economy for the Twenty-First Century Palgrave Macmillan 2016 and has recently completed a paper on the Rawls-Nozick exchange concerning equality. 

Antoine Godin, PhD in Economics (Pavia, Italy), worked at Kingston University from 2015-17 and is now a senior economist at the French Agency for Development. He has developed two modelling software: a R package to design, calibrate and simulate Stock-Flow Consistent models and a Java platform to design and simulate Agent-Based Stock-Flow Consistent models. He has widely published on methodological and theoretical aspects in economics in journals including Journal of Evolutionary Economics, the Cambridge journal of Economics or the Journal of Economic Dynamics and Control.

Rob Jump, PhD in Economics (University of Kent), worked at Kingston from 2015-17, and is now at the University of the West of England. His research interests are in the areas of agent based modelling, inequality and complex dynamics.

Ewa Karwowski, PhD in Economics (SOAS, University of London), worked at Kingston from 2014-17 and is now a senior lecturer at the University of Hertfordshire. She has worked as an economic consultant for international organisations (OECD, ILO) and in development policy, including as an ODI fellow in the National Treasury, South Africa. Her research interests include finance and development, the financialisation of the firm, and Kaleckian economics. Ewa is board member of the Post-Keynesian Economics Society, part of the International Initiative for Promoting Political Economy and founding member of Reteaching Economics.

Simon Mohun is emeritus professor of Political Economy at Queen Mary, University of London and associate member of PERG at Kingston. His work is primarily concerned with the theoretically informed measurement, description and explanation of trends in aggregate profitability in developed capitalist economies (especially the US economy). Much of this work involves a sharp focus on class, and his current research focus is on the relations between inequality, profitability and crisis over time. He has published numerous articles in international peer-refereed journals including the Cambridge Journal of Economics, Metroeconomica, Structural Change and Economic Dynamics and the Review of Radical Political Economics. He is currently co-organiser of the Training Workshops of the International Initiative for the Promotion of Political Economy.

Hiroshi Nishi, PhD Economics (Kyushu University, Japan) worked as a visiting fellow at Kingston University from 2017-18. He is Professor in Economics at Hannan University, Japan with research interests in political economy (Keynesian economics, institutional economics, and comparative political science), macroeconomics and the Japanese economy. He was awarded the 4th Encouragement Prize of Japan Society for Political Economy and his work is widely published in journals like Structural Change and Economic Dynamics, Review of Political Economy and the Cambridge Journal of Economics.

Dimitris Sotiropoulos, PhD in Economics, worked at Kingston from 2013-15, and is now at the Open University. Dimitris' current research interests are focused on the political economy of derivatives markets, the social aspects of risk management and the history of financial innovation. He has published three books, the most recent one being The Political Economy of Contemporary Capitalism and Its Crisis: Demystifying Finance (Routledge). His papers in journals and edited volumes (in English, Greek and German) cover research areas from the history of economic thought to the empirical analysis of the recent Euro area crisis. His general research interests also include the theory of value and money, international political economy and the history of economic thought.

Devrim Yilmaz, PhD in Economics (University of Manchester), worked at Kingston from 2015-17 and is now at the French Agency for Development. He took his PhD in Economics at the University of Manchester in 2009 on public spending, growth and welfare. His research interests include stock-flow consistent dynamic models, agent-based models and monetary theory of production.

Julian Wells worked at Kingston from 2003-17. He trained as a journalist after leaving school, and worked in local newspapers and trade and technical periodicals before taking his BSc (Econ) as a mature student (Queen Mary London 1985) and a PhD in economics (Open University 2007). His research interests stem from opposition to determinist ideas in social science. They extend from the new field of probabilistic political economy ('econophysics'), through the rediscovery of Marx's statistical thought, to the ways in which agent-based modelling of social and economic processes undercuts elitism and meritocracy and supports egalitarianism.

Current and former PhD students

Collin Constantine is a PhD student in economics at Kingston University who works on economic development and growth, international economics, inequality, political economy, public economics, open economy macroeconomics and Caribbean economic history. He is the coordinator of INET's Young Scholars Initiative's Economic Development working group and a member of PERG. His PhD dissertation investigates the structural determinants of the intra-Eurozone current account imbalances, with particular emphasis on technology gaps.  Collin was a teaching fellow at SOAS, University of London where he taught macroeconomics and econometrics at the undergraduate and postgraduate levels respectively. His work has appeared in Social and Economic Studies, Journal of Economic Structures, Nova Economia, Journal of Developing Country Studies, New School Economic Review, International Finance Review and Journal of Australian Political Economy. He holds an MSc degree in development economics from SOAS, University of London and was a recipient of a PhD studentship from Kingston University in 2015.

Tim Gooding is a PhD student at Kingston University investigating the foundational emergent behaviour of trade. Key experimental findings include a base line exponential inequality of the distribution of money (0.5 Gini coefficient), an inverse relationship between required agent computation (such as consumer choice) and system efficiency, and strong evidence suggesting long-term prices in closed economic trade systems (such as the global economy) are not linked to supply and demand. Additional interests include evolutionary forces shaping human society, especially in the form of evolutionary fitness tests.

Giorgos Gouzoulis is a PhD student in economics and member of PERG at Kingston University. He joined Kingston in 2016, receiving a three-year fully funded PhD research scholarship. His research interests include finance-driven business cycles, the impact of financialisation on income distribution, and political business cycle modelling. Giorgos holds a BA(Hons) and an MPhil degree in economics from the University of Athens, Greece. He has previously taught quantitative methods and international economics at the University of Athens and King's College London.

Karsten Köhler is a PhD student in economics at Kingston University. His PhD dissertation is on boom-bust cycles and exchange rate policy in emerging market economies. Further research interests comprise open economy macroeconomics, financial and business cycles in advanced and emerging market economies, and the effect of financialisation on income distribution. Recent publications: Kohler, Karsten (2017) 'Currency devaluations, aggregate demand, and debt dynamics in economies with foreign currency liabilities', Journal of Post Keynesian Economics, 40(4), 487-511.

Christian Koutny is a PhD student in economics and part of PERG at Kingston University. He received a BSc in economics from the WU Vienna and a MA in Political Economy from Kingston University, for which he received a scholarship from the Chamber of Labour Vienna. At the moment he receives the Kingston University Research Studentship and examines financial (Minskian) effects on the real economy (investment, business cycle). He is also a member of the Foundation for European Progressive Studies (FEPS) Young Academics Network (YAN), where he is working on the economic aspects of the European Pillar of Social Rights.

Bazil Sansom is an economist, policy analyst and strategist. His doctoral research is focused on characterising and explaining housing market dynamics, and the macro/housing/finance nexus. Previously he has led work for government on local public services and finance, housing, and on strategy, business planning and change management; he has also taken the analytical lead for asset portfolios in a variety of different industries as a research and credit analyst for commercial banking. His research interests include non-stationary time series analysis, wavelets based time-frequency methods, graph theory, empirical and analytical methods in nonlinear dynamics, and complex systems. Other academic specialisations and interests include behavioural economics and experimental methodologies and their application for policy.

Rafael Wildauer received his PhD from Kingston in 2017, and is now working at the University of Greenwich. His research interests are the determinants of household debt, particularly the role played by personal income inequality and the evolution of income and wealth inequality over time in general. Before coming to Kingston, Rafael gained research experience during an internship at the Macroeconomic Policy Institute in Düsseldorf, Germany, contributing to a meta-analysis of fiscal multipliers among other projects. He also worked as a research assistant at the University of Linz on statistical correction of the sample bias in wealth survey data.

Research topics

The crisis 2007-? and its origins

With the bursting of the property bubble and onset of the financial crisis, the world economy has entered the worst crisis since the Great Depression. What are the causes of the crisis? Merely inadequate financial regulation? What are its deeper structural causes? Is it a crisis of Neoliberalism? Of financialisation? Who will bear the costs of the crisis?

A selection of papers indicative of our ongoing work in the area:

  • Stockhammer, E (2011), Peripheral Europe's debt and German wages. International Journal of Public Policy forthcoming
  • Milios, J, and Sotiropoulos, D (2011), Imperialism, Financial Markets and Crisis, Athens: Nisos [in Greek]
  • Milios, J, and Sotiropoulos, D (2010), Crisis of Greece or crisis of Euro? A view from the European 'periphery', Journal of Balkan and Near Eastern Studies, 12(3): 223-240
  • Stockhammer, Engelbert (2010) Neoliberalism, Income Distribution and the Causes of the Crisis. In: P. Arestis, R. Sobreira, J. Oreiro (eds): The 2008 Financial Crisis, Financial Regulation and Global Impact. Volume 1 The Financial Crisis: Origins and Implications - working paper version RMF Discussion Paper 19
  • Mohun, S, The Crisis of 2008 in Historical Perspective, paper presented at the First IIPPE Conference, Rethymnon, Crete, September, 2010
  • Stockhammer, Engelbert (2009) The finance-dominated accumulation regime, income distribution and the present crisis. Papeles de Europa, 19, pp. 58-81. ISSN (online) 1989-5917
  • Mohun, S (2007), Review of Capital Resurgent: Roots of the Neoliberal Revolution, by Gerard Duménil and Dominique Lévy, Review of Political Economy, 19(1): 120-5

Foundations, traditions, and controversies in political economy

Political economy is broader in scope than conventional economics. It transgresses the disciplinary boundaries of economics; it consists of different paradigms; as a consequence, it needs a richer set of research methods. What are the appropriate units of analysis: individuals, institutions, classes, or social norms? What are markets? Are the different paradigms within political economy conflicting or complementary? What are the implications of this for the choice of appropriate methods in political economy analysis?

A selection of papers indicative of our ongoing work in the area:

  • Mohun, S and Veneziani, R (2011), Reorienting Economics? [doi: 10.1177/0048393110376218], Philosophy of the Social Sciences
  • Milios, J and Sotiropoulos, D (2009), Rethinking Imperialism: A Study of Capitalist Rule, London and New York: Palgrave Macmillan
  • Sotiropoulos, D (2009), Why John Stuart Mill should not be enlisted among neoclassical economists, The European Journal of the History of Economic Thought, 2009, 16(3): 455-473
  • Levina, Iren (2008), The Transformation Problem: A Comparative Analysis of Approaches and Solutions (Classical Versions), Voprosy Economiki, No. 9, p. 123-139 [in Russian]
  • Stockhammer, E and Ramskogler, P (2008), Post Keynesian economics - how to move forward. Vienna University of Economics & B.A. Dept. of Economics Working Paper No. 124
  • Stockhammer, Engelbert (2007), Uncertainty, class and power. International Journal of Political Economy 35 (4), 29-45
  • Wells, Julian (2006), The dogs that didn't bark: Marx and Engels and statistical fatalism, invited paper for the Dissent in Science seminar, Centre for the Philosophy of Natural and Social Sciences, London School of Economics
  • Levina, Iren (2006), On the Question of Contradictions of Economies in Transition, In: Methodology of Economic Theory and Methods of Its Teaching, Moscow [in Russian]
  • Mohun, S (2004), The Labour Theory of Value as Foundation for Empirical Investigations, Metroeconomica, 55(1): 65-95
  • Auerbach, Paul, Desai, Meghnad and Shamsavari, Ali (1998), The Dialectic of Market and Plan. New Left Review 170
  • Wells, Julian (1998), Probabilism and determinism in political economy: the case of Bernstein and Engels, Eastern Economic Association conference, New York

Capitalism, labour relations, and institutions

Political economy approaches provide a useful perspective for placing capitalism in a historical and institutional context and tracing its consequences for workers. Recognising the centrality of the labour process and the relative positioning of workers in the system are fundamental steps in informing our perspective on contemporary capitalism. What forms of work organisation are predominant in the current period and why? What control systems are employed to manage capital-labour conflicts and how are they facilitated? What is the relative power of workers and capitalists? What best accounts for the decline in wage share of workers?

A selection of papers indicative of our ongoing work in the area:

  • Murphy, Fidelma, and McDonough, Terrence (2011), The spatial restructuring of work and Maquiladoras of the automotive industry. Cambridge Journal of Regions, Economy and Society
  • Stockhammer, Engelbert (2009), Determinants of functional income distribution in OECD countries. IMK Studies, Nr. 5/2009. Düsseldorf
  • Onaran, Ö and Stockhammer, Engelbert (2008), The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis. Structural Change and Economic Dynamics. 19 (1), 66-80
  • Butler, T, Hamnett, C, and Ramsden, M (2008), Inward and Upwards? Marking out social class change in London 1981-2001, Urban Studies, 45(1), pp.67-88
  • Butler, T, Hamnett, C, Ramsden, M, and Mir, S (2008), Socio Demographic impacts of change in East London, in Cohen, P, and Rustin, M (eds.) London's Turning London, Ashgate

Political economy of financialisation and corporate governance

Financialisation is a hallmark of the last three decades, therefore, the key features of financialised economies call for an analysis. What does a rise in size of the financial sector mean? And where do financial profits come from? Moreover, financialisation has an impact on all the sectors of the economy. How does it affect households? And firms? Specifically, what is the impact of financialisation on capital accumulation and corporate governance? And what is the role of the state in these processes?

A selection of papers indicative of our ongoing work in the area:

  • Sotiropoulos, D, Milios, J, and Lapatsioras, S (2011), Demystifying Finance: How to Understand Financialization and Think of Strategies for a Good Society, in Marangos, J (ed.) Alternative Perspectives of a Good Society, Palgrave Macmillan
  • Sotiropoulos, D (2011), Kalecki's dilemma: towards a Marxian interpretation of neoliberal financialization, Rethinking Marxism, 23(1): 100-116
  • Stockhammer, Engelbert (2011), Financialization and the Global Economy. In: Gerald Epstein and Martin H. Wolfson (eds): The Political Economy of Financial Crises (Oxford University Press)
  • Levina, Iren and Costas Lapavitsas (2010), Financial Profit: Profit From Production and Profit Upon Alienation. RMF Discussion Paper No. 24
  • Stockhammer, Engelbert (2004), Financialisation and the slowdown of accumulation. Cambridge Journal of Economics, 28(5), pp. 719-741
  • Auerbach, Paul and Skott, Peter (1992), Financial Innovation and Planning in a Capitalist Economy, Metroeconomica Vol. 43 (1-2):75-102
  • Auerbach, Paul (1988), Competition Oxford: Basil Blackwell
  • Auerbach, Paul (1988), Concentration, Competition and Distribution - A Critique of Theories of Monopoly Capital, (with Peter Skott), International Review of Applied Economics 2(1)

Capital accumulation, income distribution, effective demand and employment

Political economy approaches to macroeconomics highlight the central role of social conflicts and the complex social determinants of capital investment decisions in the growth process. The analysis builds on the work of Marx, Keynes, and Kalecki and tries to apply these theories to contemporary issues: What are the effects of changes in income distribution on aggregate demand? What are the reasons behind long-term trends in unemployment? And what are appropriate policies to reduce it?

A selection of papers indicative of our ongoing work in the area:

  • Brown, V and Mohun, S (2011), The UK Interwar Rate of Profit 1920-38, Cambridge Journal of Economics, 35(6): 1035-59 (doi: 10.1093/cje/ber013)
  • Stockhammer, E, Stehrer, R (2011), Goodwin or Kalecki in demand? Functional income distribution and aggregate demand in the short run, Review of Radical Political Economics forthcoming
  • Mohun, S (2009), Aggregate Capital Productivity in the U.S. Economy 1964-2001, Cambridge Journal of Economics, 33(5): 1023-46
  • Stockhammer, Engelbert, Onaran, Ozlem and Ederer, Stefan (2009), Functional income distribution and aggregate demand in the Euro area, Cambridge Journal of Economics, 33(1), pp. 139-159. ISSN (print) 0309-166X
  • Wells, Julian (2009), Size effects in financial ratios: a PPE perspective, second conference on Developing Quantitative Marxism, University of Bristol
  • Stockhammer, Engelbert (2008), Is the NAIRU a Monetarist, New Keynesian, Post Keynesian or Marxist theory? Metroeconomica 59 (4), 479-510
  • Wells, Julian (2007), The rate of profit as a random variable, PhD thesis, The Open University

Socialism: planning, justice and policy

Definitions of socialism are contentious and varied within political economy. We need a critical evaluation of the experience of centrally planned economies as well as an openness to fresh ideas in order to develop a socialism for the 21st century. What would be the characteristics of an egalitarian economic policy? How can economic structures be democratised? Is a socialist perspective on egalitarianism and human rights different from a conventional one? What is the role of planning as part of a socialist programme? What will be the role of finance in socialism?

A selection of papers indicative of our ongoing work in the area:

  • Auerbach, Paul (2007). The Left Intellectual Opposition in Britain 1945-2000: the Case of the Alternative Economic Strategy, Socialist History Society Occasional Paper No. 24 2007
  • Stockhammer, Engelbert (2008). Wage coordination or wage flexibility? Intervention 5 (1), 54-62
  • Auerbach, Paul and Skott Peter (1993). Capitalist trends and Socialist Priorities, Science and Society 57(2)
  • Auerbach, Paul (1992), On Socialist Optimism, New Left Review 192

Research projects

Apart from publications in scientific journals, there are also bigger projects spanning over several years. The most recent example is the project "Rising Inequality as a Structural Cause of the Financial and Economic Crisis" funded by the Institute for New Economic Thinking. For more information on particular projects see below:

Rising inequality as a structural cause of the financial and economic crisis (2013-16)

Professor Engelbert Stockhammer
Funded by the Institute of New Economic Thinking

The financial crisis that began in summer 2007 has since turned into the worst economic crisis since the Great Depression. Its causes are usually sought in the malfunctioning of the financial sector leading to a real estate bubble and rapidly rising household debt. Among the macroeconomic factors that have attracted attention international imbalances have featured prominently: capital inflows, in particular from Asian countries that wanted to accumulate reserves, provided ample liquidity for this process. While all these financial mechanisms are indeed important, this project argues that, they may only give half of the picture. The project will investigate the hypothesis that rising inequality has contributed to the macroeconomic imbalances that erupted in the present crisis.

This project, financed by the Institute for New Economic Thinking, proposes to interpret the present crisis as an outcome of the interaction of the effects of financialization with the effects of rising inequality. We thus do not deny the importance of financial factors, but argue that they have to be seen in conjunction with increasing inequality. A dramatic shift in income distribution in all OECD economies has been one of the major socio-economic changes since the early 1980s. This has taken different forms in different countries. In the Anglo-Saxon countries a polarisation of personal income distribution has occurred. In the continental European countries it is functional rather than personal income distribution that has shifted dramatically. These changes in income distribution are historically extraordinary. They mark a clear break with the relatively egalitarian income distribution of post-war capitalism. In the USA income inequality is at its most extreme for a century! Given these dramatic changes one would expect macroeconomic effects.

Project outline

The project furthers our understanding of how rising inequality has contributed to the macroeconomic imbalances that erupted in the present crisis. This is done based on a Kaleckian macroeconomic model. We suggest that the present crisis should be understood as an outcome of the interaction of the process of financialization with the effects of the polarization of income distribution. The project will explore three channels through which rising inequality has contributed to the crisis.

  • Channel 1: The decline in the wage share has a negative effect on domestic demand and has thus contributed to stagnation tendencies.
  • Channel 2: The deregulation of international capital flows has loosened the balance of payments constraints for individual countries and has thus allowed the emergence of two growth models: one group of countries has relied on debt-led consumption growth-typically implying capital inflows; another group has relied on net exports growth, which implies capital outflows.
  • Channel 3: Rising inequality, in particular stagnant wage growth, has contributed to rising household indebtedness in the USA.

New Perspectives on Economic Growth: The Potentials of Wage-Led Growth

Project commissioned by the International Labour Office (ILO) The wage-led growth strategy aims at an economic regime where real wage growth leads to increased demand and technological progress and thereby provides the foundation for a sustainable growth process. But what determines wage growth or changes in income distribution in the first place? What have been the causes for the shift of income distribution at the expense of labour in advanced economies in the past three decades? How can wage growth be restored? These are the questions that motivate this project. The project reports form the background for a substantial part of the ILO's Global Wage Report 2012/13.

  • Lavoie and Stockhammer (2012) argue that the polarization of income distribution and the decline in the wage share play an important role in the generation of unbalanced and fragile growth in the neoliberal era. The authors examine the possibility of, a wage-led growth strategy, which is likely to generate a much more stable growth regime for the future.
  • Stockhammer (2013) investigates the relative impact of financialisation, globalisation, welfare state retrenchment and technological change on functional income distribution. By means of a panel analysis covering up to 71 countries from 1970 to 2007. He find strong negative effects of financialisation as well as negative effects of welfare state retrenchment and globalisation, but only a small contribution of technological change.
  • Onaran and Galanis (2012) estimate the effects of a change in the wage share on growth in the G20 countries using a post-Keynesian/post-Kaleckian model, analyses the interactions among different economies, and calculates the global multiplier effects of a simultaneous decline in the wage share.
  • Storm and Naastepad (2012) argue that higher real wages provide macroeconomic benefits in terms of increased demand (if the economy is wage-led) and higher labour productivity growth and more rapid technological progress.
  • Van Treeck and Sturn (2012) investigate the macroeconomic effects of increasing personal income inequality in the USA, Germany and China. They argue that reducing inequality in these countries is crucial for overcoming macroeconomic instability and the global and European current account imbalances over the longer term.
  • Hein and Mundt (2012) argue that the severity of the present crisis has to be understood by examining the medium- to long-run developments since the early 1980s: inefficient regulation of financial markets, increasing inequality in the distribution of income and rising imbalances at the global level. The requirements for distribution policies within an expansionary post-crisis economic policy regime, a wage-led growth regime embedded in a Global Keynesian New Deal, are outlined.

Lavoie, M, Stockhammer, E. 2012. Wage-led growth: Concept, theories and policies, ILO Working Papers, Conditions of Work and Employment Series No. 41

Stockhammer, E. (2013), Why have wage shares fallen? A panel analysis of the determinants of functional income distribution. ILO Working Paper, Conditions of Work and Employment Series No. 35

Onaran, O. and Galanis, G. (2012). Is aggregate demand wage-led or profit-led? National and global effects, ILO Working Papers, Conditions of Work and Employment Series No. 40, Geneva.

Storm S. and C. W. M. Nastepaad, (2012), Wage-led or Profit-led Supply: Wages, Productivity and Investment, ILO Working Papers Conditions of Work and Employment Series No. 36

Van Treeck, T., Sturn, S. (2012). Income inequality as a cause of the Great Recession? A survey of current debates, Conditions of Work and Employment Series No. 39

Hein, E. Mundt, M. (2012). Financialisation and the requirements and potentials for wage-led recovery - a review focussing on the G20. ILO Working Papers, Conditions of Work and Employment Series No. 37, Geneva.

Determinants of functional income distribution (2011-12)

Professor Engelbert Stockhammer
Project for the International Labour Organisation (ILO)

The wage-led growth strategy aims at an economic regime where real wage growth leads to increased demand and technological progress and thereby provides the foundation for a sustainable growth process. But what determines wage growth or changes in income distribution in the first place? What have been the causes for the shift of income distribution at the expense of labour in advanced economies in the past three decades? How can wage growth be restored? These are the questions that motivate this project.
The last number of decades has witnessed profound changes in income distribution, with trends being somewhat clearer in advanced economies than in developing countries. There has been a pronounced rise in personal income distribution (OECD 2008); there has been a dramatic rise in top incomes relative to other incomes (in particular in Anglo-Saxon countries; Atkinson et al 2010); and there has been substantial decline in wage shares (in particular in continental Europe and Japan); distributional trends in developing economies are less well documented, but a polarization of income distribution has also taken place. These changes have given rise to a recent literature exploring the causes of these changes, which has highlighted technological change, globalisation, financialisation, and other institutional changes as potential causes. Recent research on the determinants of income distribution is driven by real-world developments rather than theoretical developments.

Research outline

The project aims at identifying the relative contributions of technological change, globalisation and financialisation in explaining changes in functional income distribution in the G20 countries econometrically. It will critically build on the existing literature, in particular on IMF (2007a), IMF (2007b), and EC (2007), and estimate a panel equation where the wage is explained by indicators of technology (e.g. ICT capital stock), globalisation (e.g. trade openness), financialization (e.g. the financial globalization as measure by the stock of foreign liabilities and assets; Lane and Milesi-Ferretti 2006). Given that some theories suggest that the factors will have opposite distributional effects in advanced (capital-rich) and poor (capital-poor) economies, particular attention will be paid to the issue of coefficient heterogeneity.
The project will provide further investigation on the determination of functional income distribution in developed economies, for which more data are available, building on Stockhammer (2009). Here the role of labour market institutions that have played a role in the discussion of unemployment; will be investigated. This is of interest as standard NAIRU models predict that those labour market institutions that affect long-term unemployment also affect the wage share (e.g. EC 2007).

Research output

  • Stockhammer (2013) investigates the relative impact of financialisation, globalisation, welfare state retrenchment and technological change on functional income distribution. By means of a panel analysis covering up to 71 countries from 1970 to 2007. He find strong negative effects of financialisation as well as negative effects of welfare state retrenchment and globalisation, but only a small contribution of technological change.
  • Stockhammer, E. (2013), Why have wage shares fallen? A panel analysis of the determinants of functional income distribution. ILO Working Paper, Conditions of Work and Employment Series No. 35

Polarization of income distribution as a cause for the financial and economic crisis (2010)

Professor Engelbert Stockhammer
Project for the Chamber of Labour, Vienna, Austria

The financial crisis that began in summer 2007 has since turned into the worst economic crisis since the Great Depression. Its immediate causes are to be found in the malfunctioning of the financial sector: securitisation of mortgages allowed for a fast growth of credit and lowered credit standards as banks believed they had passed on credit risk; this fuelled a property bubble; statistical models, that turned out to be based on short time samples, were promised to reduce risk by constructing ingenious portfolios; well-paid rating agencies decorated the new assets with triple A ratings; banks shifted credit off balance sheets into structured investment vehicles; finally, capital inflows from Asian countries that wanted to accumulate reserves provided ample liquidity for this process. Obviously the financial system needs to be fundamentally overhauled. While these mechanisms were indeed important, this paper argues, they are only half of the picture. The focus on the flaws in the financial system may hide other causes of the crisis. The polarisation in income distribution, in particular, tends to get glossed over as a potential cause of the crisis. This is not to deny the importance of financial factors. The crisis erupted as financial crisis for good reasons. The underlying accumulation regime had financial expansion as one of its key building blocks. However, what is at stake is more than financial system. This paper will thus argue that the present crisis should be understood as a crisis of neoliberalism. Financial deregulation is one of the components of neoliberalism, the polarization of income distribution is another one; it is their interaction that provided the grounds for the crisis.

Project outline

The project will present empirical evidence on four channels through which the polarisation of income distribution has contributed to imbalances that erupted in the present crisis. Hypothesis 1: The polarisation of income distribution leads, other things equal to a decline in consumption demand as the consumption propensity of low income groups is higher and the consumption propensity of wage income is higher than that out of capital income. Hypothesis 2: External financial liberalisation has loosened balance of payment constraints on individual countries. As a result, two different growth models have emerged: In the Anglo-Saxon countries credit-led consumption growth has become the key variable to drive growth; in another group of countries growth of net export has become the main source of demand growth. Hypothesis 3: the increase of household debt in the USA has to some extent compensated for growth of wage income. Hypothesis 4: The increase in wealth inequality has increased speculation as richer household have a higher propensity to invest in risky assets. The project will evaluate these hypotheses empirically and discuss policy implications.

Project output

Partner institutions

Post-Keynesian Economics Study Group

PKSG was founded in 1988 by Philip Arestis and Victoria Chick with the support of the UK Economic and Social Research Council (ESRC). The purpose of the Study Group is to encourage collaboration among scholars and students of Post Keynesian economics, defined broadly as a theoretical approach that draws upon the work of Keynes, Kalecki, Joan Robinson, Kaldor, Kahn and Sraffa. This approach is distinguished by the central role of the principle of effective demand (that demand matters in the long run) and an insistence that history, social structure and institutional practice be embodied in its theory and reflected in its policy recommendations.

Research on Money and Finance (RMF)

A network of political economists that have a track record in researching money and finance. It aims to generate analytical work on the development of the monetary and the financial system in recent years. A further aim is to produce synthetic work on the transformation of the capitalist economy, the rise of financialisation and the resulting intensification of crises. RMF intends its work to influence public debate on money and finance. Engelbert Stockhammer and Iren Levina are members of the RMF network.

Political Economy Research Institute (PERI)

Based at the University of Massachusetts at Amherst, promoting human and ecological well-being through original research. Since its founding, PERI has become a leading source of research and policy initiatives on issues of globalisation, unemployment, financial market instability, central bank policy, living wages and decent work, and the economics of peace, development, and the environment. Engelbert Stockhammer is research associate at PERI.

Conference of Socialist Economists (CSE)

An international, democratic membership organisation committed to developing a materialist critique of capitalism, unconstrained by conventional academic divisions between subjects.

Capital & Class

Since 1977 Capital & Class has been the main peer-reviewed, independent source for a Marxist critique of global capitalism. Pioneering key debates on value theory, domestic labour, and the state, it reaches out into the labour, trade union, anti-racist, feminist, environmentalist and other radical movements.

Review of Political Economy

A peer-reviewed journal welcoming constructive and critical contributions in all areas of political economy, including the Austrian, Behavioural Economics, Feminist Economics, Institutionalist, Marxian, Post Keynesian, and Sraffian traditions. The review publishes both theoretical and empirical research, and is also open to submissions in methodology, economic history and the history of economic thought that cast light on issues of contemporary relevance in political economy. Engelbert Stockhammer is on the Editorial Advisory Board.

Faculty of Arts and Social Sciences
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