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The Great Debt Divergence and its Implications for the Covid-19 Crisis: Mapping Corporate Leverage as Power

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  • Joseph Baines
  • Sandy Brian Hager

Abstract

The COVID-19 pandemic has amplified longstanding concerns about mounting levels of corporate debt in the United States. This article places the current conjuncture in its historical context, analysing corporate indebtedness against the backdrop of increasing corporate concentration. Theorising leverage as a form of power, we find that the leverage of large non-financial firms increased in recent decades, while their debt servicing burdens decreased. At the same time, smaller firms experienced sharp deleveraging alongside increasing debt servicing costs. Crucially, smaller corporations also registered severe losses over this period, while large corporations remained profitable, and in fact doubled their net profit margins from the early-1990s to the present. Taken together, the results from our mapping exercise uncover a series of dramatic changes in the financial fortunes of large versus smaller firms in recent decades, a phenomenon we refer to as the great debt divergence. We explain this divergence with reference to the dynamics of power in the era of ‘shareholder capitalism’, and we argue that the US political economy in the post-COVID 19 world is likely to resemble the pre-COVID 19 one, only with more market turmoil, more concentration, more inequality, and even less investment.

Suggested Citation

  • Joseph Baines & Sandy Brian Hager, 2021. "The Great Debt Divergence and its Implications for the Covid-19 Crisis: Mapping Corporate Leverage as Power," New Political Economy, Taylor & Francis Journals, vol. 26(5), pages 885-901, September.
  • Handle: RePEc:taf:cnpexx:v:26:y:2021:i:5:p:885-901
    DOI: 10.1080/13563467.2020.1865900
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    Citations

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    Cited by:

    1. Reddy, Niall, 2024. "“Downsize And Distribute” Or “Merge And Monopolize”? A Critique Of Corporate Financialization Theories," SocArXiv 2zy5h, Center for Open Science.
    2. Hilmar, Till & Paolillo, Rocco & Sachweh, Patrick, 2022. "Contagious economic failure? Discourses around “zombie firms” in Covid-19 ridden Germany and Italy," SocArXiv wypmf, Center for Open Science.
    3. Engelbert Stockhammer & Stefano Sgambati & Anastasia Nesvetailova, 2021. "Financialisation: continuity and change— introduction to the special issue," Review of Evolutionary Political Economy, Springer, vol. 2(3), pages 389-401, December.
    4. Baines, Joseph & Hager, Sandy Brian, 2023. "Rentiership and Intellectual Monopoly in Contemporary Capitalism: Conceptual Challenges and Empirical Possibilities," EconStor Preprints 270981, ZBW - Leibniz Information Centre for Economics.
    5. Leonardo Carnut & Lucas Uback & Áquilas Mendes, 2023. "Has the COVID-19 Pandemic Cooled Down or Stimulated the Countertendencies of Capital? A Critical Review," Economies, MDPI, vol. 11(5), pages 1-17, May.
    6. Dominika Gajdosikova & Katarina Valaskova & Tomas Kliestik & Maria Kovacova, 2023. "Research on Corporate Indebtedness Determinants: A Case Study of Visegrad Group Countries," Mathematics, MDPI, vol. 11(2), pages 1-30, January.
    7. Braun, Benjamin, 2021. "From exit to control: The structural power of finance under asset manager capitalism," SocArXiv 4uesc, Center for Open Science.
    8. Joel Rabinovich & Niall Reddy, 2024. "Corporate Financialization: A Conceptual Clarification and Critical Review of the Literature," Working Papers PKWP2402, Post Keynesian Economics Society (PKES).
    9. Hager, Sandy Brian & Baines, Joseph, 2023. "Does the US Tax Code Encourage Market Concentration? An Empirical Analysis of the Effect of the Corporate Tax Structure on Profit Shares and Shareholder Payouts," EconStor Preprints 280835, ZBW - Leibniz Information Centre for Economics.
    10. Ergen, Timur & Kohl, Sebastian & Braun, Benjamin, 2021. "Firm foundations: The statistical footprint of multinational corporations as a problem for political economy," MPIfG Discussion Paper 21/5, Max Planck Institute for the Study of Societies.

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