Harsh US capitalism `heading for UK'

A new and harsher form of US capitalism which rewards fund managers with tens or even hundreds of millions of dollars in share options while holding down ordinary workers' pay is set to spread to Europe, according to one of the City's most respected economists.

Douglas McWilliams, the former chief economic adviser to the Confederation of British Industry, claims in a new report published today that the recent outperformance of the US economy is due to a "transformation in the operation of capitalism on a sufficient scale to justify being described as a reinvention".

Professor McWilliams said there has been an "explosion" in mutual funds, the US equivalent of unit trusts, which are now owned by 37 per cent of American households, compared with under 6 per cent in 1980. The managers of such funds are so heavily incentivised that their outstanding share options are thought to be worth between 10 and 15 per cent of the value of the whole US equity market.

"They give them huge incentives. They are massive." Professor McWilliams says. "And so far they have generated the share price performance and the profits performance. The size of the carrot being dangled before them is one they really cannot ignore."

The result has been soaring US share prices and a gross domestic product which has grown by 15.9 per cent in 1990s, compared with 10.9 per cent for Western Europe. At the same time, figures from the Organisation for Economic Co-operation and Development show that return on capital has accelerated from an average of 13.5 per cent in the 1980s to 17.8 per cent during the 1990s so far and 18.5 per cent for 1996, according to the latest estimate.

But this performance has been achieved at the expense of wages, which have risen by 22.4 per cent in the years 1990-96 in the US, below the 24 per cent increase in consumer prices. By contrast, earnings in the European Union expanded by 39.5 per cent in that period, some 16.3 percentage points faster than prices.

"Real pay is rising a lot less fast than productivity [in the US] and the surplus is being handed over to profits ... If that is seen to work as it is seen to work in US financial markets, there will be pressure to extend it to Europe and to the UK in particular."

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Admin Assistant

£12000 - £15000 per annum: Recruitment Genius: An expanding Insurance Brokerag...

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders