The dark side of financial dynamics: a Schumpeterian destructive creation process

Lyubov Klapkiv and Faruk Ülgen ()
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Lyubov Klapkiv: UMCS - Maria Curie-Sklodowska University
Faruk Ülgen: CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes

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Abstract: The purpose of this article is to show how the Schumpeterian evolutionary approach to financial market dynamics can shed light on the instabilities that recurrently occur in financial systems and undermine economic viability. In this aim, we argue that the liberalization of financial markets has led to the financialization of the economy over the last four decades as the most remarkable phenomenon that resulted in a sharp divorce between long-term economic development and shortsighted financial efficiency and triggered systemic difficulties in the global economy. Loosely regulated markets are perverted and embarked on a destructive creation path, damaging systemic stability. Markets do not obviously achieve macroeconomic performance since weak regulation generates counter-productive incentives preventing financial institutions from supporting activities to contribute to economic transition. The main conclusion is that to enable financial markets to finance sustainable economic development, alternative extra-market (public) macroprudential regulation is needed beyond the free-market efficiency assumption.

Keywords: destructive creation; evolutionary economics; financial crises; regulation; innovation; creative destruction; Słowa kluczowe: destrukcyjna twórczość; ekonomia ewolucyjna; kryzysy finansowe; regulacja; innowacje; twórcza destrukcja (search for similar items in EconPapers)
Date: 2024
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Published in Bank I Kredyt (Bank and Credit), 2024, 55 (5), pp.661-682

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04746678

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