Questions about the role of the capital market in present day capitalism have an obvious relevance against the background of recent economic developments. In the USA in the 1990s, the capital market made new demands of corporate management as boom and bust in share prices raised issues about the market's influence on macroeconomic trajectory. The stock market has gained an unprecedented influence on the behaviour of giant corporations as 'shareholder value' has become an explicit priority in the us and UK. The business press obsessively discusses which managements are delivering value, while all the major consulting firms moved into selling metrics of value and implementation packages of the kind pioneered by Stern Stewart and LEK/Alcar (Froud et al., 2000a) . There is also increasing public discussion about the effects of wider share ownership on the economic behaviour of households (as well as firms), about unstable stock market valuations and the role of institutions such as pension funds. The us experienc e dramatizes these issues: us share prices rose unsteadily in a decade long bull market, ending in the tech stock crash of Spring 2000 that turned into an investment led downturn amidst questioning of 'the cult of equity'.
These developments have provoked various intellectual responses amongst specialists, growing interest in the new problem of corporate governance and some political economy debate on financialisation. Academic specialists on corporate finance divide into those who continue to believe in efficient markets and 'behavioural finance' academics who emphasise market psychology; the behavioural group includes Shiller (2000) whose influential book warned about an overvalued market. New problems of corporate governance were variously discussed both by academics and by such agencies as the OECD (1999). Mainstream economists narrowly constructed governance as an agency problem about how to ensure management acted in the shareholder interest; while others constructed governance as a broader problem about how to create the conditions for social responsibility and corporate innovation (O'Sullivan, 2000). Political economy debate was inaugurated by a special issue of Economy and Society (see Williams, 2000) which discussed s hareholder value and introduced the concept of financialisation. Boyer's (2000) contribution to that special issue raised the possibility of a 'wealth-based growth regime' which modeled household as well as firm behaviour and posed questions about how financialisation would change macro economic dynamics.
To provide some basis for assessing these developments, the first half of this article begins with a review of existing concepts for understanding the enhanced role of finance before going on to propose the new concept of coupon pool capitalism. Brief definitions and descriptions of shareholder value, corporate governance, financialisation and the coupon pool serve as a preliminary to asserting and illustrating the greater relevance of the coupon pool approach for understanding modern capitalism. The 'coupons' that figure in the term coupon pool capitalism are all the different kinds of financial paper (bonds and shares) traded in the capital markets and coupon pool capitalism exists where the financial markets are no longer simple intermediaries between household savers and investing firms but act dynamically to shape the behaviour of both firms and households. The second half of this article uses us and UK case material to explore the consequences and separately analyses household and firm behaviour, as wel l as the causes of instability in share prices, before predicting a future trajectory of instability and heightened inequality. The aim throughout is to extend and deepen understanding of the role of capital markets in present day capitalism.
Definitions and cases: from shareholder value to coupon pool capitalism
Taxonomy is not an end in itself but classifications do have some practical value. In debates about shareholder value and financialisation, classification can reduce inexactitude and misunderstanding by encouraging controlled and precise definitions of the kind that have too often been missing in, for example, debates about globalisation. Users with strong discursive affiliations can then situate their preferred definition in a complex field; those without such affiliations can choose an appropriate definition and understand its limits. Finally, on this basis, it is possible to delimit a defensible intellectual object; by explaining what financialisation is (and is not) so that we can introduce a new concept of coupon pool capitalism which addresses dynamics in a fresh way. The central exhibit in this section is Table I which classifies four existing concepts of shareholder value and financialisation according to what they make visible, their rhetorical power and practical limits and then relates them to our new concept of coupon pool capitalism.
Shareholder value is the (untheorised) low definition term used by consultants, media and some managements with a breezy confidence which implies that everybody knows what it means. In a common sense way it denotes the pressure of the capital market on corporations for increased returns on capital employed and rising share prices. It thus acts as an indicator of what corporate management can do for shareholders. At the same time, shareholder value is a slippery, dangerous concept because it is a catch-all market slogan and blurred management agenda. The greater recent prominence given to the term signals a new emphasis on financial results at company level but does so in a way which creates problems familiar from earlier popular management concepts. Thus, like lean production a decade previously, shareholder value is a powerful object of emulation because it is made into a universal objective that every management must accept and strive for. But, it can hardly be a rigorous object of analysis because it empha sises results and provides no clear operating guide as to what management must or can do to deliver those results in specific circumstances. Again, like previous popular management concepts, shareholder value has a strong evangelical element when the vignettes of successful managements in consultancy texts suggest that purposive management is gratifyingly rewarded with improved financial results for shareholders. This illusion about cause and effect is obtained in the classic way by decontextualising management effort and ignoring the problem that most firms cannot easily deliver because of structural constraints related to activity and product market (see Froud et al., 2000a). The current economic downturn, which opened with a slew of profits warnings from us firms which were going to miss their earnings targets, simply dramatises this by exposing how much lies beyond the reach of management.
More robustly, corporate governance adds a theorisation of whether and how management acts for shareholders and with what consequences. Governance theory comes in several different forms and it is important to distinguish between narrow agency theorists concerned with whether management is acting for private (investor) benefits, and broad theorists like Lazonick and O'Sullivan (2000), who credit corporate management with a socio-economic purpose such as innovation. In narrow or broad versions, the power of the governance approach rests on its focus on a few actors with definite motives acting around resource allocation and misallocation inside the corporation. The limit is that this sets up a mechanical universe where following or breaking the rules of good governance has predictable results. It also generally suppresses meso and macro analysis by constructing the economy as a bundle of corporations and the corporation as a bundle of investment projects (see for example the essays collected in Stern and Chew, 1998). This helps to explain why better corporate governance is so attractive to organisations like the OECD and World Bank. It also signals why other commentators should be more cautious, at least until corporate governance is defined more broadly to include sectoral and chain issues about the exercise of power at meso level.
A more balanced system wide analysis comes from institutional sociology which, through discussion of (national) forms of capitalism, broadens what is visible: forms of capitalism include not only corporations and financial institutions, but also the role of organised labour and the state, within specific national configurations. Here we have the familiar contrast between stock market and bank finance, between Anglo-American capitalism whose forms of calculation are financialised and short term as against Rhenish capitalism where the forms of calculation are more productionist. Dore (2000) inserts financialisation into this pre-existing problematic as a mutation in the national form of Anglo-American capitalism under pressure from the stock market and as a contagion spreading into other national forms whose institutions have a limited capacity to frustrate change. The power of this approach arises from the way in which it registers national differences and credits specific configurations with definite behaviou r and performance characteristics. The limit is that it describes institutional forms rather than explains performance. Indeed, the standard line about the connection between behaviour and performance has to be constantly reworked when every new phase of capitalist development turns up unexpected anomalies such as the combination of Japanese economic failure and us success in the 1990s. More fundamentally, the part is again taken to represent the whole when the corporate sector is represented as the economy, despite the fact that in the UK and the USA the corporate sector represents only around half of national income.
Finally, in analysing existing definitions, we...