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The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.



the financing of investments by capitalist enterprises, firms, and companies with internal sources of accumulation, such as retained profits and depreciation deductions. The practice became more common after World War II (1939–45), with the deepening of the general crisis of capitalism, the strengthening of the power of the monopolies, and an increasing degree of exploitation of the working people.

The high level of inflation, the crisis in the capitalist monetary system, and chronic budget deficits in the bourgeois states have undermined the importance of external financing sources such as state funds, credit and finance institutions (banks and insurance companies), nonfinance companies (commercial credit, joint possession of securities), and the public. The monopolies, particularly the largest ones, are creating their own accumulation funds, to provide some degree of protection against fluctuations on the loan capital market. The possibilities for increasing the scale of self-financing were created by the high level of profits, particularly in the highly concentrated and monopolized sectors, as a result of the continuous rise in prices, the growth of the proportion of retained profits, and wage freezes.

The specific causes, the scale, and the direction of self-financing differ depending on the period and the country. Self-financ-ing was most intensively practiced during the early postwar years, when the monetary and credit systems of many capitalist nations had been undermined, the accumulation rate in the private sector was low, and state resources were channeled only into certain industrial sectors, as well as into the infrastructure. In the capitalist countries of Western Europe, the rise in nominal wages generally lagged behind price increases during these years. The state encouraged the withholding of a significant portion of company profits from distribution to shareholders.

In the mid-1960’s the expansion of self-financing slowed down. In a number of countries, it came to a halt. Enterprises began to make more extensive use of external financing sources. In the late 1960’s and early 1970’s there was a tendency to establish a certain equilibrium between self-financing and the mobilization of resources from external sources. The stabilization of the general level of self-financing does not exclude qualitative differences in the financing structure, depending on the type and size of the enterprise. Thus, in France, where the average self-financing rate was 61.6 percent between 1968 and 1972, the proportion of internal funds in the financing of gross investments in fixed capital was 84.4 percent for private enterprises, 57.2 percent for state enterprises, and 93.8 percent for the 400 largest private companies.

In various countries there are considerable fluctuations in the proportion of self-financing in the total capital investments of enterprises. The proportion of self-financing has been rather low in Japan (about 17–20 percent). It has been highest in Great Britain and Canada (up to 70 percent). In the Federal Republic of Germany and the USA, self-financing accounts for approximately 45–65 percent of the. total capital investments.

Small and medium-sized enterprises and companies do not have sufficient funds for self-financing. Moreover, they have limited access to the long-term loan capital market. Consequently, they use short-term bank credits for a significant proportion of their capital investment financing.


The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.
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