Financial instability and the real economy

Summary The paper deals with three different areas of the financial sphere: national moneys, exchange rates and financial claims, markets and institutions. For each of them, it tries to identify the main forms of instability which may occur, their causes and consequences for the real economy. Depending on the area concerned, the forms of instability include inflation, fluctuations and misalignments in interest rates, exchange rates and asset prices and finally solvency and liquidity crises of institutions. It is concluded that, over the last fifteen years, significant progress has been made in the policy framework to counteract instabilities in the national and monetary spheres. The conclusion is more mixed with regard to the structure of financial markets.[/p]We are grateful to Julian Alworth, Svein Andresen, Gavin Bingham, Joe Bisignano, Michael Hutchison and Paul van den Bergh for useful comments.     

Exploring the Relationships Between Product Development and Environmental Turbulence: The Case of Mobile TLC Services*

Managing innovation in turbulent environments (e.g., in environments with extreme uncertainty and complexity in market needs and technological opportunities) is a major challenge. A recent stream of studies in the management literature has suggested that when facing turbulent environments, firms should deploy more flexible development processes. This paper approaches this issue by looking at the Italian mobile telecommunications (TLC) industry. Nine in‐depth case studies were conducted in five different companies. Data analysis showed some important results. First of all environmental turbulence should be considered to be project specific rather than company or industry specific. Moreover, it can come from both shift in the market needs and in the technology. Nevertheless, it seems clear that having rapid changes is not enough to have environmental turbulence. If rapid changes can be somehow foreseen, there is no turbulence at all. Hence, when approaching projects in potentially turbulent environments, managers should assess both rapidity and unpredictability of the environment. Finally, looking at the in‐depth cases, the paper points out what of the main practices to increase flexibility that are described in literature are actually adopted by companies. In case of turbulence (both in the market and/or in the technology) companies delay concept freezing point. Moreover, in the case of technological turbulence, they also leverage on rapid project iterations, whereas in case of market turbulence they more likely adopt early experiments involving customers, formal and cross‐functional project teams, and flat organizational structures.     

The contribution of Gerald Shove to the development of Cambridge Economics

Frank Gerald Shove was a close friend of Keynes and the other protagonists of the economic debates in Cambridge during the 1920s and 1930s. Shove's influence on those debates is not well documented because he published little and had all his notes destroyed after his death. This paper looks at Shove's most significant contributions to the debates of the 1930s. Attention is concentrated on the debates over increasing returns and imperfect competition. Shove emphasized the complexity of economic phenomena and the need to develop tools to deal with it. He found his analytical and methodological inspiration in Marshall's work. This position led him to clash with younger economists, in particular Joan Robinson, whose work on imperfect competition and whose efforts to achieve rigorous and ‘precise’ results failed, in his view, to capture the working of actual markets. The final section of the paper discusses the similarity of Shove's methodological outlook to that of Keynes. Both were well aware of the need to go beyond Marshall, but they wanted to retain the richness, complexity and realism of Marshall's approach.     

WHEN SHAREHOLDERS CHOOSE NOT TO MAXIMIZE VALUE: THE UNION BANK OF SWITZERLAND'S 1994 PROXY FIGHT

This paper examines the fight over a share reunification plan that pitted Swiss financier Martin Ebner against Union Bank of Switzerland (UBS), once the largest Swiss bank and a global leader in asset management. In the U.S. corporate governance debate, large shareholders are often held up as a possible solution to corporate governance problems. But this examination of the UBS proxy fight shows why some large shareholders can themselves be a source of governance problems. The share reunification plan was designed to combine the firm's two classes of stock: registered (voting) shares and bearer (non-voting) shares. As its motive for the plan, the UBS board cited a desire both to increase liquidity and to prevent a control change. The majority of the holders of the company's registered stock—many of whom had other financial ties to the bank—ended up voting for a proposal that caused them to lose 11% of the value of their shares during the three trading days following its announcement, and eventually almost twice as much. Moreover, even the holders of the bearer stock hurt themselves by approving the reunification plan. Although the plan clearly transferred value from the registered to the bearer shares, the redistribution benefits from the plan for the bearer shareholders were not sufficient to offset their losses from the reduced probability of a control change. Although it did not succeed in accomplishing its immediate goal, the UBS proxy fight is today recognized as a watershed event in Swiss corporate governance. Until recently, Switzerland's economy has been dominated by cartels, with closely overlapping boards of directors. Hostile takeovers were essentially unheard of, and criticism of management by shareholders was highly unusual. Ebner's activities have had the effect of stimulating public debate about shareholders' rights and shareholder activism. In so doing, they have made it more acceptable for shareholders to criticize management and established shareholder value as a “politically correct” goal for Swiss corporations.     

Immigration as industrial strategy in American meatpacking

Abstract

This paper examines the connections linking recent changes in Latino migration, the American meatpacking industry, and American immigration policy. As the meatpacking industry has vertically integrated and shifted to rural non-union areas throughout the South, it has grown increasingly dependent on short-term low-skilled employees. This process can be understood as the industrialization of meatpacking, where profitability depends on continuous high-throughput production. To succeed, the industrialization of meatpacking requires a large pool of easily replaceable labor that has no control over the pace work on of the shop floor. At the same time, as immigrants have been drawn to these new company towns, American immigration policy has turned increasingly towards border enforcement. We argue that the presence of illegal immigrants within the factories reduces the bargaining power of shop workers and increases employer control. Most studies of immigration have focused on the supply of migrant labor, the immigrants attracted to higher paying jobs. We argue that valuable insight is gained by looking at the manufacturers' demand for cheap labor and the implementation of an industrial strategy that requires it.     

Shadow economy and unemployment rate in USA: is there a structural relationship? An empirical analysis

This article aims to estimate the size of the US shadow economy (SE) using a structural equation approach and to evaluate if a structural relationship exists between the SE and the unemployment rate (UR) in the United States. The size of the SE is estimated to be decreasing over the last two decades. We corroborate the existence of a structural relationship between the SE and the UR by using a simple theoretical model. Furthermore, we extend the Okun's law to estimate the structural relationship between growth rate of official GDP, SE and UR. Our results indicate a significant positive relationship between the SE and the UR.     

Be bad but (still) look good: Can controversial industries enhance corporate reputation through CSR initiatives?

Even though the link between perceived corporate social responsibility fit (PCSR‐fit) and corporate reputation has received much attention from scholars, this tradition has ignored that the underpinnings of this association vary depending on the particular characteristics of each industry under study. To delve into this matter, we investigate in the increasingly relevant context of controversial industries (CIs) how PCSR‐fit could enhance corporate reputation and which are the mediating mechanisms of this association. Our academic contribution is twofold. First, we find that controversial sectors indeed can increase corporate reputation through CSR activities. However, we find that to achieve this goal, the nature of PCSR‐fit should be different than what extant literature indicates, because companies in these settings should directly focus on avoiding or reducing their inherent controversial harm or impact. Second, we evidence that “CSR initiatives' legitimacy” and “situational skepticism” mediate the PCSR‐fit and corporate reputation relationship in CIs. Therefore, we further unravel the underpinnings of this association to advance what we know on the matter and aid practitioners in this particular context.     

Les producteurs brésiliens et l'instabilité des prix : Différences de comportement entre le Nord et le Sud

Cet article présente une analyse des décisions des agriculteurs brésiliens en situation d'incertitude. Après avoir souligné les problèmes liés au calcul de l'instabilité des prix en série temporelle, une équation d'offere est développée à partir d'un modèle « de sécurité>> selon lequel le producteur est supposé maximiser son profit espéré, sous des contraintes de liquidité et de sécurité. Le modèle est testé sur données de panel, pour trois produits — le coton, le riz et le maïs – de façon à mettre en évidence des différences de comportement vis-à-vis du risque de prix entre les agriculteurs du Nord-Est et du Centre-Sud du Brésil.     

Towards a Macroprudential Framework for Financial Supervision and Regulation?

Over the last decade or so, addressing financial instabilityhas risen to the top of the policy agenda. This essay arguesthat in order to improve the safeguards against financial instability,it may be desirable to strengthen further the macroprudentialorientation of current prudential frameworks, a process thatis already under way. The essay defines, compares and contraststhe macro- and microprudential dimensions that inevitably coexistin financial regulatory and supervisory arrangements, examinesthe nature of financial instability against this backgroundand draws conclusions about the broad outline of desirable policyefforts.(JEL G2) "Words, like nature, half reveal and half conceal the soul within" Alfred Lord Tennyson "When I use a word... it just means what I choose it to mean– neither more, nor less" Humpty Dumpty