Growth and Renewal in the United States: Retooling America's Economic Engine*

New research by the McKinsey Global Institute (MGI) examines the growth challenge facing the United States and explores how U.S. business and government can contribute to the economy's renewal by reinvigorating their drive toward higher productivity. As baby boomers retire and the female participation rate plateaus, the U.S. economy will receive significantly less lift from increases in the labor force and will have to rely increasingly on productivity gains to fuel growth. The report finds that the United States needs a 34% acceleration in productivity growth if it is to match the GDP growth rates of the past 20 years—and that this is possible. Three‐quarters of the necessary productivity growth acceleration can come from the efforts of private‐sector companies operating within the current regulatory and business environment. Even the best‐performing companies and sectors still have headroom to boost productivity by emulating the best practice of others and tapping into new innovations, and coming up with new innovations of their own. The remaining one‐quarter—and more—can come from government and business working together to address barriers that now limit growth. MGI lays out a seven‐point agenda for action to spur productivity.     

Survey of recent developments

The process for Indonesia's 2014 parliamentary and presidential elections is underway. A few discernible patterns have emerged, yet the political situation at this early stage remains fluid and both races are open. Recent events have shown, however, that Indonesian democracy itself is still relatively young and evolving, the balance of power between key institutions is still unsettled, and constitutional checks and balances are still being tested.

Macroeconomic developments over the last few months have been mixed. Economic growth stayed above 6%, despite a difficult external environment, and inflation, which climbed in the first quarter, began to ease in April and May. At the same time, slower investment growth, deficits in the current and capital accounts of the balance of payments, downward pressure on the rupiah, and the risk of further increases in interest and exchange rates cast a shadow over near-term growth prospects. The recent rise in global interest rates triggered a capital outflow that contributed to a stock-market correction and placed the rupiah under new pressure. Bank Indonesia responded by raising the overnight rate, which helped to calm markets. But given relatively large non-resident holdings of Indonesian stocks and bonds and continued upward pressure on global interest rates, Indonesia's balance of payments and capital market will likely remain under strain for the foreseeable future.

Policy developments were also mixed. The appointment of a technocrat as finance minister sent a reassuring signal to markets and investors. And parliament finally approved a revised budget based on more realistic assumptions and included a much delayed across-the-board increase in fuel prices, together with compensatory programs for the poor. This achievement should help boost investor confidence and generate public resources for urgent infrastructure and social-assistance programs. At the same time, however, recent measures to restrict imports of horticultural products attracted the ire of trading partners and domestic consumers, leading to their partial reversal. These measures, together with draft trade and industry laws awaiting parliamentary approval, represent a new economic nationalism that seeks to protect domestic producers against what is seen as unfair international competition

The fuel-price increase, rising income inequality and an ambitious target of reducing the poverty rate to 8%–10% in 2014 – the last year of President Yudhoyono's final term – brings into focus the efficacy of Indonesia's social-assistance programs. It also adds fresh urgency to government efforts to improve the coverage, financing, targeting, and institutional arrangements underpinning these programs. The challenge has always been, and remains, that without central monitoring and oversight, local political pressures tend to dilute program benefits for the intended beneficiaries.     

Contextual factors: assessing their influence on flow or resource efficiency orientations in healthcare lean projects

The outcomes of lean projects have been mixed, with some being successful while many others have not. An explanation for this is a paradox that can develop depending on the focus of the project. Ironically, in projects where the focus is on maximizing the efficiency of a resource (‘resource efficiency’), this focus might lead to worsening of the resource’s efficiency, thereby generating an ‘efficiency paradox’. This paradox does not usually arise in projects where the focus is on the subject of interest being processed through the system in the most efficient manner (‘flow efficiency’). The aim of this paper is to investigate the factors that give rise to either form of efficiency. We conducted a detailed study of eight lean projects in two large hospitals. In doing so, we advance the theory of lean service operations by identifying four key contextual factors that drive the orientation of a project to resource or flow efficiency. These are: service variety, interdependency, capital resource intensity, and service uniqueness. We propose a conceptual framework and four propositions that integrate the contextual factors to determine the dominant focus in lean projects. Through this, recommendations are made as to how the efficiency paradox can be avoided.     

CEO Power and Firm Performance under Pressure

Are powerful chief executive officers (CEOs) more effective in responding to pressure from the economic environment? Concentrating decision‐making power may facilitate rapid decision making; however, the quality of decision making may be compromised, with severe consequences for the firm if a powerful CEO is less likely to receive independent advice or to have her decisions scrutinized. We empirically investigate the performance of firms with powerful CEOs when industry conditions deteriorate. We focus on industry downturns as these represent an exogenous shock to a firm's environment and on settings in which CEO power and access to quality information is likely more consequential: innovative firms, firms with relatively little related‐industry board expertise, firms operating in competitive industries, and firms operating in industries characterized by relatively greater managerial discretion. In each of these settings we find powerful CEOs perform significantly worse than other CEOs, suggesting contexts in which centralized decision making is potentially of greater concern.     

Payout policies and closed-end fund discounts: Signaling, agency costs, and the role of institutional investors

The adoption of a managed distribution policy or plan (MDP) by closed-end funds appears effective in dramatically reducing, even eliminating, fund discounts. We investigate two possible explanations: the signaling explanation proposed in the literature, that the MDP serves as a positive signal of future fund performance, and an alternative explanation based on agency costs. Our results indicate that signaling is, at best, only part of the explanation and that the evidence is generally more consistent with the agency cost hypothesis. For funds adopting aggressive payout targets of 10% (median target) and above, discounts tend to disappear, though there is no discernible improvement in NAV performance. Consistent with the agency cost hypothesis, it is often pressure from institutions/large shareholders that leads to the adoption of aggressive payout policies. Moreover, aggressive-MDPs are associated with a decrease in fund size and managerial fees. Suggestive of their activist role in MDP adoptions and/or informed trading, institutions – especially ones that are Value oriented – tend to build-up their holdings in a fund prior to the adoption of an aggressive-MDP, and liquidate their positions once the price rises.     

When too little is as good as nothing at all: Rationing a disposable good among satiable people with acceptance thresholds

We study the problem of rationing a divisible good among a group of people. Each person?s preferences are characterized by an ideal amount that he would prefer to receive and a minimum quantity that he will accept: any amount less than this threshold is just as good as receiving nothing at all. Any amount beyond his ideal quantity has no effect on his welfare.We search for Pareto-efficient, strategy-proof, and envy-free rules. The definitions of these axioms carry through from the more commonly studied problem without disposability or acceptance thresholds. However, these are not compatible in the model that we study. We adapt the equal-division lower bound axiom and propose another fairness axiom called awardee-envy-freeness. Unfortunately, these are also incompatible with strategy-proofness. We characterize all of the Pareto-efficient rules that satisfy these two properties. We also characterize all Pareto-efficient, strategy-proof, and non-bossy rules.     

When Is External Debt Sustainable?

The article empirically examines the determinants of debt distress,defined as periods in which countries resort to any of threeforms of exceptional finance: significant arrears on externaldebt, Paris Club rescheduling, and nonconcessional InternationalMonetary Fund lending. Probit regressions show that three factorsexplain a substantial fraction of the cross-country and time-seriesvariation in the incidence of debt distress: the debt burden,the quality of policies and institutions, and shocks. The relativeimportance of these factors varies with the level of development.These results are robust to a variety of alternative specifications,and the core specifications have substantial out-of-sample predictivepower. The quantitative implications of these results are examinedfor the lending strategies of official creditors.     

Mediating Role of Company Information in the Relationships among Perceived Risks and Purchase Intentions in an Online Retailing Context

The exponential growth of the online retail sector has attracted the attention of researchers across the globe. Understanding the consumer decision-making process in an online retail context is of vital importance to all online retailers. The objective of this study was to examine the direct and indirect impacts of perceived risks on consumers’ purchase intentions in an online shopping context. This study applied structural equation modeling to test the study model with data from 234 samples. We found a significant negative full mediating impact of performance risk, financial risk, physical risk, and psychological risk on consumers’ purchase intentions. Moreover, we found a partial mediating impact of social risk on purchase intentions. However, we did not find a mediating impact of time risk on purchase intentions. These empirical results may help online retailers to better understand their consumers, their intentions to purchase, and their level of risk perceptions. Accordingly, online marketers can frame contemporary strategies to attract retail customers, leading to greater profitability of the organization.     

Within-syndicate conflicts,loan covenants,and syndicate formation

We study how conflicts within a lending syndicate affect loan contract and syndicate formation. We argue that loan provisions serve an important dual function: In addition to moderating borrower–lender conflicts, they reduce within-syndicate conflicts. We show that greater potential for within-syndicate conflicts is associated with more and stricter covenants. Loans are less restrictive when the interests of participants and the lead arrangers are better aligned, for example, when participant–banks have stronger relationships with the lead arranger or hold borrower's equity (indirectly). Overall, our results show that covenant choice, syndicate formation, and lead arranger's loan allocation all play an important role in reducing within-syndicate conflicts.     

Affiliated firms and financial support: Evidence from Indian business groups

We investigate the functioning of internal capital markets in Indian Business Groups. We document that intragroup loans are an important means of transferring cash across group firms and are typically used to support financially weaker firms. Evidence suggests that an important reason for providing support may be to avoid default by a group firm and consequent negative spillovers to the rest of the group. Consistent with such spillovers, the first bankruptcy in a group is followed by significant drops in external financing, investments and profits of other firms in the group and an increase in their bankruptcy probability.