THE BUS INDUSTRY IN DANGER

After seeking to placate the local government lobby while retaining the benefits of private enterprise, the Labour government's policy for bus services is slipping into a dangerous compromise which will neglect the market while seizing assets from commercial operators. Behind this lies a policy leading to the return of bus services to public ownership.     

Residual income claimancy,monitoring, and the R&D firm: Theory with application to biotechs

This paper models the assignment of residual income claimancy to an R&D manager and applies the model to biotechnology firms. Residual income claimancy provides incentives for the manager to monitor the R&D process. Since the nature of R&D and of monitoring scientific effort is different, our model predicts stark differences in the residual income claimancy of managers and in other aspects of organization for innovative R&D firms like biotechs. In particular, R&D firms are expected to be more owner‐managed, more expert‐managed, and smaller in size. Cross‐sectional data on biotechnology firms is consistent with these implications. Additionally, longitudinal data indicate that as firms alter their focus on biotech research, their organizational structure changes as expected. Our approach suggests a process of firm and industry evolution related to technological maturity and points to the importance of incentives rather than risk sharing in determining organizational form, similar to the original analysis of franchising. Copyright © 2004 John Wiley & Sons, Ltd.     

PRODUCTIVE RECESSIONS AND JOBLESS RECOVERIES

We explore international variation in business cycle dynamics to gain insights into the recent pattern of robust productivity growth during downturns (productive recessions) and weak employment growth during recoveries (jobless recoveries) seen in some advanced economies. We find that sectoral change is associated with productive recessions but that labor market rigidity can impede reallocation and reduce the probability of a productive recession. We also find evidence of a link between productive recessions and jobless recoveries and that recessions dominated by reductions to employment, rather than changes in average employee hours, are more likely to be associated with jobless recoveries. (JELF44, E32)     

The Fair Value of Cash Flow Hedges,Future Profitability,and Stock Returns

The SEC and FASB recently expressed concerns that investors do not fully assimilate all of the information provided by complex and incomplete derivatives and other comprehensive income (OCI) disclosures. My evidence supports these concerns. Specifically, I examine the information content of unrealized cash flow hedge gains/losses for future profitability and stock returns. An unrealized gain on a cash flow hedge suggests that the price of the underlying hedged item (i.e., commodity price, foreign currency exchange rate, or interest rate) moved in a direction that will impair the firm's profits after the hedge expires. Consequently, I find that unrealized cash flow hedge gains/losses are negatively associated with future gross profit after the firm's existing hedges have expired. This association only holds after the firm has reclassified its hedges into earnings, and is weaker for firms that can pass input price changes on to their customers. Finally, investors do not immediately price the cash flow hedge information. Instead, investors appear surprised by future realizations of gross margin, consistent with the view that complex and incomplete disclosures delay pricing. These results are relevant to policymakers involved in the current FASB and IASB project designed to simplify the accounting and disclosure for derivatives and, in particular, cash flow hedges.     

The meta-crisis of secular capitalism

The current global economic crisis concerns the way in which contemporary capitalism has turned to financialisation as a double cure for both a falling rate of profit and a deficiency of demand. Although this turning is by no means unprecedented, policies of financialisation have depressed demand (in part as a result of the long-term stagnation of average wages) while at the same time not proving adequate to restore profits and growth. This paper argues that the current crisis is less the ‘normal’ one that has to do with a constitutive need to balance growth of abstract wealth with demand for concrete commodities. Rather, it marks a meta-crisis of capitalism that is to do with the difficulties of sustaining abstract growth as such. This meta-crisis is the tendency at once to abstract from the real economy of productive activities and to reduce everything to its bare materiality. By contrast with a market economy that binds material value to symbolic meaning, a capitalist economy tends to separate matter from symbol and reduce materiality to calculable numbers representing ‘wealth’. Such a conception of wealth rests on the aggregation of abstract numbers that cuts out all the relational goods and the ‘commons’ on which shared prosperity depends.