Boundaries and Distinctions

Boundaries and Distinctions

 

 

Distinctions create cultural diversity.

If you value diversity, you value distinctions

If you value networks, you value boundaries

 

 

Key Terms

  • Social Class
  • Social Status
  • Distinction
  • Boundaries
  • Borders
  • Difference
  • Division
  • Diversity
  • Power
  • Inclusion and Exclusion
  • Networks as Boundaries
  • Inequality
  • Taste
  • Symbolic Boundaries
  • Social Boundaries
  • Spatial Boundaries
  • Social Processes
  • Collaboration
  • Communication
  • Confrontation
  • Ethnic Groups
  • Gender
  • Race
  • Samaj
  • Community
  • Social Stratification
  • Identity
  • Emile Durkheim
  • Max Weber
  • Pierre Bourdieu
  •  Fredrik Barth
  • Charles Tilly
  • Harrison White
  • Michèle Lamont
  • Relational Sociology
  • Cultural Sociology
  • Many Levels of Development
  • Spiral Dynamics
  • Values
  • Culture
  • Holons
  • Holarchy
  • Integral Theory

 

Symbolic Boundaries

 

Symbolic Boundaries (General)

Michèle Lamont
Department of Sociology
Princeton University
Princeton New Jersey 08540
U.S.A.

Article #: 20851A4/8/007
Symbolic Boundaries (General)

1. Definition and Intellectual Context

“Symbolic Boundaries” are the lines that include and define some people, groups and things while excluding others (Epstein 1992, p. 232). These distinctions can be expressed through normative interdictions (taboos), cultural attitudes and practices, and more generally through patterns of likes and dislikes. They play an important role in the creation of inequality and the exercise of power. The term “symbolic boundaries” is also used to refer to the internal distinctions of classification systems and to temporal, spatial, and visual cognitive distinctions in particular (Wagner-Pacifici 2000; Zerubavel 1997; see the entry cognitive schemata and expressive forms). This article focuses on boundaries within and between groups.It discusses the history, current research, and future challenges of work on this topic.

The literature on symbolic boundaries has gained importance since the sixties due to a convergence between research on symbolic systems and indirect forms of power. Writings by Pierre Bourdieu, Mary Douglas, Norbert Elias, Erving Goffman, and Michel Foucault on these and related topics have been influential internationally across several disciplines, but particularly in anthropology, history, literary studies, and sociology. In North America, a renewed cultural sociology has produced wide-ranging empirical research agendas on symbolic boundaries and inequality. In other fields including community, cognition, deviance, gender, immigration, knowledge and science, nationalism, professions, race and ethnic studies, and social movements, issues of boundaries have gained analytical prominence, although some authors analyze boundary work without using the language of symbolic boundaries.

2. History

Two of the founding fathers of sociology played central roles in shaping the literature on symbolic boundaries: Emile Durkheim and Max Weber. I review their contributions before turning to the “neo-classical” writings of Mary Douglas, Norbert Elias, and Thornstein Veblen, which illustrate the lasting influence of Durkheim and Weber on this literature up to the sixties. While Durkheim brings attention to classification systems and their relationship with the moral order, Weber is more concerned with their impact on the production and reproduction of inequality. (For a more encompassing historical overview which includes a discussion of the work of Claude Lévi-Strauss and Victor Turner, see Schwartz 1981).

One of the most widely used examples of symbolic boundaries is taken from Durkheim’s later work, Les formes élementaires de la vie religieuse (The Elementary Forms of Religious Life 1965[1911]).In this book, Durkheim arguesthat the distinctiveness of the religious experience from other types of experiences rests in the fact that it involves a symbolic distinction between the realms of the sacred and the profane (p. 234, 250). The meanings of these realms are mutually exclusive and are defined relationally, through interdictions and rituals that isolate and protect the former from the latter (e.g., a Roman-Catholic sinner cannot receive communion until he is purified through confession) (p. 271).

The distinction between the sacred and the profane extends to the whole universe of objects and people in which it takes place. For instance, the status of members of a community is defined by the types of relationship they have with sacred objects (e.g., Roman Catholic women cannot celebrate mass). In this sense, religious systems provide a cosmology, i.e., a general interpretation of how the world is organized and how its elements relate to one another and to the sacred. This cosmology acts as a system of classification and its elements are organized according to a hierarchy (counterpoising for instance the pure with the impure). The belief invested in this “order of things” structures people’s lives to the extent that it limits and facilitates their action. In Durkheim’s words, “the power attached to sacred things conducts men with the same degree of necessity as physical force.” (p. 260).

Moving beyond the religious realm, Durkheim points to the existence of a moral order, i.e., a common public system of perception of reality that regulates, structures, and organizes relations in a community. This system operates less through coercion than through inter-subjectivity (p. 238). In fact, Durkheim defines society by its symbolic boundaries: it is the sharing of a common definition of the sacred and the profane, of similar rules of conducts and a common compliance to rituals and interdictions that defines the internal bonds within a community. Hence, he posits that the boundaries of the group coincide with those delimitating the sacred from the profane.

Unlike Durkheim, Max Weber is more concerned with the role played by symbolic boundaries (honor) in the creation of social inequality than in the creation of social solidarity. In Wirtschaft und Gesellschaft (Economy and Society, 1978[1922]), he describes human beings as engaged in a continuous struggle over scarce resources. In order to curb competition, they discriminate toward various groups on the basis of their cultural characteristics, such as lifestyle, language, education, race, or religion (chap. 2). In the process, they form status groups whose superiority is defined in relation to other groups. They cultivate a sense of honor, privilege relationships with group members, and define specific qualifications for gaining entry to the group and for interacting with lower status outsiders (e.g., opposing miscegenation). They invoke their higher status and shared rules of life to justify their monopolization of resources. Hence, cultural understandings about status boundaries have a strong impact on people’s social position and access to resources.

Thornstein Veblen’s The Theory of the Leisure Class (1979[1899]) parallels Weber’s writings on status group. Veblen is also concerned with the mechanisms that produce boundaries between status groups. This American economist suggests that habits of thought (“classifying and demarcating”) are central to these mechanisms and are often organized around notions of superiority and inferiority concerning employment, consumption, and leisure. In his words, “the concept of dignity, worth, or honor, as applied either to persons or conduct, is of first-rate consequence in the development of class and class distinctions” (p. 15). For instance, idleness symbolizes status because it signifies pecuniary status. It is a way for “successful men to put their prowess in evidence”. Evidence of non-productive consumption of time includes “quasi-scholarly or quasi-artistic accomplishments”. Also, “refined tastes, manners, and habits of life are useful evidence of gentility because good breeding requires time, application, and expenses” (p. 49) and are therefore not available to those “whose time and energies are taken up with work.”

Veblen also developed the concept of “conspicuous consumption” in the context of an acerbic critique of the excesses of the business class. He argues that the possession and display of wealth confers honor: as an invidious distinction, it symbolizes ranking within a group. This way of manifesting superiority is more common when predatory aggression or war are less frequent. Veblen’s analysis assumes that there is a usual tendency to change standards of sufficiency as one’s pecuniary situation improves, so that one becomes restless with creating “wider and ever-widening distance” between herself and the average standard.

Also paralleling Weber’s work, is the work of German sociologist Norbert Elias, Uber Den Prozess der Zivilisation (The Civilizing Process, 1982[1939]). Elias analyzes the historical emergence of a boundary between civilized and barbarian habits by using evidence from Western manner manuals written between the late middle ages and the Victorian period. His attention centers on “natural” bodily functions such as spiting, defecating, eating, and blowing one’s nose to show an “advance in the threshold of self-control,” over time. He demonstrates the growing centrality of shame and embarrassment in instituting norms of behavior in public and private. At a more general level, he shows transformations in standards of behavior and feelings and in personality structures (what he calls “habitus,” or habits emerging from social experience). He argues that these vary across hierarchical groups in society and that these variations are key to pacification and the exercise of power.

Elias’ The Established and the Outsiders (1994[1965], with John L. Scotson) is another benchmark in the study of boundaries. This community study analyzes the causes for the difference in status between residents of two parts of a town (“the Village” and “the Estate”). The former group has more cohesion, in part because it is older and more established than the latter. Its residents see themselves as having higher status because they have been able to gain control of strategic positions and channels of communication over time, which allows them to stigmatize the outsiders and impose their own definition of self. Conversely, the “outsiders” are not in a position to impose an alternative self-definition.

To turn now to the lasting influence of Durkheim’s work, in Purity and Danger(1966), Mary Douglas is concerned with the order-producing, meaning-making and form-giving functions of classification systems and the role of rituals in creating boundaries grounded in fears and beliefs. In Natural Symbols (1970), she takes on the idea of a correspondence between classification systems and social organization advanced by Durkheim and Mauss (1963[1903]). She describes the structure of binary symbolic systems as “reflecting” that of group structures. Like Elias, she is also concerned with the moral order and centers her attention on the system of social control as expressed through the body and through the observable artifacts of everyday life (food, dirt, and material possessions). She argues that the very basis of order in social life is the presence of symbols that demarcate boundaries or lines of division.

One of Douglas’s main concerns is how communities differentiate themselves from one another and how they are internally differentiated. She distinguishes groups on the basis of their degree of social control and of the rigidity of their grid (by which she means the scope and coherent articulation of their system of classification or the extent to which it is competing with other systems). In societies with high social control and great cultural rigidity (i.e. what she calls high grid and group), there is a concern to preserve social boundaries; the role structure is clearly defined; and formal behavior is highly valued and well-defined in publicly insulated roles. Through “the purity rule“, formality screens out irrelevant organic processes, “matters out of place”. Douglas suggests that “the more complex the system of classification and the stronger the pressured to maintain it, the more social intercourse pretends to take place between disembodied spirits” (1966, p. 101), i.e., the more the purity rule applies.

3. Current Theory and Research

In the contemporary literature on symbolic boundaries, both the neo-Weberian and neo-Durkheimian heritage remain strong. The question of how boundaries intersect with the production of inequality has attracted great interest in recent years, following the publication of Pierre Bourdieu’s impressive corpus. In the United States in particular, cultural sociologists have been working to assess some of Bourdieu’s theoretical claims and to use his work as a stepping stone for improving our understanding of the cultural aspects of class, gender, and racial inequality. Other important developments concern the study of identity through boundary work, and research on moral order, community, and symbolic politics. As I argue in the final section of this article, social scientists will soon face the challenge of integrating work from a wide range of fields that have used the concept of boundaries to various ends.

3.1 Culture and Inequality

In the last twenty years, a large neo-Weberian literature emerged around the study of processes of closure, as illustrated most notably by the work of Frank Parkin and Randall Collins. Parkin (1979) drew on Weber to propose an analysis of class relationship that focuses on the distributive struggle for monopolizing or usurping resources within and across classes – with an emphasis on the right of ownership and credentialism, i.e., the use of educational certificates to monopolize positions in the labor market. Equally inspired by Durkheim, Collins (1998) extended his earlier work on credentialism and interaction rituals to analyze how intellectuals compete to maximize their access to key network positions, cultural capital, and emotional energy, which generates intellectual creativity. These authors’ contributions intersect with those of Pierre Bourdieu and his collaborators, although their ideas followed an independent path of development.

In Reproduction (1977[1970]), Pierre Bourdieu and Jean-Claude Passeron proposed that the lower academic performance of working class children cannot be accounted for by their lower ability but by institutional biases against them. They suggest that schools evaluate all children on the basis of their familiarity with the culture of the dominant class (or cultural capital), thus penalizing lower-class students. Extensive vocabulary, wide-ranging cultural references, and command of high culture are valued by the school system and students from higher social backgrounds are exposed to this class culture at home. Hence, children of the dominated classes are over-selected by the educational system. They are not aware of it, as they remain under the spell of the culture of the dominant class. They blame themselves for their failure, which leads them to drop out or to sort themselves into lower prestige educational tracks.

This work can be read as a direct extension of Karl Marx and Friedrich Engels’ (1979) “dominant ideology thesis”, which centers on the role of ideology in cementing relations of domination by camouflaging exploitation and differences in class interests. However, Bourdieu and Passeron are more concerned with classification systems than with representations of the social world itself, i.e., with how representations of social relationships, the state, religion, and capitalism contribute to the reproduction of domination. Implicitly building on Gramsci (1971), they made inroads in analyzing the subjective process of consolidation of class domination, focusing on the shaping of cultural categories. The control of subjectivity in everyday life through the shaping of common sense and the naturalization of social relations is the focus of their attention. They broaden Marx and Engels by suggesting that crucial power relations are structured in the symbolic realm proper, and are mediated by meaning. They de facto provide a more encompassing understanding of the exercise of hegemony by pointing to the incorporation of class-differentiated cultural dispositions mediated by both the educational system and family socialization.

In Distinction (1984[1979]), Bourdieu applies this analysis to the world of tasteand cultural practice at large. He shows how the logic of class struggle extends to the realm of taste and lifestyle, and that symbolic classification is key to the reproduction of class privileges: dominant groups define their own culture and ways of being as superior. Thereby they exercise “symbolic violence,” i.e., impose a specific meaning as legitimate while concealing the power relations that are the basis of its force (Bourdieu and Passeron 1977[1970], p. 4). They define legitimate and “dominated” cultures in opposition: the value of cultural preferences and behaviors are defined relationally around binary oppositions (or boundaries) such as high/lower, pure/impure, distinguished/vulgar, and aesthetic/practical (p. 245). The legitimate culture they thereby define is used by dominant groups to mark cultural distance and proximity, monopolize privileges, and exclude and recruit new occupants to high status positions (p. 31). Through the incorporation of “habitus” or cultural dispositions, cultural practices have inescapable and unconscious classificatory effects that shape social positions.

A large American literature applying, extending, assessing, and critiquing the contributions of Bourdieu and his collaborators developed in the wake of their translation in English (for a review, see Lamont and Lareau 1988.) For instance, DiMaggio (1987) suggests that boundaries between cultural genres are created by status groups to signal their superior status. DiMaggio and Mohr (1985) found that levels of cultural capital significantly influence higher education attendance and completion as well as marital selection patterns in the United States. Lamont (l992, chap.7) critiqued Bourdieu (1984) for exaggerating the importance of cultural capital in upper-middle class culture and for defining salient boundaries a priori, instead of inductively. By drawing on interviews with professionals and managers, she showed that morality, cultural capital, and material success are defined differently and that their relative importance vary across national contexts and by subgroups. Lamont also showed variations in the extent to which professionals and managers are tolerant of the lifestyles and tastes of other classes, and argued that cultural laissez-faire is more important feature of American society than French society. High social and geographic mobility, strong cultural regionalism, ethnic and racial diversity, political decentralization and relatively weak high culture traditions translate into less highly differentiated class cultures in the United States than France.

Other sociologists also argue that cultural boundaries are more fluid and complex than cultural capital theory suggests. In particular, in his study of group variation in home decoration, Halle (1993) suggests that art consumption does not necessarily generate social boundaries. He finds that the meaning attached to living room art by dwellers is somewhat autonomous from professional evaluations, and is patterned and influenced by a wide range of factors beyond class — including neighborhood composition. He also finds that cultural consumption is less differentiated than cultural capital theory suggests – with landscape art being appreciated by all social groups for instance. Finally, he suggests that “the link between involvement in high culture and access to dominant class circles . . . is undemonstrated.” (p. 198). For his part, Hall (1992) emphasized the existence of heterogeneous markets and of multiple kinds of cultural capital. He proposes a “cultural structuralism” that addresses the multiplicity of status situation in a critique of an overarching market of cultural capital. Finally, Crane (2000) analyzes how social change disrupts the relationship between cultural capital and social class strata during nineteenth and twentieth century France and the United States.

Bryson (1996), Erikson (1996), and Peterson and Kern (1996) suggest that cultural breadth is a highly valued resource in the upper and upper-middle classes, hence contradicting Bourdieu’s understanding of the dominant class which emphasizes exclusively the boundaries they draw toward lower class culture. Bryson (1996) finds that musical exclusiveness decreases with education. She proposes that cultural tolerance constitutes a multicultural capital more strongly concentrated in the middle and upper classes than in the lower classes. Erikson (1996) suggests that although familiarity with high status culture correlates with class, it is useless in coordinating class relations in the workplace. She writes that the “Culture useful for coordination is uncorrelated . . . with class, popular in every class.” (p. 248) and that “the most useful overall cultural resource is variety plus a well-honed understanding of which [culture] genre to use in which setting.” (p. 249). For their part, Peterson and Kern (1996) document a shift in high status persons from snobbish exclusion to “omnivorous appropriation.” These studies all call for a more multidimensional understanding of cultural capital as a basis for drawing boundaries, and counter Bourdieu’s postulate that the value of tastes is defined relationally through a binary or oppositional logic.

3.2. Identity and Boundary Work

The growing literature on identity is another arena where the concept of symbolic boundaries has become more central. In particular, sociologists and psychologists have become interested in studying boundary work, a process central to the constitution of the self.

Social psychologists working on group categorization have been studying the segmentation between “us” and “them”. Brewer’s (1986) social identity theorysuggests that “Pressures to evaluate ones’ own group positively through in-group/out-group comparison lead social groups to attempt to differentiate themselves from each other.” This process of differentiation aims “to maintain and achieve superiority over an out-group on some dimension.” (Tajfel and Turner 1985, pp. 16-17). While these authors understand the relational process as a universal tendency, sociologists are concerned with analyzing precisely how boundary work is accomplished, i.e. with what kinds of typificationsystems, or inferences concerning similarities and differences, groups mobilize to define who they are.

The concept of boundary work was proposed originally by Gieryn in the early eighties to designate “the discursive attribution of selected qualities to scientists, scientific methods, and scientific claims for the purpose of drawing a rhetorical boundary between science and some less authoritative residual non-science.”(1999, pp. 4-5). In recent years, sociologists have become interested in analyzing this process by looking at self-definitions of ordinary people, while paying particular attention to the salience of various racial and class groups in boundary work. For instance, Newman (1999) analyzes how poor fast-food workers define themselves in opposition to the unemployed poor. Lamont (1992) studies the boundary work of professionals and managers while Lamont (2000) examines how workers in the United States and France define worthy people in opposition to the poor, “people above”, blacks, and immigrants, drawing moral boundaries toward different groups across the two national context. Lichterman (1999) explores how volunteers define their bonds and boundaries of solidarity by examining how they articulate their identity around various groups. He stresses that these mappings translate into different kinds of group responsibility, in “constraining and enabling what members can say and do together.” Binder (1999) analyzes boundaries that proponents of Afrocentrism and multiculturalism build in relation to one another in conflict within the educational system. Becker (1999) studies how religious communities build boundaries between themselves and “the public.” Finally Gamson (1992) analyzes how the injustice frames used in social movements are organized around “us” and “them” oppositions.

Jenkins (1996)’s study of social identity provides useful tools for the study of boundary work. He describes collective identity as constituted by a dialectic interplay of processes of internal and external definition. On the one hand, individuals must be able to differentiate themselves from others by drawing on criteria of community and a sense of shared belonging within their subgroup. On the other hand, this internal identification process must be recognized by outsiders for an objectified collective identity to emerge. Future research on the process of collective identity formation may benefit to focus on the dynamic between self-identification and social categorization.

3.3. Moral Order, Community, and Symbolic Politics

A third strand of work on symbolic boundaries presents more palpable neo-Durkheimian influences. Several empirical studies have centered on moral order and on communities. Wuthnow (1987, p. 69) writes “Order has somehow to do with boundaries. That is, order consists mainly of being able to make distinctions-of having symbolic demarcations – so that we know the place of things and how they relate to one another.” A recent example of this neo-Durkheimian line of work is Alexander’s (1992) semiotic analysis of the symbolic codes of civic society. The author describes these codes as “critically important in constituting the very sense of society for those who are within and without it.” He also suggests that the democratic code involves clear distinctions between the pure and the impure in defining the appropriate citizen. His analysis locates those distinctions at the levels of people’s motives and relationships, and of the institutions that individuals inhabit (with “honorable” being valued over “self-interested” or “truthful” over “deceitful” in the case of the democratic code).

It should be noted that the last decades have produced several studies of status politics that documented precisely how groups sharing a lifestyle made such distinctions, engaged in the maintenance of the moral order, and simultaneously bolstered their own prestige. Particularly notable is Gusfield (1963) who analyzed the 19th century American temperance movement in favor of the prohibition and the Eighteenth Amendment to the constitution. Gusfield understands this movement as a strategy used by small-town Protestants to bolster their social position in relation to urban Catholic immigrants. Along similar lines, Luker (1984) describes the worldviews of anti-abortion and pro-choice activists. She shows that they have incompatible beliefs about women’s careers, family, sexuality, and reproduction, and that they talk passed one another and define themselves in opposition to one another. More recently, Beisel (1997) has studied Anthony Comstock’s 19thcentury anti-pornography movement to protect the morality of children in the context of important social changes that threatened the reproduction of upper class privileges. However, she argued against the distinction between symbolic and class politics and showed how the two often operate hand in hand, particularly in the drawing of moral boundaries. The literature on social movements includes numerous additional studies that focus on the process by which categories of people are turned into categories of enemies (Jasper 1997, chap. 16).

4. Challenges and Future Directions

Two main challenges concerning the study of boundaries are pointing at the horizon of sociological scholarship. They concern 1) a necessary synthesis of the various strands of work that speak to boundary issues across substantive areas; and 2) the study of the connection between objective and subjective boundaries.

The concept of boundaries is playing an increasingly important role in a wide range of literatures, beyond those discussed above. For instance, in the study of nationalism, citizenship, and immigration, scholars have implicitly or explicitly used the boundary concept to discuss criteria of membership and group closure within imagined communities (e.g., Anderson 1983; Brubaker l992; Somers 1993; Zolberg and Litt Woon l999). Some of these authors are concerned with the established rules of membership and boundary work.. Yet others study national boundary patterns, i. e., the ways in which nations define their identity in opposition to one another (Lamont and Thévenot 2000; Saguy 2000).

The concept of boundary is also central in the study of ethnicity and race. The relational process involved in the definition of collective identity (“us” versus “them”) has often been emphasized in the literature on these topics. The work of Barth (1969) and Horowitz (1985) for instance concerns objective group boundaries and self-ascription, and how feelings of communality are defined in opposition to the perceived identity of other racial and ethnic groups. Along similar lines, Bobo and Hutchings (1996), understand racism as resulting from threats to group positioning. They follow Blumer (1958) who advocates “shift[ing] study and analysis from a preoccupation with feelings as lodged in individuals to a concern with the relationships of racial groups . . [and with] the collective process by which a racial group comes to define and redefine another racial group” (p. 3).

Finally, gender and sexual boundaries are also coming under more intense scrutiny. For instance, Epstein (1992) points out that dichotomous categories play an important part in the definition of women as “other” and that much is at stake in the labeling of behaviors and attitudes as feminine or masculine (also Gerson and Peiss 1985). Those who violate gender boundaries in illegitimate ways often experience punishment in the workplace. Stein (1997) analyzes how the boundaries around the lesbian category changed over the course of the feminist movement. More recently, Tilly (1997) argues that dichotomous categories such as “male” and “female” (but also “white” and “black”) are used by dominant groups to marginalize other groups and block their access to resources. He extends the Weberian scheme by pointing to various mechanisms by which this is accomplished, such as exploitation and opportunity hoarding. He asserts that durable inequality most often results from cumulative, individual and often unnoticed organizational processes.

Because these various literature all deal with the same social process, boundary work, it may be appropriate at this point to begin moving toward a general theory of boundaries by, for instance, identifying similarities and differences between boundaries drawn in various realms — moral, cultural, class, racial, ethnic, gender, and national boundaries. This could be accomplished by focusing on a number of formal features and characteristics of boundaries, such as their visibility, permeability, boundedness, fluidity, and rigidity. We may also want to compare embedded and transportable boundaries; explicit and taken-for-granted boundaries; positive and negative boundaries; and the relationship between representations of boundaries and context. Social scientists should also think more seriously about how different types of boundaries can combine with one another across local and national contexts (e.g., how cultural or moral boundaries combine with race, gender, or class boundaries) (Lamont and Thévenot 2000).

A second challenge will be to understand the connection between objective boundaries and symbolic boundaries. Students of objective boundaries have focused on topics such as the relative importance of educational endogamy versus racial endogamy among the college-educated (Kalmijn 1991); racial hiring and firing (Silver and Zwerling 1992); the extent of residential racial segregation (Massey and Denton 1993); the relative permeability of class boundaries (Wright and Cho 1992); and the process of creation of professional boundaries (Abbott 1988). Lamont (1992) has argued that symbolic boundaries are a necessary but insufficient condition for the creation of objective boundaries. More empirical work is needed on the process by which the former transmutes into the latter.

Other relevant entries include: expressive forms as generators, transmitters, and transformers of social power; culture and resistance; networks and linkages; collective identity and expressive forms; discourse and identity; class and expressive forms; gender and expressive forms; race and expressive forms; community and locality, nationalism and expressive forms; leisure and cultural consumption.

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Lamont, M, and Thévenot, L, eds. Rethinking Comparative Cultural Sociology: Polities and Repertoires of Evaluation in France and the United States, Cambridge University Press, New York and Presses de la Maison des Sciences de l’Homme, Paris

Lichterman, P 1999 “Civic Culture Meets Welfare Reform: Religious Volunteers Reaching Out.” Paper presented at the annual meetings of the American Sociological Association, Chicago, August

Luker, K 1984 Abortion and the Politics of Motherhood. Berkeley: University of California Press

Marx, K, Engels F 1848/1960 Deutsche Ideologie. Kritik der neuesten deutschen Philosophie in ihren Repr asentanten Feuerbach, B. Bauer und Stirner, und des deutschen Sozialismus in seinen verschiedenen Propheten Dietz, Berlin [1979, The German Ideology, Lawrence and Wishart, London]

Massey, D, Denton, N A l993 American Apartheid: Segregation and the Making of the Underclass. Cambridge University Press, New York

Newman, K 1999 No Shame in My Game: The Working Poor in the Inner City. Knopf and the Russell Sage Foundation, New York

Parkin, F 1979 Marxism and Class Theory: A Bourgeois Critique. Columbia University Press, New York

Peterson R A, Kern R 1996 “Changing Highbrow Taste: From Snob to Omnivore.” American Sociological Review. 61: 900-907.

Saguy, A C 2000 “Sexual Harassment in France and the United States: Activists and Public Figures Defend their Positions.” In: Lamont, M Thévenot, L (eds.) Rethinking Comaparative Cultural Sociology: Polities and Repertoires of Evaluation in France and the United States. Cambridge University Press, Cambridge.

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Tajfel, H, Turner, J C l985 “The Social Identity Theory of Intergroup Behavior.” In: Worchel S, Austin W G (eds.) Psychology of Intergroup Relations, Nelson-Hall, Chicago

Tilly, C 1997 Durable Inequality. Harvard University Press, Cambridge, Mass

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Wagner-Pacifici, R 2000 Theorizing the Standoff: Contingency in Action. Cambridge University Press, New York

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Michèle Lamont

Department of Sociology

Princeton University

 

 

Click to access m.lamont-v.molnar-the_study_of_boundaries.pdf

 

Boundaries as Social Processes: Territoriality in the World of Flows

Anssi Paasi

Click to access 54eb963f0cf2ff89649dfd55.pdf

 

Boundaries and connections

 

 Fredrik Barth

 

Click to access Kog_Ant_11_B.pdf

THE ROLE OF IDENTITIES AND BOUNDARIES IN THE CONTEMPORARY WORLD

Prof. Anssi Paasi

http://www.geo.ut.ee/nbc/paper/paasi.htm

 

HOW STRATIFICATION WORKS

 

Click to access Massey_Chap1_2.pdf

Boundary processes: Recent theoretical developments and new contributions

Mark A. Pachucki *, Sabrina Pendergrass, Michele Lamont (Guest Editors)

 

Click to access Pachucki%20Pendergrass%20Lamont%202007%20Boundary%20Processes.pdf

Status distinctions and boundaries

Murray Milner, Jr.

 

Click to access MilnerOnStatusDistinctionsandBoundariesPUBVERS.pdf

 

Moments of Boundary Research: A Long-Term Perspective

 

Jean Terrier

Click to access 43730496-d82a-4a70-b788-a891d52832e0.pdf

Social Distinction and Symbolic Boundaries in a Globalized Context:

Leisure Spaces in Istanbul

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.424.9863&rep=rep1&type=pdf

Rural America in an Urban Society: Changing Spatial and Social Boundaries

Daniel T. Lichter1,2 and David L. Brown3

Click to access 0deec522689d8d5926000000.pdf

Cultivating Differences: Symbolic Boundaries and the Making of Inequality

edited by Michèle Lamont, Marcel Fournier

 

 

 

FLOWS, BOUNDARIES AND HYBRIDS: KEYWORDS IN TRANSNATIONAL ANTHROPOLOGY

Ulf Hannerz

Click to access s04_faist.pdf

 

 

 

Symbolic Boundaries

Michèle Lamont

 http://educ.jmu.edu/~brysonbp/symbound/papers2001/LamontEncyclo.html

Low Interest Rates and Bank’s Profitability – Update May 2019

Low Interest Rates and Bank’s Profitability – Update May 2019

My last post on this important topic was in 2017.  Since then several new articles and research papers have been published. I have compiled them in this post.  Please see references.

In my posts I have shown how many trends in economics for the last thirty years can be explained by unintendend consequences of US Federal Researve monetary policy of lowering interest rates to boost economic growth.

  • Rise of Shadow Banking – MMMF
  • Rise of International capital flows in USA
  • Growth of Consumer credit – Credit Cards and Housing Loans
  • Decline in Net Interest Margins of the Banks
  • Risk taking by banks to maintain and increase their profits
  • Rise of Non interest income of Banks
  • Rise of Non core business of banks
  • Rise of Mergers/Acquisitions/Consolidation in Banking sector

Related to these are:

  • Business Investments by Production side of economy
  • Increase in Market concentration of Products
  • Increase in Mergers and Acquisitions/consolidation among Product market businesses
  • Decreasing monitory policy effectiveness
  • Wrong economic growth forecasts
  • Secular Stagnation Hypothesis
  • Rise of Outsourcing and global value chains
  • Free Trade agreements
  • Increase in Ineqality of wealth and Income
  • Increase in corporate profits and equities market
  • Increase in corporate savings
  • Increase in share buybacks, and dividends payouts

 

 

and this one,

Increasing Market Concentration in USA: Update April 2019

Key Sources of Research:

Monetary policy and bank profitability in a low interest rate environment

Click to access ecb-wp2105.en.pdf

The “Reversal Interest Rate”: An Effective Lower Bound on Monetary Policy∗

Markus K. Brunnermeier and Yann Koby

This version: May 3, 2017

Click to access 16f_reversalrate.pdf

Click to access 26d_rir_bankofcanada.pdf

Interest Rate and Its Effect on Bank’s Profitability

Muhammad Faizan Malik1,2, Shehzad Khan1,2, Muhammad Ibrahim Khan1, Faisal Khan

https://www.researchgate.net/publication/318648785_Interest_Rate_and_Its_Effect_on_Bank’s_Profitability

Bank performance under negative interest rates

VOXEU

https://voxeu.org/article/bank-performance-under-negative-interest-rates

How low interest rates impact bank

BBVA

https://www.bbva.com/en/how-low-interest-rates-impact-bank-profitability/

Negative-nominal-interest-rates-and-banking

Money and Banking

https://www.moneyandbanking.com/commentary/2018/10/21/negative-nominal-interest-rates-and-banking

Monetary policy and bank equity values in a time of low interest rates

Miguel Ampudia, Skander Van den Heuvel

 

Click to access ecb.wp2199.en.pdf

 

Bank Profitability and Financial Stability

Prepared by TengTeng Xu, Kun Hu, and Udaibir S. Das1

IMF

January 2019

 

https://www.imf.org/~/media/Files/Publications/WP/2019/wp1905.ashx

 

Financial stability implications of a prolonged period of low interest rates

Report submitted by a Working Group established by the Committee on the Global Financial System

The Group was co-chaired by Ulrich Bindseil (European Central Bank) and Steven B Kamin (Board of Governors of the Federal Reserve System)

July 2018

 

Click to access cgfs61.pdf

 

Monetary policy and bank profitability in a low interest rate environment

Carlo Altavilla Miguel Boucinha José-Luis Peydró
Economic Policy, Volume 33, Issue 96, October 2018, Pages 531–586,
Published: 09 October 2018

 

https://academic.oup.com/economicpolicy/article/33/96/531/5124289

 

 

Determinants of bank profitability in emerging markets

by E. Kohlscheen, A. Murcia and J. Contreras

Monetary and Economic Department

January 2018

BIS

Click to access work686.pdf

 

 

 

The Risk-Taking Channel of Monetary Policy Transmission in the Euro Area

 

Matthias Neuenkirch, Matthias Nöckel

4/2018

 

Click to access cesifo1_wp6982.pdf

 

 

 

 

ADAPTING LENDING POLICIES WHEN NEGATIVE INTEREST RATES HIT BANKS’ PROFITS

Óscar Arce, Miguel García-Posada, Sergio Mayordomo and Steven Ongena

2018

Click to access dt1832e.pdf

 

 

Banks, Money and the Zero Lower Bound

Michael Kumhof

Xuan Wang

Click to access 2018-16.pdf

 

 

 

Banking in a Steady State of Low Growth and Interest Rates

by Qianying Chen, Mitsuru Katagiri, and Jay Surti

IMF

https://www.imf.org/~/media/Files/Publications/WP/2018/wp18192.ashx

 

 

 

Changes in Monetary Policy and Banks’ Net Interest Margins: A Comparison across Four Tightening Episodes

Jared Berry, Felicia Ionescu, Robert Kurtzman, and Rebecca Zarutskie

Federal Reserve

2019

https://www.federalreserve.gov/econres/notes/feds-notes/changes-in-monetary-policy-and-banks-net-interest-margins-a-comparison-20190419.htm

 

 

 

Monetary Policy and Bank Profitability, 1870 – 2015

47 Pages Posted: 8 Feb 2019

Kaspar Zimmermann

University of Bonn

Date Written: January 25, 2019

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3322331

 

 

The effect of falling interest rates and yield curve to banks’ interest margin and profitability: cross-country evidence from the EU banks in the aftermath of 2008 financial crisis

Giorgi Chagoshvili

MS Thesis

 

https://repository.ihu.edu.gr/xmlui/bitstream/handle/11544/29306/The%20effect%20of%20falling%20interest%20rates%20and%20yield%20curve%20to%20banks%20%20interest%20margin%20and%20profitability%20cross%20country%20evidence%20from%20the%20EU%20banks%20in%20the%20aftermath%20of%202008%20financial%20crisis.pdf?sequence=1

 

 

 

 

Bank Performance under Negative Interest Rates

 

by Jose A. Lopez, Andrew K. Rose, and Mark M. Spiegel

 

Click to access VOXNNIR.pdf

Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope

  • Paula Cruz-García
  • Juan Fernández de GuevaraEmail author
  • Joaquín Maudos

https://link.springer.com/article/10.1007/s00181-017-1360-0

 

 

 

 

Key Determinants of Net Interest Margin of Banks in the EU and the US

MS Thesis

Charles University

Bc. Petr Hanzlík

 

https://dspace.cuni.cz/bitstream/handle/20.500.11956/99546/120297262.pdf?sequence=1

 

Increasing Market Concentration in USA: Update April 2019

Increasing Market Concentration in USA: Update April 2019

In this post, I have compiled recent articles and papers on the issues of:

  • Increased Market Power
  • Increased Market Concentration
  • Increased Corporate Profits
  • Increased Inequality
  • Anti Trust Laws and Competition policy
  • Interest rates and Business Investments
  • Interest rates and Mergers and Acquisitions
  • Stock Buybacks, Dividends, and Business Investments
  • Outsourcing, and Global Value Chains
  • Corporate Savings Glut
  • Slower Economic Growth
  • Reduced Dynamism

 

From Low Interest Rates, Market Power, and Productivity Growth

How does the production side of the economy respond to a low interest rate environment? This study provides a new theoretical result that low interest rates encourage market concentration by giving industry leaders a strategic advantage over followers, and this effect strengthens as the interest rate approaches zero. The model provides a unified explanation for why the fall in long-term interest rates has been associated with rising market concentration, reduced dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth. Support for the model’s key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.

Please see my related posts:

 

Competition, Concentration, and Anti-Trust Laws in the USA

Concentration, Investment, and Growth

Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets

Rising Market Concentration and Declining Business Investments in the USA – Update June 2018

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

Why are Macro-economic Growth Forecasts so wrong?

Low Interest Rates and Business Investments : Update August 2017

Mergers and Acquisitions – Long Term Trends and Waves

Business Investments and Low Interest Rates

Economic Growth Theories – Orthodox and Heterodox

The Decline in Long Term Real Interest Rates

Why do Firms buyback their Shares? Causes and Consequences.

On Inequality of Wealth and Income – Causes and Consequences

Intra Industry Trade and International Production and Distribution Networks

FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

Understanding Trade in Intermediate Goods

Trends in Intra Firm Trade of USA

Cash and Investments: Corporate Savings Glut in USA

Key sources:

Markups, Consumption and Market Concentration

American Economic Association

https://www.aeaweb.org/conference/2019/preliminary/814?q=eNqrVipOLS7OzM8LqSxIVbKqhnGVrJQMlWp1lBKLi_OTgRwlHaWS1KJcXAgrJbESKpSZmwphlWWmloO0FxUUgLQagFwwSH9BYjpIBZANXDDjnB7P

AMERICA’S CONCENTRATION CRISIS

AN OPEN MARKETS INSTITUTE REPORT

https://concentrationcrisis.openmarketsinstitute.org

How Low Interest Rates Have Led To Increased Market Concentration

Seeking Alpha

March, 2019

https://seekingalpha.com/article/4245601-low-interest-rates-led-increased-market-concentration

 

Market Concentration Is Threatening the US Economy

https://www.project-syndicate.org/commentary/united-states-economy-rising-market-power-by-joseph-e-stiglitz-2019-03

Concentration increasing?

John Cochrane

2019

https://johnhcochrane.blogspot.com/2019/03/concentration-increasing.html

Industry Concentration in Europe and North America

OECD

2019

Monopolies are the ‘missing piece of the puzzle’ when it comes to analyzing US inequality, investment researchers argue

Barclays Launches New Research Study Analyzing how Market Concentration is Affecting the US Economy

March 26, 2019

DISRUPTION CONCENTRATION AND THE NEW ECONOMY

The Surprising Thing About Market Concentration

by esteban rossi-hansberg, pierre-daniel sarte and nicholas trachter

 

Increased market power: a global problem that needs solving?

January 2019

https://www.oxera.com/agenda/increased-market-power-a-global-problem-that-needs-solving/

Click to access Increased-market-power.pdf

 

 

 

70 Years of US Corporate Profits∗

Simcha Barkai

Seth G. Benzell

April 2018

 

Click to access 2270yearsofuscorporateprofits.pdf

 

 

Low Interest Rates, Market Power, and Productivity Growth

Ernest Liu, Atif Mian, Amir Sufi

January 2019

NBER

https://www.nber.org/papers/w25505

Click to access BFI-MFRI-2019-09.pdf

Chapter 2: The Rise of Corporate Market Power and Its Macroeconomic Effects

World Economic Outlook

April 2019

IMF

https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/world-economic-outlook-april-2019

Outsourcing, Occupational and Industrial Concentration

Nicholas Bloom (Stanford), Audrey Guo (Stanford) and Brian Lucking (Stanford)
November 2018

 

 

 

Diverging Trends in National and Local Concentration∗

Esteban Rossi-Hansberg Pierre-Daniel Sarte

Nicholas Trachter

February 26, 2019

 

Click to access DTNLC.pdf

 

 

 

Macroeconomics and Market Power: Facts, Potential Explanations, and Open Questions

Chad Syverson

January 2019

Brookings

 

Click to access ES_20190116_Syverson-Macro-Micro-Market-Power.pdf

A Theory of Falling Growth and Rising Rents

Author(s): Philippe Aghion, Antonin Bergeaud, Timo Boppart, Peter J. Klenow, and Huiyu Li

March 2019

Fed Reserve San Francisco

https://www.frbsf.org/economic-research/publications/working-papers/2019/11/

Competition and market concentration in the United States

 

December 2018

https://www.tresor.economie.gouv.fr/Articles/bd779c20-ede1-4266-94ee-13eb70d0b882/files/c19bc114-e2ee-4f2e-99a4-6ca645b6f0d5

Concentration, Market Power and Dynamism in the Euro Area

ECB Working Paper No. 2253 (2019); ISBN 978-92-899-3515-9

 

Posted: 26 Mar 2019

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3360233&download=yes

The Rise of Market Power and the Macroeconomic Implications

Jan De Loecker
Jan Eeckhout
Gabriel Unger
November 22, 2018

 

Click to access RMP.pdf

 

Competition, Concentration, and Anti-Trust Laws in the USA

Competition, Concentration, and Anti-Trust Laws in the USA

 

Currently the US FTC has been having hearings on concentration, competition, and anti-trust laws in the USA.  Several conferences are organized starting with September 2018.  I present links to hearings details and videos of the sessions.  As of now, two hearings have already taken place.  I have given the links to the third hearing below.  Economists Joe Stiglitz and Jason Furman have given speeches and presentations during first and second hearings.

Key Sources of Research:

Hearings on Competition and Consumer Protection in the 21st Century

Hearings on Competition and Consumer Protection in the 21st Century

The Federal Trade Commission will hold a series of public hearings during the fall and winter 2018 examining whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection law, enforcement priorities, and policy. The PDF version of this content includes footnotes and sources. All the hearings will be webcast live.

 

https://www.ftc.gov/policy/hearings-competition-consumer-protection

Click to access hearings-announcement_0.pdf

 

 

Hearings on Competition and Consumer Protection in the 21st Century: Opening Session

September 14, 2018

DAVIS POLK

 

Click to access 2018-09-14_hearings_on_competition_consumer_protection_in_21st_century.pdf

 

 

FTC Hearing #1: Competition and Consumer Protection in the 21st Century

Hearing #1 On Competition and Consumer Protection in the 21st Century, September 13-14, 2018

 

https://www.ftc.gov/news-events/events-calendar/2018/09/ftc-hearing-1-competition-consumer-protection-21st-century

Click to access agenda-hearings-georgetown_3.pdf

https://www.ftc.gov/news-events/audio-video/video/competition-consumer-protection-21st-century-welcome-session-1

https://www.ftc.gov/news-events/audio-video/video/competition-consumer-protection-21st-century-welcome-session-2

https://www.ftc.gov/news-events/audio-video/video/competition-consumer-protection-21st-century-welcome-session-3

 

 

 

 

FTC Hearing #2: Competition and Consumer Protection in the 21st Century

FTC Hearing #2: Competition and Consumer Protection in the 21st Century

 

https://www.ftc.gov/news-events/press-releases/2018/09/ftc-announces-second-session-hearings-competition-consumer

Click to access hearings-agenda-cc-sept_0.pdf

https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-2-competition-consumer-protection-21st-century-state-us-0

https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-2-competition-consumer-protection-21st-century-state-us

https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-2-competition-consumer-protection-21st-century-monopsony

 

FTC Hearing #3: Competition and Consumer Protection in the 21st Century

FTC Hearing #3: Competition and Consumer Protection in the 21st Century - George Mason University

 

https://www.ftc.gov/news-events/events-calendar/2018/10/ftc-hearing-3-competition-consumer-protection-21st-century

 https://www.ftc.gov/system/files/documents/public_events/1413712/hearings-agenda-gmu_5.pdf

THE UNITED STATES HAS A MARKET CONCENTRATION PROBLEM

REVIEWING CONCENTRATION ESTIMATES IN ANTITRUST MARKETS, 2000-PRESENT

 

ISSUE BRIEF BY ADIL ABDELA AND MARSHALL STEINBAUM

SEPTEMBER 2018

 

Click to access ftc-2018-0074-d-0042-155544.pdf

 

Nobel Prize-winning economist Joseph Stiglitz says the US has a major monopoly problem

https://www.businessinsider.com/joseph-stiglitz-says-the-us-has-a-major-monopoly-problem-2018-9

 

 

Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University

http://sites.bu.edu/tpri/news-and-events/competition-conference-2018/

http://sites.bu.edu/tpri/competition-conference-2018-program-and-papers/

 

Slower Productivity and Higher Inequality: Are They Related?

Jason Furman and Peter Orszag

June 2018

 

Click to access wp18-4.pdf

 

 

 

Market Power and Monetary Policy

Speech given by

Andrew G Haldane Chief Economist Bank of England

Co-authors: Tommaso Aquilante, Shiv Chowla, Nikola Dacic, Riccardo Masolo, Patrick Schneider, Martin Seneca and Srdan Tatomir.

Federal Reserve Bank of Kansas City Economic Policy Symposium Jackson Hole, Wyoming

24 August 2018

 

https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/market-power-and-monetary-policy-speech-by-andy-haldane.pdf?la=en&hash=ECC7B63705847EC5E68DEFC86C56B887B9DBD0CD

Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets

Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets

 

Public traded companies are always under pressure to show earnings growth and sales revenue growth to enhance shareholder value.

 

How do they do it when markets have matured and economy has slowed?

  • Lower Costs
  • Increase Market Share
  • Find New Markets
  • Diversify
  • Create New products and servicces

 

How do then companies lower their costs?

  • Vertical Mergers and Acquisitions
  • Outsourcing (Sourcing parts and components / Intermediate Goods / Inputs from cross border)
  • Offshoring (Shifting Production cross border)
  • Vertical Integration

 

How do then companies increase their market share?

  • Horizontal Mergers and Acquisitions
  • Cross Border Markets Share (Sales in other countries)

 

In the last thirty years, this is exactly what has happened in US economy.

Macro Trends of increase in Outsourcing/Offshoring, Increase in Market Concentration, Increase in Inequality, Increase in Corporate Profits, Rising Equity Prices, Slower Productivity Growth, Lower Interest Rates, Low Labor Share, and Capital Share.

Please see my other posts expanding on these issues.

Please note that these forces are continuing and trends will remain on current trajectory.

 

Key Terms:

  • Stakeholder vs Shareholder Capitalism
  • Short Termism
  • Slow Productivity Growth
  • Rising Market Concentration
  • Rising Profits
  • Rising Equities Market
  • Rising Inequality
  • Dupont Ratio Analysis
  • Financial Planning (Micro – Firm Level)
  • Economic Planning (Macro- Aggregate Level)
  • Quarterly Capitalism

 

From SHAREHOLDER CAPITALISM: A SYSTEM IN CRISIS

Our current, highly financialised, form of shareholder capitalism is not just failing to provide new capital for investment, it is actively undermining the ability of listed companies to reinvest their own profits. The stock market has become a vehicle for extracting value from companies, not for injecting it.

No wonder that Andy Haldane, Chief Economist of the Bank of England, recently suggested that shareholder capitalism is ‘eating itself.’1 Corporate governance has become dominated by the need to maximise short-term shareholder returns. At the same time, financial markets have grown more complex, highly intermediated, and similarly shorttermist, with shares increasingly seen as paper assets to be traded rather than long term investments in sound businesses.

This kind of trading is a zero-sum game with no new wealth, let alone social value, created. For one person to win, another must lose – and increasingly, the only real winners appear to be the army of financial intermediaries who control and perpetuate the merry-goround. There is nothing natural or inevitable about the shareholder-owned corporation as it currently exists. Like all economic institutions, it is a product of political and economic choices which can and should be remade if they no longer serve our economy, society, or environment.

Here’s the impact this shareholder model is currently having:
• Economy: Shareholder capitalism is holding back productive investment. Even the Chief Executive of BlackRock, the world’s largest asset manager, has admitted that pressure to keep the share price high means corporate leaders are ‘underinvesting in innovation, skilled workforces or essential capital expenditures.’ 2
• Society: Shareholder capitalism is driving inequality. There is growing evidence that attempts to align executive pay with shareholder value are largely responsible for the ballooning of salaries at the top. The prioritisation of shareholder interests has also contributed to a dramatic decline in UK wages relative to profits, helping to explain the failure of ordinary people’s living standards to rise in line with economic growth.
• Environment: Shareholder capitalism helps to drive environmental destruction. It does this by driving risky shortterm behaviour, such as fossil fuel extraction, which ignores long-term environmental risks.

The idea that shareholder capitalism is the most efficient way to mobilise large amounts of capital is no longer tenable.

We need both to create new models of companies, and implement new ways of organising investment that are fit for building an inclusive, equal, and sustainable economy.

Companies should be explicitly accountable to a mission and a set of interests beyond shareholder returns. Equally, investment must provide long-term capital for socially and environmentally useful projects, and damaging forms of speculation must be restricted.

For most people, our economy simply is not working, and the damaging aspects of shareholder capitalism are at least in part responsible. Reforming shareholder capitalism must not be dismissed as too difficult – the crisis is too urgent for that. We can take the first steps towards a better economic model right now. It’s time to act.

 

 

A Crash Course in Dupont Financial Ratio Analysis

 

  • What happens when economic growth slows ?
  • What happens when profit margins decline ?
  • What happens when Sales growth is limited ?
  • What does lead to Mergers and Acquisitions ?
  • What is the impact of Cost of Capital ?
  • What is EVA (Economic Value Added) ?
  • What is impact of Outsourcing/Offshoring on Financial Ratios ?
  • What is impact of Mergers and Acquisitions on Financial Ratios ?
  • What is impact of Stock Buy Backs on Financial Ratios ?
  • What is impact of Dividends on Financial Ratios ?
  • ROS (Return on Sales)
  • ROE (Return on Equities)
  • ROA (Return on Assets)
  • ROIC (Return on Invested Capital)
  • EVA (Economic Value Added)
  • MVA (Market Value Added)

From The DuPont Equation, ROE, ROA, and Growth

The DuPont Equation

The DuPont equation is an expression which breaks return on equity down into three parts: profit margin, asset turnover, and leverage.

Learning Objectives

Explain why splitting the return on equity calculation into its component parts may be helpful to an analyst

Key Takeaways

Key Points

  • By splitting ROE into three parts, companies can more easily understand changes in their returns on equity over time.
  • As profit margin increases, every sale will bring more money to a company’s bottom line, resulting in a higher overall return on equity.
  • As asset turnover increases, a company will generate more sales per asset owned, resulting in a higher overall return on equity.
  • Increased financial leverage will also lead to an increase in return on equity, since using more debt financing brings on higher interest payments, which are tax deductible.

Key Terms

  • competitive advantage: something that places a company or a person above the competition

The DuPont Equation

image

DuPont Model: A flow chart representation of the DuPont Model.

The DuPont equation is an expression which breaks return on equity down into three parts. The name comes from the DuPont Corporation, which created and implemented this formula into their business operations in the 1920s. This formula is known by many other names, including DuPont analysis, DuPont identity, the DuPont model, the DuPont method, or the strategic profit model.

The DuPont Equation: In the DuPont equation, ROE is equal to profit margin multiplied by asset turnover multiplied by financial leverage.

Under DuPont analysis, return on equity is equal to the profit margin multiplied by asset turnover multiplied by financial leverage. By splitting ROE (return on equity) into three parts, companies can more easily understand changes in their ROE over time.

Components of the DuPont Equation: Profit Margin

Profit margin is a measure of profitability. It is an indicator of a company’s pricing strategies and how well the company controls costs. Profit margin is calculated by finding the net profit as a percentage of the total revenue. As one feature of the DuPont equation, if the profit margin of a company increases, every sale will bring more money to a company’s bottom line, resulting in a higher overall return on equity.

Components of the DuPont Equation: Asset Turnover

Asset turnover is a financial ratio that measures how efficiently a company uses its assets to generate sales revenue or sales income for the company. Companies with low profit margins tend to have high asset turnover, while those with high profit margins tend to have low asset turnover. Similar to profit margin, if asset turnover increases, a company will generate more sales per asset owned, once again resulting in a higher overall return on equity.

Components of the DuPont Equation: Financial Leverage

Financial leverage refers to the amount of debt that a company utilizes to finance its operations, as compared with the amount of equity that the company utilizes. As was the case with asset turnover and profit margin, Increased financial leverage will also lead to an increase in return on equity. This is because the increased use of debt as financing will cause a company to have higher interest payments, which are tax deductible. Because dividend payments are not tax deductible, maintaining a high proportion of debt in a company’s capital structure leads to a higher return on equity.

The DuPont Equation in Relation to Industries

The DuPont equation is less useful for some industries, that do not use certain concepts or for which the concepts are less meaningful. On the other hand, some industries may rely on a single factor of the DuPont equation more than others. Thus, the equation allows analysts to determine which of the factors is dominant in relation to a company’s return on equity. For example, certain types of high turnover industries, such as retail stores, may have very low profit margins on sales and relatively low financial leverage. In industries such as these, the measure of asset turnover is much more important.

High margin industries, on the other hand, such as fashion, may derive a substantial portion of their competitive advantage from selling at a higher margin. For high end fashion and other luxury brands, increasing sales without sacrificing margin may be critical. Finally, some industries, such as those in the financial sector, chiefly rely on high leverage to generate an acceptable return on equity. While a high level of leverage could be seen as too risky from some perspectives, DuPont analysis enables third parties to compare that leverage with other financial elements that can determine a company’s return on equity.

ROE and Potential Limitations

Return on equity measures the rate of return on the ownership interest of a business and is irrelevant if earnings are not reinvested or distributed.

Learning Objectives

Calculate a company’s return on equity

Key Takeaways

Key Points

  • Return on equity is an indication of how well a company uses investment funds to generate earnings growth.
  • Returns on equity between 15% and 20% are generally considered to be acceptable.
  • Return on equity is equal to net income (after preferred stock dividends but before common stock dividends) divided by total shareholder equity (excluding preferred shares ).
  • Stock prices are most strongly determined by earnings per share (EPS) as opposed to return on equity.

Key Terms

  • fundamental analysis: An analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, management and competitive advantages, and competitors and markets.

Return On Equity

Return on equity (ROE) measures the rate of return on the ownership interest or shareholders’ equity of the common stock owners. It is a measure of a company’s efficiency at generating profits using the shareholders’ stake of equity in the business. In other words, return on equity is an indication of how well a company uses investment funds to generate earnings growth. It is also commonly used as a target for executive compensation, since ratios such as ROE tend to give management an incentive to perform better. Returns on equity between 15% and 20% are generally considered to be acceptable.

The Formula

Return on equity is equal to net income, after preferred stock dividends but before common stock dividends, divided by total shareholder equity and excluding preferred shares.

Return On Equity: ROE is equal to after-tax net income divided by total shareholder equity.

Expressed as a percentage, return on equity is best used to compare companies in the same industry. The decomposition of return on equity into its various factors presents various ratios useful to companies in fundamental analysis.

ROE Broken Down: This is an expression of return on equity decomposed into its various factors.

The practice of decomposing return on equity is sometimes referred to as the “DuPont System. ”

Potential Limitations of ROE

Just because a high return on equity is calculated does not mean that a company will see immediate benefits. Stock prices are most strongly determined by earnings per share (EPS) as opposed to return on equity. Earnings per share is the amount of earnings per each outstanding share of a company’s stock. EPS is equal to profit divided by the weighted average of common shares.

Earnings Per Share: EPS is equal to profit divided by the weighted average of common shares.

The true benefit of a high return on equity comes from a company’s earnings being reinvested into the business or distributed as a dividend. In fact, return on equity is presumably irrelevant if earnings are not reinvested or distributed.

Assessing Internal Growth and Sustainability

Sustainable– as opposed to internal– growth gives a company a better idea of its growth rate while keeping in line with financial policy.

Learning Objectives

Calculate a company’s internal growth and sustainability ratios

Key Takeaways

Key Points

  • The internal growth rate is a formula for calculating the maximum growth rate a firm can achieve without resorting to external financing.
  • Sustainable growth is defined as the annual percentage of increase in sales that is consistent with a defined financial policy.
  • Another measure of growth, the optimal growth rate, assesses sustainable growth from a total shareholder return creation and profitability perspective, independent of a given financial strategy.

Key Terms

  • retention: The act of retaining; something retained
  • retention ratio: retained earnings divided by net income
  • sustainable growth rate: the optimal growth from a financial perspective assuming a given strategy with clear defined financial frame conditions/ limitations

Internal Growth and Sustainability

The true benefit of a high return on equity arises when retained earnings are reinvested into the company’s operations. Such reinvestment should, in turn, lead to a high rate of growth for the company. The internal growth rate is a formula for calculating maximum growth rate that a firm can achieve without resorting to external financing. It’s essentially the growth that a firm can supply by reinvesting its earnings. This can be described as (retained earnings)/(total assets ), or conceptually as the total amount of internal capital available compared to the current size of the organization.

We find the internal growth rate by dividing net income by the amount of total assets (or finding return on assets ) and subtracting the rate of earnings retention. However, growth is not necessarily favorable. Expansion may strain managers’ capacity to monitor and handle the company’s operations. Therefore, a more commonly used measure is the sustainable growth rate.

Sustainable growth is defined as the annual percentage of increase in sales that is consistent with a defined financial policy, such as target debt to equity ratio, target dividend payout ratio, target profit margin, or target ratio of total assets to net sales.

We find the sustainable growth rate by dividing net income by shareholder equity (or finding return on equity) and subtracting the rate of earnings retention. While the internal growth rate assumes no financing, the sustainable growth rate assumes you will make some use of outside financing that will be consistent with whatever financial policy being followed. In fact, in order to achieve a higher growth rate, the company would have to invest more equity capital, increase its financial leverage, or increase the target profit margin.

Optimal Growth Rate

Another measure of growth, the optimal growth rate, assesses sustainable growth from a total shareholder return creation and profitability perspective, independent of a given financial strategy. The concept of optimal growth rate was originally studied by Martin Handschuh, Hannes Lösch, and Björn Heyden. Their study was based on assessments on the performance of more than 3,500 stock-listed companies with an initial revenue of greater than 250 million Euro globally, across industries, over a period of 12 years from 1997 to 2009.

image

Revenue Growth and Profitability: ROA, ROS and ROE tend to rise with revenue growth to a certain extent.

Due to the span of time included in the study, the authors considered their findings to be, for the most part, independent of specific economic cycles. The study found that return on assets, return on sales and return on equity do in fact rise with increasing revenue growth of between 10% to 25%, and then fall with further increasing revenue growth rates. Furthermore, the authors attributed this profitability increase to the following facts:

  1. Companies with substantial profitability have the opportunity to invest more in additional growth, and
  2. Substantial growth may be a driver for additional profitability, whether by attracting high performing young professionals, providing motivation for current employees, attracting better business partners, or simply leading to more self-confidence.

However, according to the study, growth rates beyond the “profitability maximum” rate could bring about circumstances that reduce overall profitability because of the efforts necessary to handle additional growth (i.e., integrating new staff, controlling quality, etc).

Dividend Payments and Earnings Retention

The dividend payout and retention ratios offer insight into how much of a firm’s profit is distributed to shareholders versus retained.

Learning Objectives

Calculate a company’s dividend payout and retention ratios

Key Takeaways

Key Points

  • Many corporations retain a portion of their earnings and pay the remainder as a dividend.
  • Dividends are usually paid in the form of cash, store credits, or shares in the company.
  • Cash dividends are a form of investment income and are usually taxable to the recipient in the year that they are paid.
  • Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends.
  • Retained earnings can be expressed in the retention ratio.

Key Terms

  • stock split: To issue a higher number of new shares to replace old shares. This effectively increases the number of shares outstanding without changing the market capitalization of the company.

Dividend Payments and Earnings Retention

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. On the other hand, retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. Retained earnings are shown in the shareholder equity section in the company’s balance sheet –the same as its issued share capital.

Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a “special dividend” to distinguish it from the fixed schedule dividends. Dividends are usually paid in the form of cash, store credits (common among retail consumers’ cooperatives), or shares in the company (either newly created shares or existing shares bought in the market). Further, many public companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares for the shareholder.

Cash dividends (most common) are those paid out in currency, usually via electronic funds transfer or a printed paper check. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. This is the most common method of sharing corporate profits with the shareholders of the company. For each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares and the cash dividend is $0.50 per share, the holder of the stock will be paid $50. Dividends paid are not classified as an expense but rather a deduction of retained earnings. Dividends paid do not show up on an income statement but do appear on the balance sheet.

image

Example Balance Sheet: Retained earnings can be found on the balance sheet, under the owners’ (or shareholders’) equity section.

Stock dividends are those paid out in the form of additional stock shares of the issuing corporation or another corporation (such as its subsidiary corporation). They are usually issued in proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield five extra shares). If the payment involves the issue of new shares, it is similar to a stock split in that it increases the total number of shares while lowering the price of each share without changing the market capitalization, or total value, of the shares held.

Dividend Payout and Retention Ratios

Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:

The part of the earnings not paid to investors is left for investment to provide for future earnings growth. These retained earnings can be expressed in the retention ratio. Retention ratio can be found by subtracting the dividend payout ratio from one, or by dividing retained earnings by net income.

Dividend Payout Ratio: The dividend payout ratio is equal to dividend payments divided by net income for the same period.

Relationships between ROA, ROE, and Growth

Return on assets is a component of return on equity, both of which can be used to calculate a company’s rate of growth.

Learning Objectives

Discuss the different uses of the Return on Assets and Return on Assets ratios

Key Takeaways

Key Points

  • Return on equity measures the rate of return on the shareholders ‘ equity of common stockholders.
  • Return on assets shows how profitable a company’s assets are in generating revenue.
  • In other words, return on assets makes up two-thirds of the DuPont equation measuring return on equity.
  • Capital intensity is the term for the amount of fixed or real capital present in relation to other factors of production. Rising capital intensity pushes up the productivity of labor.

Key Terms

  • return on common stockholders’ equity: a fiscal year’s net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage
  • quantitatively: With respect to quantity rather than quality.

Return On Assets Versus Return On Equity

In review, return on equity measures the rate of return on the ownership interest (shareholders’ equity) of common stockholders. Therefore, it shows how well a company uses investment funds to generate earnings growth. Return on assets shows how profitable a company’s assets are in generating revenue. Return on assets is equal to net income divided by total assets.

Return On Assets: Return on assets is equal to net income divided by total assets.

This percentage shows what the company can do with what it has (i.e., how many dollars of earnings they derive from each dollar of assets they control). This is in contrast to return on equity, which measures a firm’s efficiency at generating profits from every unit of shareholders’ equity. Return on assets is, however, a vital component of return on equity, being an indicator of how profitable a company is before leverage is considered. In other words, return on assets makes up two-thirds of the DuPont equation measuring return on equity.

ROA, ROE, and Growth

In terms of growth rates, we use the value known as return on assets to determine a company’s internal growth rate. This is the maximum growth rate a firm can achieve without resorting to external financing. We use the value for return on equity, however, in determining a company’s sustainable growth rate, which is the maximum growth rate a firm can achieve without issuing new equity or changing its debt-to-equity ratio.

Capital Intensity and Growth

Return on assets gives us an indication of the capital intensity of the company. “Capital intensity” is the term for the amount of fixed or real capital present in relation to other factors of production, especially labor. The underlying concept here is how much output can be procured from a given input (assets!). The formula for capital intensity is below:

Capital Intensity=Total AssetsSales

The use of tools and machinery makes labor more effective, so rising capital intensity pushes up the productivity of labor. While companies that require large initial investments will generally have lower return on assets, it is possible that increased productivity will provide a higher growth rate for the company. Capital intensity can be stated quantitatively as the ratio of the total money value of capital equipment to the total potential output. However, when we adjust capital intensity for real market situations, such as the discounting of future cash flows, we find that it is not independent of the distribution of income. In other words, changes in the retention or dividend payout ratios can lead to changes in measured capital intensity.

 

 

1280px-DuPontModelEng.svg

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Low Interest Rates and Banks Profitability: Update – December 2016

 

 Key Sources of Research:

 

 

 

The DuPont Equation, ROE, ROA, and Growth

https://courses.lumenlearning.com/boundless-finance/chapter/the-dupont-equation-roe-roa-and-growth/

 

 

Short-Termism in business: causes, mechanisms and consequences

EY Poland Report

 

Click to access Short-termism_raport_EY.pdf

 

 

Shareholders vs Stakeholders Capitalism

Fabian Brandt

Goethe University

Konstantinos Georgiou

University of Pennsylvania

 

https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1002&context=fisch_2016

 

 

Hedrick Smith Speaks to the Community about Who Stole the American Dream.

 

http://nhlabornews.com/2013/10/hedrick-smith-speaks-to-the-community-about-who-stole-the-american-dream/

 

 

Let’s Talk About “Maximizing Shareholder Value”

https://www.pragcap.com/lets-talk-about-maximizing-shareholder-value/

 

 

SHAREHOLDER CAPITALISM: A SYSTEM IN CRISIS

 

New Economics Foundation

 

Click to access NEF_SHAREHOLDER-CAPITALISM_E_latest.pdf

 

 

 

THE HISTORICAL CONTEXT OF SHAREHOLDER VALUE CAPITALISM

 

Mark S. Mizruchi and Howard Kirneldorf

 

Click to access 191bbc2b82f351633c7379deea7b9ccad0e9.pdf

 

 

Shareholder capitalism on trial

 

By Robert J. Samuelson

 

Click to access 03-19-15_WashingtonPost.pdf

 

 

 

The real business of business

McKinsey

 

https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Corporate%20Finance/MoF/Issue%2053/MoF53_The_real_business_of_business.ashx

 

 

 

Managers and Market Capitalism

 

Rebecca Henderson Karthik Ramanna

HBR

 

Click to access Henderson_Ramanna___Managers_and_Market_Capitalism___March_2013.pdf

 

 

The Embedded Firm: Corporate Governance, Labor, and Finance Capitalism

Peer Zumbansen

Cynthia A. Williams

 

http://digitalcommons.osgoode.yorku.ca/cgi/viewcontent.cgi?article=1056&context=clpe

 

 

 

 

Andrew G Haldane: Who owns a company?

Speech by Mr Andrew G Haldane,

Executive Director and Chief Economist of the Bank of England,

at the University of Edinburgh Corporate Finance Conference, Edinburgh,

22 May 2015.

 

Click to access r150811a.pdf

 

 

 

 

Capitalism for the Long Term

MARCH 2011
HBR

The Short Long

 

Speech by
Andrew G Haldane, Executive Director, Financial Stability, and Richard Davies

29th Societé Universitaire Europeene de Recherches Financieres Colloquium: New Paradigms in Money and Finance?

Brussels

May 2011

 

https://www.bankofengland.co.uk/-/media/boe/files/speech/2011/the-short-long-speech-by-andrew-haldane

 

 

 

 

Is short-termism wrecking the economy?

Redefining capitalism

By Eric Beinhocker and Nick Hanauer

Fast finance and slow growth

 

Andy Haldane

http://progressive-policy.net/2015/09/fast-finance-and-slow-growth/

 

Beyond Shareholder Value

The reasons and choices for corporate governance reform

Click to access BSV.pdf

 

 

AN ECONOMY FOR THE 99%

It’s time to build a human economy that benefits everyone, not just the privileged few

OXFAM

 

Click to access bp-economy-for-99-percent-160117-en.pdf

 

 

Short-Termism

By Douglas K. Chia

 

Click to access 01181_millstein_10th_anniversary_essay_2_chia_v2.pdf

 

 

 

The Future of Finance

THE LSE REPORT

 

Click to access future-of-finance-chapter-3.pdf

 

 

 

Is Short-Term Behavior Jeopardizing the Future Prosperity of Business?

 

Click to access IsShortTermBehaviorJeopardizingTheFutureProsperityOfBusiness_CEOStrategicImplications.pdf

 

 

 

 

How Effective Capital Regulation can Help Reduce the Too‐Big‐To‐Fail Problem

Anat Admati

Stanford University

 

Click to access Minn-Fed-combined.pdf

 

 

 

Business School’s Worst Idea: Why the “Maximize Shareholder Value” Theory Is Bogus

Yves Smith

http://evonomics.com/maximize-shareholder-value-theory-yves-smith/

 

 

 

When Shareholder Capitalism Came to Town

The American Prospect

http://prospect.org/article/when-shareholder-capitalism-came-town

 

 

 

Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University

July 2018

http://sites.bu.edu/tpri/competition-conference-2018/

 

 

 

Market Concentration

Issues paper by the Secretariat
6-8 June 2018

This document was prepared by the OECD Secretariat to serve as an issues paper for the hearing on market concentration taking place at the 129th meeting of the OECD Competition Committee on 6-8 June 2018

https://one.oecd.org/document/DAF/COMP/WD(2018)46/en/pdf

 

 

 

 

Monopoly’s New Era

In today’s economy, many industries can’t be analyzed through the lens of competition.

Chazen Global Insights
May 13, 2016

 

https://www8.gsb.columbia.edu/articles/chazen-global-insights/monopoly-s-new-era

 

 

 

Market power in the U.S. economy today

Washington Center for Equitable Growth

http://equitablegrowth.org/research-analysis/market-power-in-the-u-s-economy-today/

 

 

 

Don’t Panic: A Guide to Claims of Increasing Concentration

Gregory J. Werden

Luke Froeb

 

Date Written: April 5, 2018

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3156912

 

 

 

Market concentration

OECD

http://www.oecd.org/daf/competition/market-concentration.htm

 

 

 

 

A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Jason Furman Peter Orszag1

October 16, 2015

Click to access FurmanOrszag15.pdf

 

 

 

Do the Productivity Slowdown and the Inequality Increase Have a Common Cause?

Jason Furman (joint work with Peter Orszag)

Peterson Institute for International Economics
Washington, DC
November 9, 2017

Click to access 4-1furman20171109ppt.pdf

 

 

 

Is There a Connection Between Market Concentration and the Rise in Inequality?

https://promarket.org/connection-market-concentration-rise-inequality/

 

 

 

Concentrating on the Fall of the Labor Share

David; Dorn, David; Katz, Lawrence F; Patterson, Christina; Reenen, John Van

Click to access b8d7a989cab4b76e7fe795bf4572dbcdd0bc.pdf

 

 

 

 

Business Investment Spending Slowdown

April 9, 2018

FAS Congressional Research Services

Marc Labonte

Click to access IN10882.pdf

 

 

 

 

Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents

Lina Khan and Sandeep Vaheesan

Click to access HLP110.pdf

 

 

 

Five Myths about Economic Inequality in America

By Michael D. Tanner
September 7, 2016

 

Cato Institiute

https://www.cato.org/publications/policy-analysis/five-myths-about-economic-inequality-america

 

 

 

 

Is the US Public Corporation in Trouble?

Kathleen M. Kahle and René M. Stulz

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.31.3.67

 

 

 

Declining Labor and Capital Shares

Simcha Barkai

Click to access FeijooOnBarkai17.pdf

 

 

 

Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline

Kehrig, Matthias; Vincent, Nicolas

(2017)

Click to access cesifo1_wp6454.pdf

 

 

 

 

Declining Competition and Investment in the U.S.

Germán Gutiérrez† and Thomas Philippon‡

March 2017

Click to access IK_Comp_v1.pdf

 

 

 

ACCOUNTING FOR RISING CORPORATE PROFITS: INTANGIBLES OR REGULATORY
RENTS?

James Bessen

Boston University School of Law

November 9, 2016

Click to access Accounting-for-Rising-Corporate-Profits.pdf

 

 

 

 

Kaldor and Piketty’s facts: The rise of monopoly power in the United States

Gauti Eggertsson
Jacob A. Robbins
Ella Getz Wold

Feb 2018

Click to access 02052018-WP-kaldor-piketty-monopoly-power.pdf

 

 

 

 

Is There an Investment Gap in Advanced Economies? If So, Why?

Robin Döttling

German Gutierrez Gallardo

Thomas Philippon

 

Date Written: July 2017

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3002796

 

 

 

 

Antitrust in a Time of Populism

Professor Carl Shapiro

CRESSE 2017 Heraklion – Crete, Greece

2 July 2017

Click to access 2017_Key_SHAPIRO.pdf

 

 

 

The Incredible Shrinking Universe of Stocks

The Causes and Consequences of Fewer U.S. Equities

Credit Suisse

March 2917

Click to access document_1072753661.pdf

 

 

 

Declining Competition and Investment in the U.S

German Gutierrez Gallardo

Thomas Philippon

 

Date Written: December 2017

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3095586

 

 

 

 

The Fall and Rise of Market Power in Europe

John P. Weche and Achim Wambach

Click to access dp18003.pdf

Click to access 1011811367.pdf

 

 

 

 

On the Formation of Capital and Wealth: IT, Monopoly Power and Rising Inequality

Mordecai Kurz,

Stanford University

2018

Click to access e50bf8be5c75f1cca2e9e3d4afa4b8b8ac84.pdf

 

 

 

 

Appendix for \Investment-less Growth: An Empirical Investigation”

 

German Gutierrez and Thomas Philippony

March 2018

Click to access gutierrezappendixfa17bpea.pdf

 

 

 

 

WP 18-4 Slower Productivity and Higher Inequality: Are They Related?

Jason Furman and Peter Orszag

June 2018

PIIE

Click to access wp18-4.pdf

 

 

 

 

THE FUTURE OF PRODUCTIVITY

OECD

2015

 

Click to access OECD-2015-The-future-of-productivity-book.pdf

 

 

 

 

OECD Study on the Future of Productivity

Video

PIIE

 

 

 

 

 

A productivity perspective on the future of growth

By James Manyika, Jaana Remes, and Jonathan Woetzel
McKinsey
2014

https://www.mckinsey.com/featured-insights/employment-and-growth/a-productivity-perspective-on-the-future-of-growth

 

 

 

 

The future of productivity in manufacturing

Anne Green, Terence Hogarth, Erika Kispeter, David Owen

Peter Glover

February 2016

Click to access ier_2016_manufacturing_sector_productivity_report.pdf

 

 

 

 

THE PRODUCTIVITY OUTLOOK: PESSIMISTS VERSUS OPTIMISTS

August 2016

Zia Qureshi
at the Brookings Institution

Click to access productivity-outlook.pdf

 

 

 

The Slowdown in Productivity Growth: A View from International Trade

Development Issues No. 11

UN

April 2017

Click to access dsp_policy_11.pdf

 

 

 

 

Five Puzzles in the Behavior of Productivity, Investment, and Innovation

Robert J. Gordon

NBER

August 2004

http://www.nber.org/papers/w10660

 

 

 

 

AN OECD AGENDA ON ISSUES IN PRODUCTIVITY MEASUREMENT

Paul Schreyer

OECD Statistics Directorate
2016 World KLEMS Conference
Madrid, May 23-24 2016

Click to access worldklems2016_Schreyer_slides.pdf

 

 

 

THE FUTURE OF PRODUCTIVITY

Chiara Criscuolo
Directorate for Science, Technology and Innovation OECD

Understanding the Great recession: from micro to macro
Bank of England
London | 24 September 2015

Click to access CCriscuolo.pdf

 

 

 

 

 

Industry 4.0

The future of Productivity and Growth in Manufacturing Industries

BCG

Click to access media.media.72e472fb-1698-4a15-8858-344351c8902f.original.pdf

 

 

 

 

The waning of productivity growth

Raymond Van der Putten

http://economic-research.bnpparibas.com/Views/DisplayPublication.aspx?type=document&IdPdf=29178

 

 

The Impact of Robots on Productivity, Employment and Jobs

A positioning paper by the International Federation of Robotics

April 2017

Click to access IFR_The_Impact_of_Robots_on_Employment.pdf

 

 

 

 

The fall in productivity growth: causes and implications

Speech given by Silvana Tenreyro, External MPC Member, Bank of England

Peston Lecture Theatre, Queen Mary University of London

15 January 2018

https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-fall-in-productivity-growth-causes-and-implications

 

 

 

Artificial Intelligence, Automation, and the Economy

Science and Technology Council

Executive Office of the President

December 2016

Click to access EMBARGOED%20AI%20Economy%20Report.pdf

 

 

 

 

Long-term growth and productivity projections in advanced countries

Gilbert Cette, Rémy Lecat & Carole Ly-Marin

Working Paper #617

December 2016

Bank of France

Click to access DT617.pdf

 

 

 

ARE WE APPROACHING AN ECONOMIC SINGULARITY?
INFORMATION TECHNOLOGY AND THE FUTURE OF ECONOMIC GROWTH

By
William D. Nordhaus

September 2015

Click to access d2021.pdf

 

 

 

Challenges for the Future of Chinese Economic Growth

Jane Haltmaier

Federal Reseve Bank USA

2013

Click to access ifdp1072.pdf

 

 

 

Innovation, research and the UK’s productivity crisis.

Richard Jones

SPERI Paper No. 28

Click to access SPERI-Paper-28-Innovation-research-and-the-UK-productivity-crisis.pdf

 

 

 

Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies

BY ROBERT D. ATKINSON

MAY 2016

Click to access 2016-think-like-an-enterprise.pdf

 

 

 

Solving the productivity puzzle

By Jaana Remes, James Manyika, Jacques Bughin, Jonathan Woetzel, Jan Mischke, and Mekala Krishnan

McKinsey

Feb 2018

https://www.mckinsey.com/featured-insights/meeting-societys-expectations/solving-the-productivity-puzzle

 

 

 

Solving the productivity puzzle: the role of demand and the promise of digitization

DR. JAN MISCHKE

McKinsey Global Institute

May 2018

Click to access 20180523-MGI_Solving-the-productivity-puzzle_Bruegel.pdf

 

 

Worried about Concentration? Then Worry about Rent-Seeking

By Brink Lindsey and Steven Teles
This article appeared on ProMarket on April 18, 2017.

 

https://www.cato.org/publications/commentary/worried-about-concentration-then-worry-about-rent-seeking

 

 

 

Online platforms, distortion of markets, social impacts and freedom of expression

Oxford Centre for Competition law and policy

22 May 2017

Tim Cowen.

Click to access Tim_Cowen_Oxford_Centre_for_Competition_Law_and_Policy_speech_22May2017—updated-21.09.2017.pdf

 

 

 

What’s Behind the Increase in Inequality?

By Eileen Appelbaum*

September 2017

Click to access whats-behind-the-increase-in-inequality-2017-09.pdf

 

 

 

A NATIONAL COMPETITION POLICY: UNPACKING THE PROBLEM OF DECLINING COMPETITION AND SETTING PRIORITIES MOVING FORWARD

American Antitrust Institute

September 28, 2016

Click to access AAINatlCompPolicy.pdf

 

 

 

AI and the Economy

Jason Furman
Harvard Kennedy School
Cambridge, MA

Robert Seamans
NYU Stern School of Business
New York, NY

29 May 2018

Click to access c14099.pdf

 

 

 

The United States and Europe: Short-Run Divergence and Long-Run Challenges

Jason Furman
Chairman, Council of Economic Advisers

Remarks at Bruegel
Brussels, Belgium
May 11, 2016

Click to access The-United-States-and-Europe-Short-Run-Divergence-and-Long-Run-Challenges-Jason-Furman.pdf

 

 

 

 

Business Investment Spending Slowdown

April 9, 2018

Marc Labonte

CRS Insights

Click to access IN10882.pdf

 

 

 

 

ECONOMIC REPORT OF THE PRESIDENT

Together With
THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS

Feb 2016

Click to access ERP-2016.pdf

 

 

Keynote Remarks of Commissioner Terrell McSweeny

Washington Center for Equitable Growth

Making Antitrust Work for the 21st Century

Washington, DC

October 6, 2016

Click to access mcsweeny_-_keynote_remarks_at_equitable_growth_10-6-16.pdf

 

 

Wal-Mart: A Progressive Success Story

Jason Furman

November 28, 2005

Click to access walmart.pdf

 

 

“America Without Entrepreneurs: The Consequences of Dwindling Startup Activity”

Testimony before
The Committee on Small Business and Entrepreneurship
United States Senate
June 29, 2016

John W. Lettieri
Cofounder
& Senior Director for Policy and Strategy
Economic Innovation Group

Click to access 7F75741C1A2E6182E1A5D21B61D278F3.lettieri-testimony.pdf

 

 

 

 

A reading list on market power, superstar firms, and inequality

BLOG

http://www.beyondthetimes.com/2017/08/16/a-partial-reading-list-on-market-power-superstar-firms-and-inequality/

 

 

 

 

 

Productivity Growth in the Advanced Economies:The Past, the Present, and Lessons for the Futures

Jason Furman

Chairman, Council of Economic Advisers

July 2015

Click to access 20150709_productivity_advanced_economies_piie_slides.pdf

 

 

 

 

 

Forms and sources of inequality in the United States

Jason Furman

17 March 2016

VOXEU

 

https://voxeu.org/article/forms-and-sources-inequality-united-states

 

 

 

 

Business Investment in the United States: Facts, Explanations, Puzzles, and Policies

Jason Furman
Chairman, Council of Economic Advisers
Progressive Policy Ins9tute

September 30, 2015

Click to access 2015.09.30-Jason-Furman_Business-Investment-in-US-Facts-Explanations-Puzzles-Policies.pdf

 

 

 

 

Can Tax Reform Get Us to 3 Percent Growth?

Jason Furman
Harvard Kennedy School & Peterson Institute for International Economics

New York, NY
November 3, 2017

Click to access furman20171103ppt.pdf

 

 

 

 

Structural Challenges and Opportunities in the U.S. Economy

Jason Furman
Chairman, Council of Economic Advisers

London School of Economics
November 5, 2014

Click to access 20141105_1830_structuralOpportunitiesUSEconomy_tr.pdf

 

 

Is This Time Different? The Opportunities and Challenges of Artificial Intelligence

Jason Furman
Chairman, Council of Economic Advisers

Remarks at AI Now: The Social and Economic Implications of Artificial Intelligence Technologies in the Near Term
New York University
New York, NY

July 7, 2016

Click to access 20160707_cea_ai_furman.pdf

 

 

 

 

Rebalancing the U.S. Economy

Jason Furman

Click to access TIE_Sp15_Furman.pdf

 

 

 

 

Should Policymakers Care Whether Inequality Is Helpful or Harmful For Growth?

Jason Furman

Harvard Kennedy School & Peterson Institute for International Economics
Rethinking Macroeconomic Conference, October 11-12 2017

Preliminary Draft: October 5, 2017

Click to access furman20171012paper.pdf

 

 

 

 

 

A Political Economy of Oligarchy: Winner-take-all ideology, superstar norms, and the rise of the 1%

Yochai Benkler

September, 2017

Click to access Political%20economy%20of%20oligarchy%2001.pdf

 

 

 

 

Can Trump Overcome Secular Stagnation?
Part One: The Demand Side *

James K. Galbraith

Click to access can_trump_overcome_secular_stagnation.pdf

 

 

 

 

The macroeconomic effects of the 2017 tax reform

Robert J. Barro, Harvard University
Jason Furman, Harvard University

March 2018

Click to access 4_barrofurman.pdf

 

 

 

 

A FUTURE THAT WORKS: AUTOMATION, EMPLOYMENT, AND PRODUCTIVITY

McKinsey Global Institute

January 2017

https://www.mckinsey.com/~/media/mckinsey/featured%20insights/Digital%20Disruption/Harnessing%20automation%20for%20a%20future%20that%20works/A-future-that-works-Executive-summary-MGI-January-2017.ashx

 

 

 

A MISSING LINK: THE ROLE OF ANTITRUST LAW IN RECTIFYING EMPLOYER POWER IN OUR HIGH-PROFIT, LOW-WAGE ECONOMY

ISSUE BRIEF BY MARSHALL STEINBAUM

APRIL 2018

Click to access Monopsony-issue-brief.pdf

 

 

 

Inclusive Growth

For once, some good news

by jason furman

Click to access 16-29-MR64.pdf

 

 

 

 

The Outlook for the U.S. Economy and the Policies of the New President

Jason Furman
Senior Fellow, PIIE
Peterson Institute for International Economics |

SNS/SHOF Finance Panel

Stockholm

June 12, 2017

Click to access furman20170612ppt.pdf

 

 

 

 

The Role of Economists in Economic Policymaking

Jason Furman
Senior Fellow, Peterson Institute for International Economics

Arnold C. Harberger Distinguished Lecture on Economic Development
UCLA Burkle Center for International Relations
Los Angeles, CA

April 27, 2017

Click to access furman20170427.pdf

 

 

 

 

Market Concentration – Note by the United States

Hearing on Market Concentration
7 June 2018

OECD

Click to access market_concentration_united_states.pdf

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WD(2018)59&docLanguage=En

 

 

 

 

The fringe economic theory that might get traction in the 2016 campaign

 

https://www.washingtonpost.com/news/wonk/wp/2015/03/02/the-fringe-economic-theory-that-might-get-traction-in-the-2016-campaign/?noredirect=on&utm_term=.77c5e3479485

 

 

 

ACHIEVING INCLUSIVE GROWTH IN THE FACE OF DIGITAL TRANSFORMATION AND THE FUTURE OF WORK

OECD

Click to access achieving_inclusive_growth_in_the_face_of_digital_transformation_and_the_future_of_work_oecd_0.pdf

Rising Market Concentration and Declining Business Investments in the USA – Update June 2018

Rising Market Concentration and Declining Business Investments in the USA – Update June 2018

 

Since my last posts in August/September 2017 on the subject of

  • Market Concentration
  • Inequality
  • Market Power
  • Reduced Competition
  • Reduced Dynamism
  • Rising Profits
  • Declining Business Investments

several new studies have been published.  In addition, several important hearings and conferences have been organized by OECD, Brookings Institution, Boston University School of Law. Please see my list of references for details of each one of them.

This topic now is getting good attention in media also.

The Peterson Institute for International Economics (PIIE) held a major research conference on the “Policy Implications of Sustained Low Productivity Growth” on November 9, 2017. Jeromin Zettelmeyer, PIIE, moderates panel 4, “Wages and Inequality.” Presenters include Jason Furman, Harvard University and PIIE, and Lawrence H. Summers, Harvard University.  I have given the link to Video of the session 4 in the references.

OECD on June 7-8, 2018 held hearings on Market Concentration at Paris, France.  Several presentations were given by experts in the field.  I have given link to the conference webpage in the references.

The Hamilton Project/Brookings Institution had a Conference on June 13, 2018 in Washington DC on the subject of Market Concentration.  Please see the link to the conference video and papers in the references below.

 

 

From The State of Competition and Dynamism:
Facts about Concentration, Start-Ups, and Related Policies

concentration

From The State of Competition and Dynamism:
Facts about Concentration, Start-Ups, and Related Policies

 

concentration2concentration3concentration4concentration5

Please see my related posts:

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

Low Interest Rates and Business Investments : Update August 2017

Increasing Returns, Path Dependence, Circular and Cumulative Causation in Economics

Increasing Returns and Path Dependence in Economics

Business Investments and Low Interest Rates

Mergers and Acquisitions – Long Term Trends and Waves

 

Key Sources of Research:

Building a More Dynamic and Competitive Economy

Hamilton Project

Brookings

June 13, 2018

http://www.hamiltonproject.org/events/building_a_more_dynamic_and_competitive_economy

Video of the Opening Remarks and Fireside Chat – Robert Rubin, Jason Furman, Steve Case

The State of Competition and Dynamism:
Facts about Concentration, Start-Ups, and Related Policies

 

Jay Shambaugh, Ryan Nunn, Audrey Breitwieser, and Patrick Liu

Brookings/Hamilton Project

June 2018

 

Click to access ES_THP_20180611_CompetitionFacts_20180611.pdf

 

 

 

Market Concentration

OECD Hearing on Market Concentration

June 7-8, 2018

http://www.oecd.org/daf/competition/market-concentration.htm

 

 

 

Market Concentration Issues paper by the Secretariat

6-8 June 2018

OECD

 

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WD(2018)46&docLanguage=En

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WD(2018)67&docLanguage=En

 

 

 

Presented by the Business at OECD (BIAC) Competition Committee to the OECD Competition Committee

Market Concentration

June 7, 2018

 

Click to access BIAC_CC_Market-Concentration_2018-05-22_FINAL1.pdf

 

 

 

 

 

Chapter VI

MARKET POWER AND INEQUALITY: THE REVENGE OF THE RENTIERS

Trade and Development Report 2017

UNCTAD

 

Click to access tdr2017ch6_en.pdf

 

 

The fall and rise of market power in Europe∗

John P. Wechea,b & Achim Wambacha

 

Click to access dp18003.pdf

 

 

 

A policy at peace with itself: Antitrust remedies for our concentrated, uncompetitive economy

William A. Galston and Clara Hendrickson

2018

https://www.brookings.edu/research/a-policy-at-peace-with-itself-antitrust-remedies-for-our-concentrated-uncompetitive-economy/

 

 

 

 

The Rise of Market Power and the Macroeconomic Implications

Jan De Loecker, Jan Eeckhout

Issued in August 2017

http://www.nber.org/papers/w23687

 

 

 

 

This chart highlights the rise of corporate giants

WEF

2018

https://www.weforum.org/agenda/2018/06/chart-of-the-week-the-rise-of-corporate-giants

 

 

 

Market power in the U.S. economy today

 

https://equitablegrowth.org/market-power-in-the-u-s-economy-today/

 

 

 

Is Lack of Competition Strangling the U.S. Economy?

David Wessel

https://hbr.org/2018/03/is-lack-of-competition-strangling-the-u-s-economy

 

 

 

Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University

July 2018

http://sites.bu.edu/tpri/news-and-events/competition-conference-2018/

 

 

 

Declining Competition and Investment in the U.S.

Germán Gutiérrez† and Thomas Philippon‡

November 2017

https://www.aeaweb.org/conference/2018/preliminary/paper/iDeysKkh

 

 

Should We Really Care About Inequality?

https://www.project-syndicate.org/videos/should-we-really-care-about-inequality

 

 

 

 

Beyond Antitrust: The Role of Competition Policy in Promoting Inclusive Growth

Jason Furman

Chairman, Council of Economic Advisers

Searle Center Conference on Antitrust Economics and Competition Policy Chicago, IL

September 16, 2016

 

Click to access 20160916_searle_conference_competition_furman_cea.pdf

 

 

POWERLESS: How Lax Antitrust and Concentrated Market Power
Rig the Economy Against American Workers, Consumers, and Communities

Roosvelt Institute

Click to access Powerless.pdf

 

 

 

Is Government the Problem or the Solution to U.S. Labor Market Challenges?

Jason Furman

2018

 

https://minneapolisfed.org/~/media/files/institute/conferences/2018-05/furman-slides.pdf?la=en

 

 

 

With Competition in Tatters, the Rip of Inequality widens

 

 

 

THE 2018 JOINT ECONOMIC REPORT

REPORT OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES

ON THE 2018 ECONOMIC REPORT OF THE PRESIDENT

 

Click to access CRPT-115hrpt596.pdf

 

 

 

 

Concentration not competition: the state of UK consumer markets

2017

 

Click to access Concentration-not-competition.pdf

 

 

 

CORPORATE RENT-SEEKING, MARKET POWER AND INEQUALITY:
TIME FOR A MULTILATERAL TRUST BUSTER?

UNCTAD

May 2018

 

Click to access presspb2018d3_en.pdf

 

 

 

America’s Superstar Companies Are a Drag on Growth

Lack of competition lets them gouge consumers, underpay workers and invest too little.

 

https://www.bloomberg.com/view/articles/2017-09-01/america-s-superstar-companies-are-a-drag-on-growth

 

 

 

Big Companies Are Getting a Chokehold on the Economy

Even Goldman Sachs is worried that they’re stifling competition, holding down wages and weighing on growth.

https://www.bloomberg.com/view/articles/2018-02-22/big-companies-gaining-monopoly-power-pose-risk-to-u-s-economy

 

 

 

Monopolies May Be Worse for Workers Than for Consumers

There isn’t much evidence that they raise prices, but they do seem to hold down wages.

https://www.bloomberg.com/view/articles/2017-12-29/monopolies-may-be-worse-for-workers-than-for-consumers

 

 

 

 

LABOR MARKET CONCENTRATION

José Azar
Ioana Marinescu Marshall I. Steinbaum

2017 December

 

Click to access w24147.pdf

 

 

 

 

More and more companies have monopoly power over workers’ wages. That’s killing the economy.

The trend can explain slow growth, “missing” workers, and stagnant salaries.

 

https://www.vox.com/the-big-idea/2018/4/6/17204808/wages-employers-workers-monopsony-growth-stagnation-inequality

 

Antitrust Remedies for Labor Market Power

Suresh Naidu

Eric A. Posner

E. Glen Weyl

 

Date Written: February 23, 2018

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3129221

 

 

Policy Implications of Sustained Low Productivity Growth – Panel 4

Jason Furman / Larry Summers

Peterson Institute for International Economics

November 2017

https://piie.com/events/policy-implications-sustained-low-productivity-growth

Presentation by jason Furman

Click to access 4-1furman20171109ppt.pdf

Paper by Jason Furman – published June 2018

Click to access wp18-4.pdf

Panel 4 Video:

 

Boundaries and Networks

Boundaries and Networks

 

Boundaries precede Networks.

It is the difference which makes the difference.

Boundaries in

  • Regionalism, Globalization, Multinational Firms (Trade/Economics)
  • Social Networks Theory/Relational Sociology (Sociology)
  • Complex Systems Theory – Micro/Macro Links (System Sciences)
  • Autocatalysis, Autopoiesis and Relational Biology (Biology)
  • System and Its Environment (Strategic Planning/Management)
  • Functional Silos (Supply Chain Management/Operations Management)
  • Individual and the Collective (Philosophy)
  • Self, Nature, Culture (Meta Integral Theories – Ken Wilber/Roy Bhaskar)
  • Fractal/Recursive/Holographic Paradigm (Cosmology)

 

 

Key Terms:

  • Order
  • Class
  • Identity
  • Culture
  • Meaning
  • Difference
  • Boundaries
  • Networks
  • Hierarchies
  • Heterarchy
  • Control
  • Power
  • System/Environment
  • Inside/Outside
  • Interior/Exterior
  • Included/Excluded
  • Multi-Level
  • Fractals
  • Scale
  • Multiplex
  • Ties
  • Chains
  • Silos
  • Connections
  • Links
  • Netchains
  • Operational Closure
  • Inequality
  • Information Asymmetry
  • Categories
  • Domain
  • Social Structure
  • Interaction
  • Interlocks
  • Institutions
  • Memory
  • Agency
  • Limits
  • Relational
  • Intra/Inter
  • Process
  • Subjective/Objective

 

Chapter 2
The Relational Turn in Social Sciences

Recent times have witnessed relational sociology, as arguably the major form of relational scholarship, gain considerable scholarly momentum. There is a forthcoming major handbook (Dépelteau, 2018), significant edited collections such as Conceptualizing relational sociology (Powell & Dépelteau, 2013), Applying relational sociology (Dépelteau & Powell, 2013), and in the broader leadership literatures Advancing relational leadership research (Uhl-Bien & Ospina, 2012).  In addition, there have been key texts from Crossley (2011), the work of Donati (1983, 1991, 2011) has become more accessible in English (to which he thanks Margaret Archer for, stating she “greatly encouraged and assisted me in presenting my theory to an international audience (Donati, 2011, p. xvii)), and – although less engaged with by English-speaking audiences—Bajoit’s (1992) Pour une sociologie relationnelle.

The Canadian Sociological Association has established a research cluster for relational sociology, with regular symposia, meetings, and events. Significantly, in 2015 the International Review of Sociology/ Revue Internationale de Sociolgie published a special section on relational sociology. Edited by Prandini (2015) and with contributions from Crossley (2015), Dépelteau (2015), Donati (2015), and Fuhse (2015), this special section sought to ascertain whether an original and international sociological paradigm entitled “relational sociology” could be identified. Prandini (2015) argues:

A new and original social paradigm is recognizable only if it accedes to the world stage of the global scientific system constituted and structured by networks of scientific scholars, scientific contributions published in scientific journals, books, internet sites, etc., fueled by a vast array of international meetings, seminars, conferences, and so on. It is only at this global level that we can decide if a new paradigm is gaining a global stage or not. Put in other words: are we really witnessing a new and emergent sociological ‘school’, or are we observing only a sort of ‘esprit du temp’ which is able to catalyse similar intuitions and sociological insights? (pp. 1–2)

At the end of his paper, Prandini (2015) contends that there is less a paradigm (in its precise Kuhnian meaning) and instead it is better to speak of a “relational turn” in sociology. Built on a strong and clear convergence toward a common critique of classic sociological theories, it is possibly the early stages of an emerging paradigm but such a label is currently premature. The real breakthrough of this turn is in forcing social scientists to specify “accurately the ontology of society and social relation and to discover new methods and research techniques well suited to study it” (Prandini, 2015, p. 13).

Relational theory is, as Emirbayer (1997) declares, beyond any one disciplinary background, national tradition, or analytic and empirical point of view. Outside of the major centers of Europe and the USA, Yanjie Bian hosted the International Conference on Relational Sociology at the Institute for Empirical Social Science of Xi’an Jiaotong University, and Jan Fuhse hosted the international symposium Relational Sociology: Transatlantic Impulses for the Social Sciences at Humboldt University of Berlin. Donati (2011) claims that interest in social relations can be found in philosophy (from the metaphysical point of view), psychology (from the psychic point of view), economics (from the resource perspective), law (control by rule), and even biology (bioethics). The interest is also not limited to the social sciences, with Bradbury and Lichtenstein (2000) noting:

The interdependent, interrelated nature of the world has also been discovered by physicists in their study of quantum reality. In their quest to identify the basic building blocks of the natural world, quantum physicists found that atomic particles appeared more as relations than as discrete objects (Capra 1975; Wolf 1980), and that space itself is not empty but is filled with potential (Bohm 1988). Heisenberg’s discovery early this century that every observation irrevocably changes the object being observed, further fueled the recognition that human consciousness plays an irreversible role in our understanding of reality (Bachelard, 1934/1984; Wilber 1982; Jahn & Dunne 1987). (p. 552)

Apart from its widespread contemporary appeal, relational thinking has a long history. The North American stream arguably finds its roots in the New York School, European scholars such as Karl Marx, Georg Simmel, Gabriel Tarde, Norbert Elias, Niklas Luhmann, Pierre Bourdieu, Bruno Latour, among others, have long argued for various relational approaches (even if not using that label), and Emirbayer traces the tradition of privileging relations rather than substances to pre-Socratic Greek philosopher Heraclitus. What is consistently germane across these various scholars is a critique of substantialism in classic sociological accounts. This also arguably speaks to the proliferation of relational scholarship in the past few decades as globalized forces are causing a rethink of spatio-temporal conditions (e.g., the nation state and geographic borders). In breaking down the substantialist approaches, and their underlying analytical dualisms, relational scholarship asks questions of the ontological and epistemological as much as the empirical.

Contemporary thought and analysis in social theory is overrun with “turns.” In this chapter, rather than be seduced by contemporary attention to a relational turn in the social sciences, I seek to highlight some major events, trajectories, or streams of relational thought. In doing so, I am critically aware of the difficulty of arguing for relational understanding and then constructing significant events as though they are entities in and of their own right. Within the confines of a single chapter, and mindful of the role that this chapter is playing the book (e.g., setting some context/trajectory for developing my argument), my goal is to cite key developments and how they relate to one another and my argument. Given my particular interest in organizing activity, my focus is on the Human Relations Movement of the early twentieth century, the New York School of relational sociology, and then contemporary developments in sociology, leadership, and to a lesser extent, the natural sciences. While I concede that there is increasing interest in what has come to be known as “relational sociology” (see also the following chapter), relational scholarship has a long and diverse intellectual history. Importantly though, as Powell and Dépelteau (2013) note, relational sociology is not a heterogeneous label and as a collection of scholars, is still quite some way from achieving any form of  consensus. Whether consensus is required, or even desirable, for relational scholarship is questionable. The diversity of ontological and methodological starting points allows scholars to investigate a wide range of phenomena. This diversity, complexity, depth, and vitality enable dialogue and debate without requiring consensus. What binds them together is their scholarly focus on relations rather than alignment with a specific empirical object and/or method of inquiry

 

CALL FOR PAPERS

The Relational Turn in Sociology: Implications for the Study of Society, Culture, and Persons

Special issue of the academic journal Stan Rzeczy [State of Affairs]

The relational approach, which has a long tradition, has re-emerged and strengthened, forming a new, vital movement of divergent variants in sociology. Initiated and systematically developed by Pierpaolo Donati, it has grown into what is called the Italian relational turn, later followed by a proliferation of relational sociologies of various origins, including the works of Harrison C. White, Charles Tilly, Mustafa Emirbayer, Pierre Bourdieu and others. After the postmodern diffusion and beyond the stagnation of interpretative against normative conceptualizations of social life, relational sociology offers new conceptual tools and plays a leading role in reconstructing sociology both on theoretical and applied planes.

Modern sciences are founded on the study of relations, rather than essences or substances. From the outset, the relational approach has had to pave its way in sociology against holistic (“science of society”) and nominalistic (“science of individuals”) orientations. Social relations are among the key sociological concepts and have been studied as constitutive for social bonding. On the micro-level, interpersonal relations have been in the center of attention in the area where sociology and social psychology overlap. The relational turn consists not only of focusing on social relations; it also involves introducing relational categories of analysis.

The category of social relations is certainly not new in social theory. What is new is the way of looking at them. Contemporary relational thinking assumes radical changes in the ontological, epistemological, and phenomenological status of social relations. Refocusing on social relations, on their constitution and emergent effects leads us to a new way of describing, understanding and explaining social and cultural phenomena as relational facts.

A particularly significant feature of relational sociology resides in its capacity to broaden the theory of the human subject not only as a self, agent, and actor, but also through the development of the concept of the person; more precisely, through deeper research on the relational constitution of the human person as a social subject emerging from relational reflexivity (dialogue between ‘I’, ‘Me’, ‘We’, ‘You’ in a situated social context) – in other words, a view of the human person as homo relatus. Analyzing these processes leads to a sui generis relational theory of agency.

Various or divergent theories of contemporary social and cultural processes evoke relationality, but relational analysis differs from “relationistic” positions. Most existing approaches, both historical and modern, cannot be considered relational sociology in a true sense unless the social relation is conceived as a reality sui generis and society is conceptualized as a network of social relations.

“Turn” refers to a gradual transformation of the field of scientific theories, rather than to a scientific revolution. Several characteristic features of a “turn” appear to correspond well with significant traits of the relational turn: an epistemological rupture, which is brought about by introducing an innovative vocabulary that opens up new analytic perspectives;  an attempt to reconstruct the scientific domains of knowledge under conditions of their growing fragmentation; introduction of a novel perspective that shows existing knowledge in a new light; moving on from the research object to the category of analysis. These are the features of a genuine new intellectual movement that enters into debates and polemics, particularly as regards various ways of understanding relations and relationality.

The synergetic effect of a creative exchange of ideas between the founders of theories that have been independently pursued – the relational theory of society developed by Pierpaolo Donati and the theory of morphogenic society, developed on the basis of critical realism by Margaret S. Archer – proves particularly fruitful for the study of the after-modern and the new possibilities of a morphogenic society, in which the challenge of re-articulating social relations remains of central importance.

The aim of this special issue is to reflect upon the innovative potential of contemporary relational theorizing of society, culture, and persons and to go beyond superficial statements on relational sociology by addressing these issues through in-depth investigations. We invite authors to take on problems of relational sociology by discussing its main assumptions, by conceptual clarifications, by re-articulating the concepts pertinent to understanding social phenomena in relational terms, and by empirical studies guided by methodological rules of relational analysis.

http://www.stanrzeczy.edu.pl

 

 

Please see my related posts:

Boundary Spanning in Multinational and Transnational Corporations

Relational Turn in Economic Geography

Networks and Hierarchies

Boundaries and Relational Sociology

Autocatalysis, Autopoiesis and Relational Biology

Society as Communication: Social Systems Theory of Niklas Luhmann

Art of Long View: Future, Uncertainty and Scenario Planning

 

Key Sources of Research:

 

 

BOUNDARIES/NETWORKS

Chapter of Book ME++

Click to access 9780262633130_sch_0001.pdf

 

 


Relational Sociology: Transatlantic Impulses for the Social Sciences

International Symposium, Berlin, September 25/26, 2008

http://www.relational-sociology.de

 

 

 

Symposium on Relational Sociology

https://sozlog.wordpress.com/2008/09/29/symposion-on-relational-sociology/

 

Relational sociology

https://en.wikipedia.org/wiki/Relational_sociology

 

 

 

Networks and Boundaries

Athanasios Karafillidis

RWTH Aachen University
Correspondence: atha@karafillidis.com

Paper presented at the International Symposium
„Relational Sociology: Transatlantic Impulses for the Social Sciences“,
Berlin,

September 25-26, 2008

Click to access Netbound.pdf

 

 

Theorising Borders as Mechanisms of Connection

Anthony Cooper

Click to access 2013cooperaphd.pdf

 

 

Boundaries, Hierarchies and Networks in Complex Systems

PAUL CILLIERS

2001

Click to access Cilliers-2001-Boundaries-Hierarchies-and-Networks.pdf

 

Fractal Boundaries of Complex Networks

Jia Shao, Sergey V. Buldyrev, Reuven Cohen
Maksim Kitsak1, Shlomo Havlin, and H. Eugene Stanley

Click to access boundaries.pdf

 

Rethinking the Financial Network

Speech given by
Andrew G Haldane, Executive Director, Financial Stability, Bank of England

At the Financial Student Association, Amsterdam

28 April 2009

Click to access speech386.pdf

 

 

 

Knowledge, limits and boundaries

Paul Cilliers

Click to access cilliers%202005%20knowledge%20limits.pdf

 

 

On the Status of Boundaries, both Natural and Organizational: A Complex Systems Perspective

Kurt A. Richardson & Michael R. Lissack

Click to access 6b5711dc6782e451ad32078b799cd487cb3b.pdf

Exploring System Boundaries: Complexity Theory and Legal Autopoiesis

Thomas Edward Webb

Click to access T.E._Webb_Exploring_System_Boundaries_accepted_version_.pdf

 

 

The Role of Leaders in Managing Organisation Boundaries

Click to access v10286-012-0001-0.pdf

 

 

 

Managing Boundary Spanning Elements: An Introduction

Sunil Sahadev, Keyoor Purani, and Neeru Malhotra

https://www.researchgate.net/profile/Michel_Rod/publication/272733714_Sahadev_S_Purani_K_and_Malhotra_N_eds_Boundary_Spanning_Elements_and_the_Marketing_Function_in_Organizations_Springer/links/5566139008aec22682ff167f/Sahadev-S-Purani-K-and-Malhotra-N-eds-Boundary-Spanning-Elements-and-the-Marketing-Function-in-Organizations-Springer.pdf#page=8

 

 

 

 

Boundary-Spanning in Organizations: Network, Influence and Conflict

Edited by Janice Langan Fox, Cary Cooper

 

https://www.routledge.com/Boundary-Spanning-in-Organizations-Network-Influence-and-Conflict/Langan-Fox-Cooper/p/book/9780415628839

A Borderless World and Nationless Firms?

Click to access prism_chapter.pdf

 

 

 

 

ADAPTATION AND THE BOUNDARY OF MULTINATIONAL FIRMS

Arnaud Costinot
Lindsay Oldenski
James E. Rauch

January 2009

Click to access w14668.pdf

http://economics.mit.edu/files/6456

 

The Boundaries of Multinational Enterprises and the Theory of International Trade

James R. Markusen

http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.2.169

 

Incomplete Contracts and the Boundaries of the Multinational Firm

Nathan Nunn

Daniel Trefler§

June 2008

Click to access NunnTreflerPaper.pdf

 

 

Complexity and Philosophy

Francis HEYLIGHEN

Paul CILLIERS,

Carlos GERSHENSON

Click to access 0604072.pdf

 

 

 

Complexity, Deconstruction and Relativism

Paul Cilliers

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.466.6144&rep=rep1&type=pdf

Click to access The_importance_of_a_certain_slowness.pdf

 

 

Towards an Economy of Complexity: Derrida, Morin and Bataille

Oliver Human

Stellenbosch University, South Africa

Paul Cilliers

Click to access Human_Complexity.pdf

 

 

 

The architecture of complexity

Herbert Simon

Click to access Thearchitectureofcomplexity.pdf

 

 

 

 

Complexity and postmodernism

Understanding complex systems

Paul Cilliers

Click to access Paul-Cilliers-Complexity-and-Postmodernism-Understanding-Complex-Systems-1998.pdf

 

 

Complexity, Difference and Identity
An Ethical Perspective

Paul Cilliers, Rika Preiser (Eds.)

http://www.springer.com/us/book/9789048191864

 

Introduction to Critical Complexity. Collected Essays by Paul Cilliers

Click to access Introduction-to-Critical-Complexity-Collected-Essays-by-Paul-Cilliers.pdf

 

 

Chapter 2
The Relational Turn in Social Sciences

Beyond Leadership
A Relational Approach to Organizational Theory in Education

Authors: Eacott, Scott

http://www.springer.com/us/book/9789811065675

http://scotteacott.com/reading-list/

 

 

Relational Sociology: A New Paradigm for the Social Sciences

By Pierpaolo Donati

 

 

 

Conceptualizing Relational Sociology: Ontological and Theoretical Issues

edited by C. Powell, F. Dépelteau

 

Applying Relational Sociology: Relations, Networks, and Society,

edited by Francçois Depélteau and Christopher Powell.
Hampshire, UK: Palgrave Macmillan,

 

 

 

Birth and development of the relational theory of society:
a journey looking for a deep ‘relational sociology

Click to access donati_birth_and_development_of_the_relational_theory_of_society.pdf

 

 

 

Beyond the Manifesto: Mustafa Emirbayer and Relational Sociology

Lily Liang Sida Liu

Click to access Working-Paper-2017-02.pdf

 

 

 

 

Towards Relational Sociology

By Nick Crossley

 

 

 

 

Manifesto for a Relational Sociology

Mustafa Emirbayer

The American Journal of Sociology, Vol. 103, No. 2. (Sep., 1997), pp. 281-317

Click to access Mustafa%20Emirbayer_Manifesto%20for%20a%20Relational%20Sociology.pdf

 

 

 

TOWARDS A CONCEPTUALIZATION OF BORDER: THE CENTRAL EUROPEAN EXPERIENCE

by Josef Langer (Klagenfurt)

Click to access JLanger3.pdf

 

 

 

 

THE STUDY OF BOUNDARIES IN THE SOCIAL SCIENCES

Michele Lamont and Vira ́g Molnar

Click to access m.lamont-v.molnar-the_study_of_boundaries.pdf

 

 

 

Beyond “the relationship between the individual and society”: broadening and deepening relational thinking in group analysis

Sasha Roseneil

Click to access 11305548.pdf

 

 

 

The Relational Turn in Sociology: Implications for the Study of Society, Culture, and Persons

Special issue of the academic journal Stan Rzeczy [State of Affairs]

https://calenda.org/385129?file=1

Click to access relational_turn_speakers.pdf

 

 

NETWORKS IN THE SOCIAL SCIENCES: COMPARING ACTOR-NETWORK THEORY AND SOCIAL NETWORK ANALYSIS

LILLA VICSEK1 – GÁBOR KIRÁLY – HANNA KÓNYA

On Inequality of Wealth and Income – Causes and Consequences

 On Inequality of Wealth and Income – Causes and Consequences

 

Disparity in Wealth and Income of American workers/household is a hot public policy/economic/social/political issue.

  • Wealth (Stock)
  • Income (Flow)

what are the causes and consequences of Inequality on economics and society?

 

From TRENDS IN INCOME INEQUALITY AND ITS IMPACT ON ECONOMIC GROWTH (OECD)

The disparity in the distribution of household incomes has been rising over the past three decades in a vast majority of OECD countries and such long-term trend was interrupted only temporarily in the first years of the Great Recession. Addressing these trends has moved to the top of the policy agenda in many countries. This is partly due to worries that a persistently unbalanced sharing of the growth dividend will result in social resentment, fuelling populist and protectionist sentiments, and leading to political instability. Recent discussions, particularly in the US, about increased inequality being one possible cause of the 2008 financial crisis also contributed to its relevance for policy making. But another growing reason for the strong interest of policy makers in inequality is concern about whether the cumulatively large and sometimes rapid increase in inequality might have an effect on economic growth and on the pace of exit from the current recession. Is inequality a pre-requisite for growth? Or does a greater dispersion of incomes across individuals rather undermine growth? And which are the short and long-term consequences of redistributive policies on growth?

From Causes and Consequences of Income Inequality: A Global Perspective (IMF)

Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Against this background, the objective of this paper is two-fold.

First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.

Second, we investigate what explains the divergent trends in inequality developments across advanced economies and EMDCs, with a particular focus on the poor and the middle class. While most existing studies have focused on advanced countries and looked at the drivers of the Gini coefficient and the income of the rich, this study explores a more diverse group of countries and pays particular attention to the income shares of the poor and the middle class—the main engines of growth. Our analysis suggests that

  • Technological progress and the resulting rise in the skill premium (positives for growth and productivity) and the decline of some labor market institutions have contributed to inequality in both advanced economies and EMDCs. Globalization has played a smaller but reinforcing role. Interestingly, we find that rising skill premium is associated with widening income disparities in advanced countries, while financial deepening is associated with rising inequality in EMDCs, suggesting scope for policies that promote financial inclusion.

  • Policies that focus on the poor and the middle class can mitigate inequality. Irrespective of the level of economic development, better access to education and health care and well-targeted social policies, while ensuring that labor market institutions do not excessively penalize the poor, can help raise the income share for the poor and the middle class.

  • There is no one-size-fits-all approach to tackling inequality. The nature of appropriate policies depends on the underlying drivers and country-specific policy and institutional settings. In advanced economies, policies should focus on reforms to increase human capital and skills, coupled with making tax systems more progressive. In EMDCs, ensuring financial deepening is accompanied with greater financial inclusion and creating incentives for lowering informality would be important. More generally, complementarities between growth and income equalityobjectives suggest that policies aimed at raising average living standards can also influence the distribution of income and ensure a more inclusive prosperity.

From World changes in inequality: an overview of facts, causes, consequences and policies (BIS)

Public concern about inequality has grown substantially in recent years. Politicians and journalists descant with increasing frequency on the increase in inequality as a threat to social stability, laying the blame on globalisation and its attendant so-called neo-liberal policies. There is certainly much truth in such views. However, the lack of rigour in the public debate is striking, and one may doubt whether a constructive discussion of inequality, its causes and its economic, social and political consequences can take place without more clarity. Is it really the case that inequality is everywhere increasing more or less continuously, as actually seems to be happening in the United States? What type of inequality are we talking about: earnings, market income, household disposable income per consumption unit, wealth? What matters most: the inequality of opportunity or the inequality of economic outcome, including income? What kind of measure should be used? The recently highly publicised share of the top 5, 1.1% taken from tax data may not evolve in the same way as the familiar Gini coefficient defined on disposable incomes. And, then, what is known about the nature of the unequalising forces that seem to affect our economies and what tools might be available to counteract them?

In an international survey conducted in 2010, people were asked how they thought inequality had changed over the previous 10 years.1 In few countries was the perception of inequality trends in agreement with what could be observed from standard statistical sources about inequality. US citizens felt inequality had remained the same, whereas it was surging by most accounts, Brazilians found it was also increasing despite the fact that, for the first time in over 40 years, inequality was declining, while French and Dutch people thought that inequality had increased although the usual inequality coefficients were remarkably stable.

Good policies must rely on precise diagnostics. It is the purpose of this paper to take stock of what is known at this stage about the evolution of inequality around the world. In so doing, it will be shown that an ever-increasing degree of inequality at all times and everywhere over the last 30 years is far from the reality, and that there is a high degree of specificity across countries. In turn, this suggests that the combination of equalising and unequalising forces may be quite different from one country to another. Some factors may be common and truly global but others may be country-specific, the outcome being quite variable across countries. It also follows that tools to correct inequality, if need be, may have to differ in nature depending on the causes of increased inequality.

Tackling all these issues in depth is beyond the scope of this paper. My aim is only to offer an overview of what is observed and the main ideas being debated in the field of economic inequality. The paper is organised as follows. It starts with a quick “tour d‘horizon“ of the evidence for the evolution of various dimensions of economic inequality. It then tackles the issue of the potential causes, identifying what may be seen as common to most countries and what may be specific. Finally, it touches upon the consequences of excessive inequality and the tools available to counter it, emphasising the rising constraints imposed by globalisation.

Causes of Inequality

  • Shareholder Capitalism
  • Focus on Cost Minimization
  • Focus on ROIC and Economic Value Added (EVA)
  • Consolidation – Mergers and Acquisitions
  • Free Trade Agreements – NAFTA
  • Increased Outsourcing
  • Global Commodity Chains
  • Global Production Networks
  • Global Value Chains
  • Lack of Educated Workforce
  • Lack of protection for Low income earners
  • Compensation for Executives vs Labor
  • Unemployment, Underemployment
  • Value of High Skilled Technical Workers
  • Technological Change
  • Skills Obsolescence

Consequences of Inequality

  • Impact on Effective Demand
  • Slows Economic Growth
  • Decreased Economic Mobility
  • Health and Social effects
  • Living Standards at the Bottom (Poverty)
  • Intergenerational Mobility
  • Democratic Process and Social Justice
  • Reduced Consumption
  • Financial Crisis
  • Social Cohesion
  • Global Imbalances
  • Hampers Poverty reduction
  • Access to Health services
  • Access to Financial Services
  • Access to Education

 

Key Sources of Research:

 

The Age of Inequality

Edited by Jeremy Gantz

2017

 

 

The Price of Inequality

Joseph Stiglitz

2012

A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Jason Furman

Peter Orszag

October 16, 2015

http://gabriel-zucman.eu/files/teaching/FurmanOrszag15.pdf

Firming Up Inequality

Jae Song, David J. Price Fatih Guvenen, Nicholas Bloom

2015

http://eprints.lse.ac.uk/62587/1/dp1354.pdf

 

 

 TOWARDS A BROADER VIEW OF COMPETITION POLICY

 

Joseph E. Stiglitz

University Professor, Columbia University,

Chief Economist at the Roosevelt Institute

June 2017

https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/Towards%20a%20Broader%20View%20of%20Competition%20Policy_0.pdf

 

 

ACCOUNTING FOR RISING CORPORATE PROFITS: INTANGIBLES OR REGULATORY RENTS?

Boston University School of Law
Law & Economics Working Paper No. 16-18

November 9, 2016

https://www.bu.edu/law/files/2016/11/Accounting-for-Rising-Corporate-Profits.pdf

Inequality: Facts, Explanations, and Policies

Jason Furman
Chairman, Council of Economic Advisers

City College of New York New York, NY

October 17, 2016

https://obamawhitehouse.archives.gov/sites/default/files/page/files/20161017_furman_ccny_inequality_cea.pdf

Domestic Outsourcing, Rent Seeking, and Increasing Inequality

 Eileen Appelbaum

First Published July 21, 2017

http://journals.sagepub.com/doi/abs/10.1177/0486613417697121

 

Global Concentration and the Rise of China

Caroline Freund and Dario Sidhu

Peterson Institute for International Economics

http://econ.au.dk/fileadmin/Economics_Business/Research/Seminars/2016/Global_Concentration_Final.pdf

How Could Wage Inequality within and Across Enterprises Be Reduced?

Columbia Business School Research Paper No. 17-62

Posted: 10 Jun 2017 Last revised: 17 Aug 2017

Christian Moser

Columbia University

Date Written: December 15, 2016

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2983691

 

 

 

The Fall of the Labor Share and the Rise of Superstar Firms

David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, John Van Reenen

NBER Working Paper No. 23396
Issued in May 2017

http://www.nber.org/papers/w23396

Inequality: A Hidden Cost of Market Power

Posted: 29 Mar 2017 Last revised: 31 Mar 2017

Sean F. Ennis  Pedro Gonzaga  Chris Pike

Organization for Economic Co-Operation and Development (OECD) – Competition Division

Date Written: March 6, 2017

https://papers.ssrn.com/Sol3/papers.cfm?abstract_id=2942791

 

 

Wealth and Income Inequality in the Twenty-First Century

Joseph E. Stiglitz
International Economic Association World Congress
Mexico City
June 2017

https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/Wealth%20and%20Income%20Inequality%2021st%20Century.pdf

 

 

The Globalization of Production and Income Inequality in Rich Democracies

Matthew C Mahutga
Anthony Roberts
Ronald Kwon

Social Forces, Volume 96, Issue 1, 1 September 2017, Pages 181–214,

 

INCOME AND WEALTH INEQUALITY: EVIDENCE AND POLICY IMPLICATIONS

EMMANUEL SAEZ

Contemporary Economic Policy

Vol. 35, No. 1, January 2017, 7–25
Online Early publication October 14, 2016

 

https://eml.berkeley.edu/~saez/SaezCEP2017.pdf

 

 

Consequences of Rising Income Inequality

BY KEVIN J. LANSING AND AGNIESZKA MARKIEWICZ

October 17, 2016

Economic Research Department of the Federal Reserve Bank of San Francisco.

 

http://www.frbsf.org/economic-research/files/el2016-31.pdf

 

 

 

Top Incomes, Rising Inequality, and Welfare

Kevin J. Lansing
Federal Reserve Bank of San Francisco

Agnieszka Markiewicz

June 2016

http://www.frbsf.org/economic-research/files/wp12-23bk.pdf

 

 

Causes and Consequences of Income Inequality: A Global Perspective

Era Dabla-Norris, Kalpana Kochhar, Frantisek Ricka, Nujin Suphaphiphat, and Evridiki Tsounta
(with contributions from Preya Sharma and Veronique Salins)

IMF

June 2015

https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf

 

 

Piketty, Thomas. 2014.

Capital in the Twenty-First Century.

Cambridge, MA: Harvard University Press.

 

 

Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007

Edward N. Wolff

Levy Economics Institute of Bard College

March 2010

http://www.levyinstitute.org/pubs/wp_589.pdf

 

 

 

CONSUMPTION AND INCOME INEQUALITY IN THE U.S. SINCE THE 1960S

Bruce D. Meyer James X. Sullivan

NATIONAL BUREAU OF ECONOMIC RESEARCH

August 2017

http://www.nber.org/papers/w23655.pdf

 

 

Top Income Inequality in the 21st Century: Some Cautionary Notes

Fatih Guvenen Greg Kaplan

April 2, 2017

https://gregkaplan.uchicago.edu/sites/gregkaplan.uchicago.edu/files/uploads/top_income_inequality_web_April2_2017.pdf

 

FIFTY YEARS OF GROWTH IN AMERICAN CONSUMPTION, INCOME, AND WAGES

Bruce Sacerdote

May 16, 2017

http://www.dartmouth.edu/~bsacerdo/Sacerdote%2050%20Years%20of%20Growth%20in%20American%20Wages%20Income%20and%20Consumption%20May%202017.pdf

http://www.nber.org/papers/w23292.pdf

 

 

The Inequality Puzzle

BY LAWRENCE H. SUMMERS

 

http://democracyjournal.org/magazine/33/the-inequality-puzzle/

 

 

 

 GLOBAL INEQUALITY DYNAMICS: NEW FINDINGS FROM WID.WORLD

Facundo Alvaredo Lucas Chancel Thomas Piketty Emmanuel Saez Gabriel Zucman

NATIONAL BUREAU OF ECONOMIC RESEARCH
February 2017, Revised April 2017

 

http://www.nber.org/papers/w23119.pdf

 

 

 

Power and inequality in the global political economy

NICOLA PHILLIPS

March 2017

https://academic.oup.com/ia/article-lookup/doi/10.1093/ia/iix019

 

 

 Outsourcing governance: states and the politics of a ‘global value chain world’

Frederick W. Mayer & Nicola Phillips

04 Jan 2017

 

http://www.tandfonline.com/doi/full/10.1080/13563467.2016.1273341

 

 

What’s caused the rise in income inequality in the US?

https://www.weforum.org/agenda/2015/05/whats-caused-the-rise-in-income-inequality-in-the-us/

Why are American Workers getting Poorer? China, Trade and Offshoring

Avraham Ebenstein, Ann Harrison, Margaret McMillan

NBER Working Paper No. 21027
Issued in March 2015

http://www.nber.org/papers/w21027

 

 

 

The Geography of Trade and Technology Shocks in the United States

David H. Autor, David Dorn, and Gordon H. Hanson

American Economic Review

May 2013

https://www.aeaweb.org/articles?id=10.1257/aer.103.3.220

 

Economic Consequences of Income Inequality

Jason Furman
Joseph E. Stiglitz

https://pdfs.semanticscholar.org/cee6/1573cd50b9c8eae3379cf1f1c92301f40927.pdf

 

Labor’s Declining Share of Income and Rising Inequality

https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2012-economic-commentaries/ec-201213-labors-declining-share-of-income-and-rising-inequality.aspx

 

 

World changes in inequality: an overview of facts, causes, consequences and policies

by François Bourguignon
Monetary and Economic Department
August 2017

BIS working paper

http://www.bis.org/publ/work654.pdf

“Trends in Income Inequality and its Impact on Economic Growth”

OECD Social, Employment and Migration Working Papers, No. 163

http://www.oecd.org/social/inequality.htm

http://www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-SEM-WP163.pdf

 

Causes of income inequality in the United States

https://en.wikipedia.org/wiki/Causes_of_income_inequality_in_the_United_States

 

Economic inequality

https://en.wikipedia.org/wiki/Economic_inequality

 

 

Income inequality in the United States

https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States

 

 

Redistribution, Inequality, and Growth

Prepared by Jonathan D. Ostry, Andrew Berg, Charalambos G. Tsangarides

 

April 2014

IMF

 

Click to access sdn1402.pdf

 

 

 

Understanding the Economic Impact of the H-1B Program on the U.S.

John Bound† Gaurav Khanna‡ Nicolas Morales§

April 20, 2017

 

Click to access c13842.pdf

Short term Thinking in Investment Decisions of Businesses and Financial Markets

Short term Thinking in Investment Decisions of Businesses and Financial Markets

 

When companies buyback shares and pay dividends rather than investing in new capacity, it leads to low economic growth and low aggregate demand.

Central Banks respond by cutting interest rates.  Yet Businesses do not invest in new capacity.

Many studies attribute this to short term thinking dominant in corporate investment decisions.  Pressures from shareholders push corporate managers to be short term oriented.

Many economists and thinkers have criticized this recently as advanced economies are suffering from anemic growth.

Larry Summers has invoked Secular Stagnation.  He says one of the reason for Secular Stagnation is short term thinking.

Andy Haldane of Bank of England has criticized short term thinking as it prevents investments and causes low economic growth.

Key Terms:

  • Quarterly Capitalism
  • Secular Stagnation
  • Short Term Thinking
  • Low Economic Growth
  • Business Investments
  • Real Interest Rates
  • Monetary Policy
  • Income and Wealth Inequality
  • Aggregate Demand
  • Productive Capacity
  • Productivity growth
  • Long Term Investments
  • Share Buybacks
  • Dividends
  • Corporate Cash Pools

 

Capitalism for the Long Term

The near meltdown of the financial system and the ensuing Great Recession have been, and will remain, the defining issue for the current generation of executives. Now that the worst seems to be behind us, it’s tempting to feel deep relief—and a strong desire to return to the comfort of business as usual. But that is simply not an option. In the past three years we’ve already seen a dramatic acceleration in the shifting balance of power between the developed West and the emerging East, a rise in populist politics and social stresses in a number of countries, and significant strains on global governance systems. As the fallout from the crisis continues, we’re likely to see increased geopolitical rivalries, new international security challenges, and rising tensions from trade, migration, and resource competition. For business leaders, however, the most consequential outcome of the crisis is the challenge to capitalism itself.

That challenge did not just arise in the wake of the Great Recession. Recall that trust in business hit historically low levels more than a decade ago. But the crisis and the surge in public antagonism it unleashed have exacerbated the friction between business and society. On top of anxiety about persistent problems such as rising income inequality, we now confront understandable anger over high unemployment, spiraling budget deficits, and a host of other issues. Governments feel pressure to reach ever deeper inside businesses to exert control and prevent another system-shattering event.

My goal here is not to offer yet another assessment of the actions policymakers have taken or will take as they try to help restart global growth. The audience I want to engage is my fellow business leaders. After all, much of what went awry before and after the crisis stemmed from failures of governance, decision making, and leadership within companies. These are failures we can and should address ourselves.

In an ongoing effort that started 18 months ago, I’ve met with more than 400 business and government leaders across the globe. Those conversations have reinforced my strong sense that, despite a certain amount of frustration on each side, the two groups share the belief that capitalism has been and can continue to be the greatest engine of prosperity ever devised—and that we will need it to be at the top of its job-creating, wealth-generating game in the years to come. At the same time, there is growing concern that if the fundamental issues revealed in the crisis remain unaddressed and the system fails again, the social contract between the capitalist system and the citizenry may truly rupture, with unpredictable but severely damaging results.

Most important, the dialogue has clarified for me the nature of the deep reform that I believe business must lead—nothing less than a shift from what I call quarterly capitalism to what might be referred to as long-term capitalism. (For a rough definition of “long term,” think of the time required to invest in and build a profitable new business, which McKinsey research suggests is at least five to seven years.) This shift is not just about persistently thinking and acting with a next-generation view—although that’s a key part of it. It’s about rewiring the fundamental ways we govern, manage, and lead corporations. It’s also about changing how we view business’s value and its role in society.

There are three essential elements of the shift. First, business and finance must jettison their short-term orientation and revamp incentives and structures in order to focus their organizations on the long term. Second, executives must infuse their organizations with the perspective that serving the interests of all major stakeholders—employees, suppliers, customers, creditors, communities, the environment—is not at odds with the goal of maximizing corporate value; on the contrary, it’s essential to achieving that goal. Third, public companies must cure the ills stemming from dispersed and disengaged ownership by bolstering boards’ ability to govern like owners.

When making major decisions, Asians typically think in terms of at least 10 to 15 years. In the U.S. and Europe, nearsightedness is the norm.

None of these ideas, or the specific proposals that follow, are new. What is new is the urgency of the challenge. Business leaders today face a choice: We can reform capitalism, or we can let capitalism be reformed for us, through political measures and the pressures of an angry public. The good news is that the reforms will not only increase trust in the system; they will also strengthen the system itself. They will unleash the innovation needed to tackle the world’s grand challenges, pave the way for a new era of shared prosperity, and restore public faith in business.

1. Fight the Tyranny of Short-Termism

As a Canadian who for 25 years has counseled business, public sector, and nonprofit leaders across the globe (I’ve lived in Toronto, Sydney, Seoul, Shanghai, and now London), I’ve had a privileged glimpse into different societies’ values and how leaders in various cultures think. In my view, the most striking difference between East and West is the time frame leaders consider when making major decisions. Asians typically think in terms of at least 10 to 15 years. For example, in my discussions with the South Korean president Lee Myung-bak shortly after his election in 2008, he asked us to help come up with a 60-year view of his country’s future (though we settled for producing a study called National Vision 2020.) In the U.S. and Europe, nearsightedness is the norm. I believe that having a long-term perspective is the competitive advantage of many Asian economies and businesses today.

Myopia plagues Western institutions in every sector. In business, the mania over quarterly earnings consumes extraordinary amounts of senior time and attention. Average CEO tenure has dropped from 10 to six years since 1995, even as the complexity and scale of firms have grown. In politics, democracies lurch from election to election, with candidates proffering dubious short-term panaceas while letting long-term woes in areas such as economic competitiveness, health, and education fester. Even philanthropy often exhibits a fetish for the short term and the new, with grantees expected to become self-sustaining in just a few years.

Lost in the frenzy is the notion that long-term thinking is essential for long-term success. Consider Toyota, whose journey to world-class manufacturing excellence was years in the making. Throughout the 1950s and 1960s it endured low to nonexistent sales in the U.S.—and it even stopped exporting altogether for one bleak four-year period—before finally emerging in the following decades as a global leader. Think of Hyundai, which experienced quality problems in the late 1990s but made a comeback by reengineering its cars for long-term value—a strategy exemplified by its unprecedented introduction, in 1999, of a 10-year car warranty. That radical move, viewed by some observers as a formula for disaster, helped Hyundai quadruple U.S. sales in three years and paved the way for its surprising entry into the luxury market.

To be sure, long-term perspectives can be found in the West as well. For example, in 1985, in the face of fierce Japanese competition, Intel famously decided to abandon its core business, memory chips, and focus on the then-emerging business of microprocessors. This “wrenching” decision was “nearly inconceivable” at the time, says Andy Grove, who was then the company’s president. Yet by making it, Intel emerged in a few years on top of a new multi-billion-dollar industry. Apple represents another case in point. The iPod, released in 2001, sold just 400,000 units in its first year, during which Apple’s share price fell by roughly 25%. But the board took the long view. By late 2009 the company had sold 220 million iPods—and revolutionized the music business.

It’s fair to say, however, that such stories are countercultural. In the 1970s the average holding period for U.S. equities was about seven years; now it’s more like seven months. According to a recent paper by Andrew Haldane, of the Bank of England, such churning has made markets far more volatile and produced yawning gaps between corporations’ market price and their actual value. Then there are the “hyperspeed” traders (some of whom hold stocks for only a few seconds), who now account for 70% of all U.S. equities trading, by one estimate. In response to these trends, executives must do a better job of filtering input, and should give more weight to the views of investors with a longer-term, buy-and-hold orientation.

If they don’t, short-term capital will beget short-term management through a natural chain of incentives and influence. If CEOs miss their quarterly earnings targets, some big investors agitate for their removal. As a result, CEOs and their top teams work overtime to meet those targets. The unintended upshot is that they manage for only a small portion of their firm’s value. When McKinsey’s finance experts deconstruct the value expectations embedded in share prices, we typically find that 70% to 90% of a company’s value is related to cash flows expected three or more years out. If the vast majority of most firms’ value depends on results more than three years from now, but management is preoccupied with what’s reportable three months from now, then capitalism has a problem.

Roughly 70% of all U.S. equities trading is now done by “hyperspeed” traders—some of whom hold stocks for only a few seconds.

Some rightly resist playing this game. Unilever, Coca-Cola, and Ford, to name just a few, have stopped issuing earnings guidance altogether. Google never did. IBM has created five-year road maps to encourage investors to focus more on whether it will reach its long-term earnings targets than on whether it exceeds or misses this quarter’s target by a few pennies. “I can easily make my numbers by cutting SG&A or R&D, but then we wouldn’t get the innovations we need,” IBM’s CEO, Sam Palmisano, told us recently. Mark Wiseman, executive vice president at the Canada Pension Plan Investment Board, advocates investing “for the next quarter century,” not the next quarter. And Warren Buffett has quipped that his ideal holding period is “forever.” Still, these remain admirable exceptions.

To break free of the tyranny of short-termism, we must start with those who provide capital. Taken together, pension funds, insurance companies, mutual funds, and sovereign wealth funds hold $65 trillion, or roughly 35% of the world’s financial assets. If these players focus too much attention on the short term, capitalism as a whole will, too.

In theory they shouldn’t, because the beneficiaries of these funds have an obvious interest in long-term value creation. But although today’s standard practices arose from the desire to have a defensible, measurable approach to portfolio management, they have ended up encouraging shortsightedness. Fund trustees, often advised by investment consultants, assess their money managers’ performance relative to benchmark indices and offer only short-term contracts. Those managers’ compensation is linked to the amount of assets they manage, which typically rises when short-term performance is strong. Not surprisingly, then, money managers focus on such performance—and pass this emphasis along to the companies in which they invest. And so it goes, on down the line.

Only 45% of those surveyed in the U.S. and the UK expressed trust in business. This stands in stark contrast to developing countries: For example, the figure is 61% in China, 70% in India, and 81% in Brazil.

As the stewardship advocate Simon Wong points out, under the current system pension funds deem an asset manager who returns 10% to have underperformed if the relevant benchmark index rises by 12%. Would it be unthinkable for institutional investors instead to live with absolute gains on the (perfectly healthy) order of 10%—especially if they like the approach that delivered those gains—and review performance every three or five years, instead of dropping the 10-percenter? Might these big funds set targets for the number of holdings and rates of turnover, at least within the “fundamental investing” portion of their portfolios, and more aggressively monitor those targets? More radically, might they end the practice of holding thousands of stocks and achieve the benefits of diversification with fewer than a hundred—thereby increasing their capacity to effectively engage with the businesses they own and improve long-term performance? Finally, could institutional investors beef up their internal skills and staff to better execute such an agenda? These are the kinds of questions we need to address if we want to align capital’s interests more closely with capitalism’s.

2. Serve Stakeholders, Enrich Shareholders

The second imperative for renewing capitalism is disseminating the idea that serving stakeholders is essential to maximizing corporate value. Too often these aims are presented as being in tension: You’re either a champion of shareholder value or you’re a fan of the stakeholders. This is a false choice.

The inspiration for shareholder-value maximization, an idea that took hold in the 1970s and 1980s, was reasonable: Without some overarching financial goal with which to guide and gauge a firm’s performance, critics feared, managers could divert corporate resources to serve their own interests rather than the owners’. In fact, in the absence of concrete targets, management might become an exercise in politics and stakeholder engagement an excuse for inefficiency. Although this thinking was quickly caricatured in popular culture as the doctrine of “greed is good,” and was further tarnished by some companies’ destructive practices in its name, in truth there was never any inherent tension between creating value and serving the interests of employees, suppliers, customers, creditors, communities, and the environment. Indeed, thoughtful advocates of value maximization have always insisted that it is long-term value that has to be maximized.

Capitalism’s founding philosopher voiced an even bolder aspiration. “All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries,” Adam Smith wrote in his 1759 work, The Theory of Moral Sentiments. “The wise and virtuous man,” he added, “is at all times willing that his own private interest should be sacrificed to the public interest,” should circumstances so demand.

Smith’s insight into the profound interdependence between business and society, and how that interdependence relates to long-term value creation, still reverberates. In 2008 and again in 2010, McKinsey surveyed nearly 2,000 executives and investors; more than 75% said that environmental, social, and governance (ESG) initiatives create corporate value in the long term. Companies that bring a real stakeholder perspective into corporate strategy can generate tangible value even sooner. (See the sidebar “Who’s Getting It Right?”)

Creating direct business value, however, is not the only or even the strongest argument for taking a societal perspective. Capitalism depends on public trust for its legitimacy and its very survival. According to the Edelman public relations agency’s just-released 2011 Trust Barometer, trust in business in the U.S. and the UK (although up from mid-crisis record lows) is only in the vicinity of 45%. This stands in stark contrast to developing countries: For example, the figure is 61% in China, 70% in India, and 81% in Brazil. The picture is equally bleak for individual corporations in the Anglo-American world, “which saw their trust rankings drop again last year to near-crisis lows,” says Richard Edelman.

How can business leaders restore the public’s trust? Many Western executives find that nothing in their careers has prepared them for this new challenge. Lee Scott, Walmart’s former CEO, has been refreshingly candid about arriving in the top job with a serious blind spot. He was plenty busy minding the store, he says, and had little feel for the need to engage as a statesman with groups that expected something more from the world’s largest company. Fortunately, Scott was a fast learner, and Walmart has become a leader in environmental and health care issues.

Tomorrow’s CEOs will have to be, in Joseph Nye’s apt phrase, “tri-sector athletes”: able and experienced in business, government, and the social sector. But the pervading mind-set gets in the way of building those leadership and management muscles. “Analysts and investors are focused on the short term,” one executive told me recently. “They believe social initiatives don’t create value in the near term.” In other words, although a large majority of executives believe that social initiatives create value in the long term, they don’t act on this belief, out of fear that financial markets might frown. Getting capital more aligned with capitalism should help businesses enrich shareholders by better serving stakeholders.

3. Act Like You Own the Place

As the financial sector’s troubles vividly exposed, when ownership is broadly fragmented, no one acts like he’s in charge. Boards, as they currently operate, don’t begin to serve as a sufficient proxy. All the Devils Are Here, by Bethany McLean and Joe Nocera, describes how little awareness Merrill Lynch’s board had of the firm’s soaring exposure to subprime mortgage instruments until it was too late. “I actually don’t think risk management failed,” Larry Fink, the CEO of the investment firm BlackRock, said during a 2009 debate about the future of capitalism, sponsored by the Financial Times. “I think corporate governance failed, because…the boards didn’t ask the right questions.”

What McKinsey has learned from studying successful family-owned companies suggests a way forward: The most effective ownership structure tends to combine some exposure in the public markets (for the discipline and capital access that exposure helps provide) with a significant, committed, long-term owner. Most large public companies, however, have extremely dispersed ownership, and boards rarely perform the single-owner-proxy role. As a result, CEOs too often listen to the investors (and members of the media) who make the most noise. Unfortunately, those parties tend to be the most nearsighted ones. And so the tyranny of the short term is reinforced.

The answer is to renew corporate governance by rooting it in committed owners and by giving those owners effective mechanisms with which to influence management. We call this ownership-based governance, and it requires three things:

Just 43% of the nonexecutive directors of public companies believe they significantly influence strategy. For this to change, board members must devote much more time to their roles.

More-effective boards.

In the absence of a dominant shareholder (and many times when there is one), the board must represent a firm’s owners and serve as the agent of long-term value creation. Even among family firms, the executives of the top-performing companies wield their influence through the board. But only 43% of the nonexecutive directors of public companies believe they significantly influence strategy. For this to change, board members must devote much more time to their roles. A government-commissioned review of the governance of British banks last year recommended an enormous increase in the time required of nonexecutive directors of banks—from the current average, between 12 and 20 days annually, to between 30 and 36 days annually. What’s especially needed is an increase in the informal time board members spend with investors and executives. The nonexecutive board directors of companies owned by private equity firms spend 54 days a year, on average, attending to the company’s business, and 70% of that time consists of informal meetings and conversations. Four to five days a month obviously give a board member much greater understanding and impact than the three days a quarter (of which two may be spent in transit) devoted by the typical board member of a public company.

Boards also need much more relevant experience. Industry knowledge—which four of five nonexecutive directors of big companies lack—helps boards identify immediate opportunities and reduce risk. Contextual knowledge about the development path of an industry—for example, whether the industry is facing consolidation, disruption from new technologies, or increased regulation—is highly valuable, too. Such insight is often obtained from experience with other industries that have undergone a similar evolution.

In addition, boards need more-effective committee structures—obtainable through, for example, the establishment of a strategy committee or of dedicated committees for large business units. Directors also need the resources to allow them to form independent views on strategy, risk, and performance (perhaps by having a small analytical staff that reports only to them). This agenda implies a certain professionalization of nonexecutive directorships and a more meaningful strategic partnership between boards and top management. It may not please some executive teams accustomed to boards they can easily “manage.” But given the failures of governance to date, it is a necessary change.

More-sensible CEO pay.

An important task of governance is setting executive compensation. Although 70% of board directors say that pay should be tied more closely to performance, CEO pay is too often structured to reward a leader simply for having made it to the top, not for what he or she does once there. Meanwhile, polls show that the disconnect between pay and performance is contributing to the decline in public esteem for business.

Companies should create real risk for executives.Some experts privately suggest mandating that new executives invest a year’s salary in the company.

CEOs and other executives should be paid to act like owners. Once upon a time we thought that stock options would achieve this result, but stock-option- based compensation schemes have largely incentivized the wrong behavior. When short-dated, options lead to a focus on meeting quarterly earnings estimates; even when long-dated (those that vest after three years or more), they can reward managers for simply surfing industry- or economy-wide trends (although reviewing performance against an appropriate peer index can help minimize free rides). Moreover, few compensation schemes carry consequences for failure—something that became clear during the financial crisis, when many of the leaders of failed institutions retired as wealthy people.

There will never be a one-size-fits-all solution to this complex issue, but companies should push for change in three key areas:

• They should link compensation to the fundamental drivers of long-term value, such as innovation and efficiency, not just to share price.

• They should extend the time frame for executive evaluations—for example, using rolling three-year performance evaluations, or requiring five-year plans and tracking performance relative to plan. This would, of course, require an effective board that is engaged in strategy formation.

• They should create real downside risk for executives, perhaps by requiring them to put some skin in the game. Some experts we’ve surveyed have privately suggested mandating that new executives invest a year’s salary in the company.

Redefined shareholder “democracy.”

The huge increase in equity churn in recent decades has spawned an anomaly of governance: At any annual meeting, a large number of those voting may soon no longer be shareholders. The advent of high-frequency trading will only worsen this trend. High churn rates, short holding periods, and vote-buying practices may mean the demise of the “one share, one vote” principle of governance, at least in some circumstances. Indeed, many large, top-performing companies, such as Google, have never adhered to it. Maybe it’s time for new rules that would give greater weight to long-term owners, like the rule in some French companies that gives two votes to shares held longer than a year. Or maybe it would make sense to assign voting rights based on the average turnover of an investor’s portfolio. If we want capitalism to focus on the long term, updating our notions of shareholder democracy in such ways will soon seem less like heresy and more like common sense.

While I remain convinced that capitalism is the economic system best suited to advancing the human condition, I’m equally persuaded that it must be renewed, both to deal with the stresses and volatility ahead and to restore business’s standing as a force for good, worthy of the public’s trust. The deficiencies of the quarterly capitalism of the past few decades were not deficiencies in capitalism itself—just in that particular variant. By rebuilding capitalism for the long term, we can make it stronger, more resilient, more equitable, and better able to deliver the sustainable growth the world needs. The three imperatives outlined above can be a start along this path and, I hope, a way to launch the conversation; others will have their own ideas to add.

The kind of deep-seated, systemic changes I’m calling for can be achieved only if boards, business executives, and investors around the world take responsibility for bettering the system they lead. Such changes will not be easy; they are bound to encounter resistance, and business leaders today have more than enough to do just to keep their companies running well. We must make the effort regardless. If capitalism emerges from the crisis vibrant and renewed, future generations will thank us. But if we merely paper over the cracks and return to our precrisis views, we will not want to read what the historians of the future will write. The time to reflect—and to act—is now.

 

Please see my other related posts.

Business Investments and Low Interest Rates

Mergers and Acquisitions – Long Term Trends and Waves

 

 

Key sources of Research:

Secular stagnation and low investment: Breaking the vicious cycle—a discussion paper

McKinsey

http://www.mckinsey.com/global-themes/europe/secular-stagnation-and-low-investment-breaking-the-vicious-cycle

Case Still Out on Whether Corporate Short-Termism Is a Problem

Larry Summers

http://larrysummers.com/2017/02/09/case-still-out-on-whether-corporate-short-termism-is-a-problem/

Where companies with a long-term view outperform their peers

McKinsey

http://www.mckinsey.com/global-themes/long-term-capitalism/where-companies-with-a-long-term-view-outperform-their-peers

How short-term thinking hampers long-term economic growth

FT

https://www.ft.com/content/8c868a98-b821-11e4-b6a5-00144feab7de

Anthony Hilton: Short-term thinking hits nations as a whole, not just big business

http://www.standard.co.uk/comment/comment/anthony-hilton-short-term-thinking-hits-nations-as-a-whole-not-just-big-business-10427294.html

Short-termism in business: causes, mechanisms and consequences

EY Poland Report

Click to access Short-termism_raport_EY.pdf

Overcoming the Barriers to Long-term Thinking in Financial Markets

Ruth Curran and Alice Chapple
Forum for the Future

Click to access long-term-thinking-fpf-report-july-11.pdf

Understanding Short-Termism: Questions and Consequences

Click to access Understanding-Short-Termism.pdf

Ending Short-Termism : An Investment Agenda for Growth

Click to access Ending-Short-Termism.pdf

The Short Long

Speech by
Andrew G Haldane, Executive Director, Financial Stability, and Richard Davies

Brussels May 2011

Click to access speech495.pdf

Capitalism for the Long Term

Dominic Barton

From the March 2011 Issue

https://hbr.org/2011/03/capitalism-for-the-long-term

Quarterly capitalism: The pervasive effects of short-termism and austerity

https://currentlyunderdevelopment.wordpress.com/2016/05/10/quarterly-capitalism-the-pervasive-effects-of-short-termism-and-austerity/

Is Short-Term Behavior Jeopardizing the Future Prosperity of Business?

Click to access IsShortTermBehaviorJeopardizingTheFutureProsperityOfBusiness_CEOStrategicimplications.pdf

Andrew G Haldane: The short long

Speech by Mr Andrew Haldane, Executive Director, Financial Stability, and Mr Richard
Davies, Economist, Financial Institutions Division, Bank of England,
at the 29th Société
Universitaire Européene de Recherches Financières Colloquium,
Brussels, 11 May 2011

Click to access r110511e.pdf

THE UNEASY CASE FOR FAVORING LONG-TERM SHAREHOLDERS

Jesse M. Fried

https://dash.harvard.edu/bitstream/handle/1/17985223/Fried_795.pdf?sequence=1

The fringe economic theory that might get traction in the 2016 campaign

https://www.washingtonpost.com/news/wonk/wp/2015/03/02/the-fringe-economic-theory-that-might-get-traction-in-the-2016-campaign/?utm_term=.932bc0b97758

FCLT Global:  Focusing Capital on the Long Term

Publications

http://www.fcltglobal.org/insights/publications

Finally, Evidence That Managing for the Long Term Pays Off

Dominic Barton

James Manyika

Sarah Keohane Williamson

February 07, 2017 UPDATED February 09, 2017

https://hbr.org/2017/02/finally-proof-that-managing-for-the-long-term-pays-off

Focusing Capital on the Long Term

Dominic Barton

Mark Wiseman

From the January–February 2014 Issue

Is Corporate Short-Termism Really a Problem? The Jury’s Still Out

Lawrence H. Summers

February 16, 2017

Yes, Short-Termism Really Is a Problem

Roger L. Martin

October 09, 2015

Long-Termism or Lemons

The Role of Public Policy in Promoting Long-Term Investments

By Marc Jarsulic, Brendan V. Duke, and Michael Madowitz October 2015

Center for American Progress

Click to access LongTermism-reportB.pdf

 

Overcoming Short-termism: A Call for A More Responsible Approach to Investment and Business Management

https://corpgov.law.harvard.edu/2009/09/11/overcoming-short-termism-a-call-for-a-more-responsible-approach-to-investment-and-business-management/

 

 

Focusing capital on the Long Term

Jean-Hugues Monier – Senior Parter – McKinsey & Company

Princeton University – November 2016

Click to access jean-hugues_j._monier_slides_final.pdf

Low Interest Rates and International Capital Flows

Low Interest Rates and International Capital Flows

 

Mendoza and Quadrini had proposed in 2009 that Financial Globalization is one of the cause of Financial Contagion and crisis.

Ben Bernanke has proposed Savings Glut in the emerging market countries as the cause of depressed real interest rates in advanced economies.  Return to safe assets.

Larry Summers, since 2013, has proposed Secular Stagnation as a cause of depressed interest rates.  He says that the IS curve has shifted to the left.

Hyun Song Shin has proposed Banking Glut as the cause of low real interest rates.  Round Tripping of US dollars through European Banks has created depressed real interest rates in USA.

Junji Tokunaga and Gerald Epstein have proposed US Dollar based Global shadow Banking system as the cause of financial fragility.  Role of Offshore Financial Centers.

Stanley Fischer says that low productivity growth and demographic changes are also to be blamed.

We also need to look at changes in IIP (International Investment Positions) of USA over the years.  Impact of NAFTA and Trade with China also need to be studied.  What happens when a corporate borrows cheap money in USA and invests overseas lets say in China or Mexico?  What are the impacts on Real Interest rates?

Another perspective:  What is the impact of Declining Real Interest Rates on the Capital Flows?    Do declining Net Interest Margins of Banks influence capital flows?  Is the Causality other way round from Low Interest rates to Increase in Capital Flows?

 

Causes of Low Real Interest rates including capital in-flows:

  • Inequality
  • Demographics
  • Global Savings Glut
  • Global Banking Glut
  • Eurodollars In-flows
  • Weak Foreign Economic Growth
  • Low Investments
  • Increased Savings
  • Weak Demand ( Inverse Says Law)
  • Debt Overhang
  • Liquidity Trap
  • Supply Side effects

 

From The Age of Secular Stagnation

Other explanations for what is happening have been proposed, notably Kenneth Rogoff’s theory of a debt overhang, Robert Gordon [6]’s theory of supply-side headwinds, Ben Bernanke’s theory of a savings glut [7], and Paul Krugman’s theory of a liquidity trap. All of these have some validity, but the secular stagnation theory offers the most comprehensive account of the situation and the best basis for policy prescriptions. The good news is that although developments in China [8] and elsewhere raise the risks that global economic conditions will deteriorate, an expansionary fiscal policy by the U.S. government can help overcome the secular stagnation problem and get growth back on track.

From Financial Globalization, Financial Crises and Contagion

 

The global financial crisis that started with the meltdown of the U.S. sub- prime mortgage market in 2007 was preceded by a twenty-year period of substantial growth in debt and leverages, in an environment of increasing world financial integration, low real interest rates and growing U.S. external deficits. During this period of widening “global imbalances” we also observed large financial crises in emerging economies with cross-country contagion that in some cases did not appear to be motivated by fundamental forces. Some of these crises affected the capital markets of the industrial world (particularly the LTCM crisis in the aftermath of the 1998 Russian crash).

These events have generated a large body of research with well-established contributions. Until now, however, the study of global imbalances and the study of financial crises and contagion have remained somewhat separate subjects. In particular, the study of financial or currency crisis has mostly been focused on emerging economies in a small economy set-up. In contrast, this paper addresses the question of whether the ongoing global financial crisis and the process of financial globalization are related. In particular, we study two key issues. First, we study how financial globalization contributed to the buildup of very high leverages in some industrialized countries, especially the U.S. Second, we study how credit frictions can amplify the effects of credit shocks on asset prices and how these effects are transmitted across countries in a world that is financially integrated.

The motivation for this project derives from the evidence provided by Figure 1 showing that the U.S. credit boom was largely fueled by foreign lending.

The first panel of Figure 1 shows that the net debt-income ratio of the U.S. non financial sectors doubled between 1982 and 2008 (net credit market assets as a ratio of GDP of these sectors fell from -1 to about -2). A surge in net debt of this magnitude, which affected all three broad U.S. non financial sectors (households, non financial businesses, and the government), is unprecedented in the data available since 1946.

Starting in the mid 1980s, the integration of world capital markets that resulted from the removal of capital controls and innovations in financial markets produced significant changes in gross and net foreign asset positions worldwide (see Lane & Milesi-Ferretti (2006)). In the United States, both gross and net foreign borrowing rose sharply. Regarding net foreign credit, about half of the increase in the net debt-income ratio of the non financial sectors mentioned above was financed by a rise in net credit assets held by the rest of the world (see again the top panel of Figure 1), and this was also an unprecedented phenomenon in the post-war period. Before the mid 1980s, the U.S. fitted well the definition of financial autarky: The net debt of the domestic non financial sectors was almost identical to the net credit assets of the financial sector, with a zero net credit position for the rest of the world.2 In terms of gross positions, the second panel of Figure 1 shows that the foreign credit claims on U.S. non financial sectors grew sharply since 1985, while U.S. lending to foreigners (i.e. claims of the U.S. non financial sectors on foreign agents) experienced a relatively modest increase. As a result, net credit assets held by the rest of the world grew by 50 percent of U.S. GDP since 1982.  
The above trends identified in net credit assets are even more pronounced for net total financial assets and net Treasury securities, as shown in the bottom panel of Figure 1. The plot shows the net asset positions of the U.S. vis-a-vis the rest of the world as a ratio of the corresponding net asset positions held by the domestic non financial sectors for three asset categories: credit market assets (as in the top two panels), total financial assets, which include non-credit assets like equity, and U.S. Treasury bills. The ratios for credit assets and total financial assets hover near zero before the mid 1980s, reflecting again the fact that before financial globalization the U.S. was effectively in financial autarky. By the end of 2008, however, net credit assets held by the rest of the world amounted to 1/5 of U.S. net credit liabilities of the non financial sectors, and for total financial assets the ratio was even higher at about 1/3. For T-bills, the rest of the world increased its positive net position sharply with the collapse of the Bretton Woods system in the early 1970s, but even that increase dwarfs in comparison with the surge observed since the mid 1980s. By 2008, the rest of the world was a net holder of about one in every two T-bills held outside of the U.S. financial sectors.  
The fact that a large fraction of the credit expansion experienced by the U.S. economy was financed by foreign borrowing raises a key question: Did the globalization of financial markets contribute to the current crisis? In particular, we are interested in understanding how financial globalization contributed to the surge in debt in the United States, how it might have influenced the volatility of asset prices and the spillover of the crisis across countries.

 

 

From The Endogenous Finance of Global Dollar-Based Financial Fragility in the 2000s: A Minskian Approach

Global financing patterns have been at the center of debates on the global financial crisis in recent years. The global imbalance view, a prominent hypothesis, attributes the financial crisis to excess saving over investment in emerging market countries which have run current account surplus since the end of the 1990s. The excess saving flowed into advanced countries running current account deficits, particularly the U.S., thus depressing long-term interest rates and fuelling a credit boom there in the 2000s. According to this view, the financial crisis was triggered by an external and exogenous shock that resulted from excess saving in emerging market countries, not the shadow banking system in advanced countries which was the epicenter of the financial crisis. Instead, we argue that a key cause of the global financial crisis was the dynamic expansion of balance sheets at large complex financial institutions (LCFIs)(Borio and Disyatat [2011] and Shin [2012]), driven by the endogenously elastic finance of global dollar funding in the global shadow banking system. The endogenously elastic finance of the global dollar contributed to the buildup of global financial fragility that led to the global financial crisis. Importantly, the supreme position of U.S. dollar as debt financing currency, underpinned by the dominant role of the dollar in the development of new financial innovations and instruments, and was a driving force in this endogenously dynamic and ultimately destructive process.

 

Key Sources of Research:

 

 

Financial Globalization, Financial Crises and Contagion

Enrique G. Mendoza

Vincenzo Quadrini

March 25, 2009

 

Click to access mendozaquadrini.pdf

 

 

 

Global imbalances and the financial crisis: Link or no link?

by Claudio Borio and Piti Disyatat

Monetary and Economic Department May 2011

 

Click to access work346.pdf

 

 

 

Global Imbalances and the Financial Crisis: Products of Common Causes

Maurice Obstfeld and Kenneth Rogoff

November 2009

Click to access santabarbara.pdf

 

 

 

U.S. Monetary Policy, ‘Imbalances’ and the Financial Crisis

Pierre-Olivier Gourinchas

Click to access gourinchas.pdf

 

 

 

The Global Saving Glut and the U.S. Current Account Deficit

Remarks by Governor Ben S. Bernanke

At the Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia

March 10, 2005

https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/

 

 

International Capital Flows and the Returns to Safe Assets in the United States, 2003-2007

Ben S. Bernanke, Carol Bertaut, Laurie Pounder DeMarco, and Steven Kamin

2011

Click to access ifdp1014.pdf

 

 

The Endogenous Finance of Global Dollar-Based Financial Fragility in the 2000s: A Minskian Approach

Junji Tokunaga and Gerald Epstein

2014

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.634.4485&rep=rep1&type=pdf

 

 

Global Banking Glut and Loan Risk Premium

Hyun Song Shin

Princeton University hsshin@princeton.edu

January 2012

 

Click to access mundell_fleming_lecture.pdf

 

 

Global Banking Glut and Loan Risk Premium

 

Hyun Song Shin

 

Mundell-Fleming Lecture

IMF Annual Research Conference November 10-11, 2011

 

Click to access hssslides.pdf

 

 

Global liquidity: where it stands, and why it matters

Speech by Jaime Caruana

IMFS Distinguished Lecture at Goethe University Frankfurt, 5 March 2014

Click to access sp140305.pdf

 

 

Global savings glut or global banking glut?

Hyun Song Shin

20 December 2011

http://voxeu.org/article/global-savings-glut-or-global-banking-glut

 

 Financial Globalization and the Crisis

 

Philip R. Lane

Trinity College Dublin and CEPR July 2012

 

 

Persistent unusually low interest rates. Why? What consequences?

 

Claudio Borio

 

Click to access sp150628a_presentation.pdf

 

 

Three BIS research themes in the Annual Report

Hyun Song Shin

Cross-border banking and global liquidity

 

by Valentina Bruno and Hyun Song Shin

Click to access work458.pdf

 

 

Trilemmas and Tradeoffs: Living with Financial Globalization

Maurice Obstfeld

June 28, 2014

Click to access obstfeld_paper.pdf

 

 

Dilemma not Trilemma: The global Financial Cycle and Monetary Policy Independence

Hélène Rey

Issued in May 2015

Click to access w21162.pdf

 

 

Financial Globalization and Monetary Policy

Steven B. Kamin

2010

 

Click to access ifdp1002.pdf

 

 

Trilemma, Not Dilemma:
Financial Globalisation and Monetary Policy Effectiveness

 

Georgios Georgiadis

Arnaud Mehl

January 2015

Click to access 0222.pdf

 

 

Financial Globalization and Monetary Policy

Michael B. Devereux and Alan Sutherland

Click to access wp07279.pdf

 

 

Low long-term interest rates as a global phenomenon

 

Peter Hördahl, Jhuvesh Sobrun and Philip Turner

 

Click to access work574.pdf

 

 

 

Globalization’s Effect on Interest Rates and the Yield Curve

by Tao Wu

 

Click to access el0609.pdf

 

 

 

Impact of Globalization on Monetary Policy

Kenneth S. Rogoff

Click to access 19Rogoff.pdf

 

 

A primer on ‘global liquidity’

Eugenio Cerutti, Stijn Claessens, Lev Ratnovski

08 June 2014

http://voxeu.org/article/primer-global-liquidity

 

 

GLOBAL LIQUIDITY—ISSUES FOR SURVEILLANCE

2014

 

Click to access 031114.pdf

 

 

 

Global Liquidity: Public and Private

Jean-Pierre Landau

 

Click to access Jackson-Hole-Print.pdf

 

 

CAPITAL FLOWS AND GLOBAL LIQUIDITY

 

Click to access P020160811536051676178.pdf

 

 

The Age of Secular Stagnation

The Age of Secular Stagnation

 

 

 

Why are interest rates so low?

Ben S. Bernanke

Monday, March 30, 2015

Why are interest rates so low?

Why are interest rates so low, part 2: Secular stagnation

Why are interest rates so low, part 3: The Global Savings Glut

Why are interest rates so low, part 4: Term premiums

 

 

 

Low Interest Rates

 

Stanley Fischer

October 5, 2016

Click to access fischer20161005a.pdf

 

 

 

Why Are Interest Rates So Low? Causes and Implications

Stanley Fischer

October 2016

 

Click to access fischer20161017a.pdf

 

 

Longer-Term Challenges for the U.S. Economy

Stanley Fischer

November 21, 2016

 

Click to access fischer20161121a.pdf

 

 

The Eurodollar Market in the United States

Marco Cipriani and Julia Gouny

http://libertystreeteconomics.newyorkfed.org/2015/05/the-eurodollar-market-in-the-united-states.html

 

 

The FR 2420 Data Collection: A New Base for the Fed Funds Rate

Marco Cipriani and Jonathan Cohn

http://libertystreeteconomics.newyorkfed.org/2015/04/the-fr-2420-data-collection-a-new-base-for-the-fed-funds-rate.html#.VUktby7Godl

 

 

The New Overnight Bank Funding Rate

Marco Cipriani, Julia Gouny, Matthew Kessler, and Adam Spiegel

http://libertystreeteconomics.newyorkfed.org/2015/11/the-new-overnight-bank-funding-rate.html

 

 

Eurodollar banking and currency internationalisation

Dong He and Robert McCauley

 

Click to access r_qt1206f.pdf

 

 

Segmentation in the U.S. Dollar Money Markets During the Financial Crisis

James J. McAndrews

May 19, 2009

 

Click to access Session2.pdf

 

 

All about the eurodollars

Izabella Kaminska

https://ftalphaville.ft.com/2014/09/05/1957231/all-about-the-eurodollars/

http://www.marketoracle.co.uk/Article26216.html

http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/viewFile/12872/12675

 

 

LONG-TERM INTEREST RATES: A SURVEY

 

Click to access interest_rate_report_final_v2.pdf

 

 

Low Equilibrium Real Rates, Financial Crisis, and Secular Stagnation

Lawrence H. Summers

 

Global dollar credit: links to US monetary policy and leverage

by Robert N McCauley, Patrick McGuire and Vladyslav Sushko

 

 

 

INTERNATIONAL CAPITAL FLOWS AND U.S. INTEREST RATES

Francis E. Warnock

Veronica Cacdac Warnock

2006

Click to access sem_paper_0_210_warnock-paper070104.pdf

Click to access WarnockWarnock_Flows_and_Rates_JIMF.pdf

 

 

 

Low Interest Rates and Housing Booms: the Role of Capital Inflows, Monetary Policy and Financial Innovation

 

Filipa Sá

Pascal Towbin

Tomasz Wieladek

April 2011

Click to access 0079.pdf

BIS Annual Report 2014/2015
Global Liquidity and Drivers of Cross-Border Bank Flows

 

Eugenio Cerutti, Stijn Claessens, and Lev Ratnovski1

June 1, 2015