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)

 

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

 

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

 

 

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++

https://mitpress.mit.edu/sites/default/files/titles/content/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

http://karafillidis.de/downloads/Netbound.pdf

 

 

Theorising Borders as Mechanisms of Connection

Anthony Cooper

https://pure.royalholloway.ac.uk/portal/files/13886314/2013cooperaphd.pdf

 

 

Boundaries, Hierarchies and Networks in Complex Systems

PAUL CILLIERS

2001

http://blogs.cim.warwick.ac.uk/complexity/wp-content/uploads/sites/11/2014/02/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

http://u.math.biu.ac.il/~reuven/publications/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

http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech386.pdf

 

 

 

Knowledge, limits and boundaries

Paul Cilliers

http://www.complexityforum.com/members/cilliers%202005%20knowledge%20limits.pdf

 

 

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

Kurt A. Richardson & Michael R. Lissack

https://pdfs.semanticscholar.org/59e3/6b5711dc6782e451ad32078b799cd487cb3b.pdf

Exploring System Boundaries: Complexity Theory and Legal Autopoiesis

Thomas Edward Webb

http://eprints.lancs.ac.uk/62005/1/T.E._Webb_Exploring_System_Boundaries_accepted_version_.pdf

 

 

The Role of Leaders in Managing Organisation Boundaries

https://www.degruyter.com/downloadpdf/j/manment.2012.16.issue-1/v10286-012-0001-0/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?

https://www.brookings.edu/wp-content/uploads/2016/07/prism_chapter.pdf

 

 

 

 

ADAPTATION AND THE BOUNDARY OF MULTINATIONAL FIRMS

Arnaud Costinot
Lindsay Oldenski
James E. Rauch

January 2009

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

https://www.princeton.edu/~ies/IESWorkshop/NunnTreflerPaper.pdf

 

 

Complexity and Philosophy

Francis HEYLIGHEN

Paul CILLIERS,

Carlos GERSHENSON

https://arxiv.org/pdf/cs/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

http://geldofcs.nl/wp-content/uploads/2017/04/The_importance_of_a_certain_slowness.pdf

 

 

Towards an Economy of Complexity: Derrida, Morin and Bataille

Oliver Human

Stellenbosch University, South Africa

Paul Cilliers

http://blockchainstudies.org/Human_Complexity.pdf

 

 

 

The architecture of complexity

Herbert Simon

http://claude.rochet.pagesperso-orange.fr/pdf/Thearchitectureofcomplexity.pdf

 

 

 

 

Complexity and postmodernism

Understanding complex systems

Paul Cilliers

http://uberty.org/wp-content/uploads/2015/04/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

https://www.researchgate.net/profile/Rika_Preiser/publication/291337692_Introduction_to_Critical_Complexity_Collected_Essays_by_Paul_Cilliers/links/57faa56508ae8da3ce5bcdc1/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

http://www.relationalstudies.net/uploads/2/3/1/5/2315313/donati_birth_and_development_of_the_relational_theory_of_society.pdf

 

 

 

Beyond the Manifesto: Mustafa Emirbayer and Relational Sociology

Lily Liang Sida Liu

http://sociology.utoronto.ca/wp-content/uploads/2017/06/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

https://edisciplinas.usp.br/pluginfile.php/1897097/mod_resource/content/1/Mustafa%20Emirbayer_Manifesto%20for%20a%20Relational%20Sociology.pdf

 

 

 

TOWARDS A CONCEPTUALIZATION OF BORDER: THE CENTRAL EUROPEAN EXPERIENCE

by Josef Langer (Klagenfurt)

http://www.kakanien-revisited.at/beitr/theorie/JLanger3.pdf

 

 

 

 

THE STUDY OF BOUNDARIES IN THE SOCIAL SCIENCES

Michele Lamont and Vira ́g Molnar

https://scholar.harvard.edu/lamont/files/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

https://core.ac.uk/download/pdf/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

http://www.is.uw.edu.pl/wp-content/uploads/relational_turn_speakers.pdf

 

 

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

LILLA VICSEK1 – GÁBOR KIRÁLY – HANNA KÓNYA

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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

 

https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

 

 

 

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

John Bound† Gaurav Khanna‡ Nicolas Morales§

April 20, 2017

 

http://www.nber.org/chapters/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

http://www.ey.com/Publication/vwLUAssets/EY_Poland_Report/$FILE/Short-termism_raport_EY.pdf

Overcoming the Barriers to Long-term Thinking in Financial Markets

Ruth Curran and Alice Chapple
Forum for the Future

https://www.forumforthefuture.org/sites/default/files/project/downloads/long-term-thinking-fpf-report-july-11.pdf

Understanding Short-Termism: Questions and Consequences

http://rooseveltinstitute.org/wp-content/uploads/2015/11/Understanding-Short-Termism.pdf

Ending Short-Termism : An Investment Agenda for Growth

http://rooseveltinstitute.org/wp-content/uploads/2015/11/Ending-Short-Termism.pdf

The Short Long

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

Brussels May 2011

http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2011/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?

http://www.wlrk.com/docs/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

http://www.bis.org/review/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

https://cdn.americanprogress.org/wp-content/uploads/2015/10/21060054/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

http://jrc.princeton.edu/sites/jrc/files/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

 

http://www.carnegie-rochester.rochester.edu/april09-pdfs/mendozaquadrini.pdf

 

 

 

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

by Claudio Borio and Piti Disyatat

Monetary and Economic Department May 2011

 

http://www.bis.org/publ/work346.pdf

 

 

 

Global Imbalances and the Financial Crisis: Products of Common Causes

Maurice Obstfeld and Kenneth Rogoff

November 2009

http://eml.berkeley.edu//~obstfeld/santabarbara.pdf

 

 

 

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

Pierre-Olivier Gourinchas

http://economics-files.pomona.edu/colloquium/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

https://www.federalreserve.gov/pubs/ifdp/2011/1014/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

 

https://www.princeton.edu/~hsshin/www/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

 

https://www.imf.org/external/np/res/seminars/2011/arc/pdf/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

http://www.bis.org/speeches/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

 

http://www.bis.org/speeches/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

http://www.bis.org/publ/work458.pdf

 

 

Trilemmas and Tradeoffs: Living with Financial Globalization

Maurice Obstfeld

June 28, 2014

http://www.bis.org/events/conf140626/obstfeld_paper.pdf

 

 

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

Hélène Rey

Issued in May 2015

http://www.nber.org/papers/w21162.pdf

 

 

Financial Globalization and Monetary Policy

Steven B. Kamin

2010

 

https://www.federalreserve.gov/pubs/ifdp/2010/1002/ifdp1002.pdf

 

 

Trilemma, Not Dilemma:
Financial Globalisation and Monetary Policy Effectiveness

 

Georgios Georgiadis

Arnaud Mehl

January 2015

https://www.dallasfed.org/assets/documents/institute/wpapers/2015/0222.pdf

 

 

Financial Globalization and Monetary Policy

Michael B. Devereux and Alan Sutherland

https://www.imf.org/external/pubs/ft/wp/2007/wp07279.pdf

 

 

Low long-term interest rates as a global phenomenon

 

Peter Hördahl, Jhuvesh Sobrun and Philip Turner

 

http://www.bis.org/publ/work574.pdf

 

 

 

Globalization’s Effect on Interest Rates and the Yield Curve

by Tao Wu

 

https://www.dallasfed.org/assets/documents/research/eclett/2006/el0609.pdf

 

 

 

Impact of Globalization on Monetary Policy

Kenneth S. Rogoff

https://www.kansascityfed.org/Publicat/Sympos/2006/PDF/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

 

http://www.imf.org/external/np/pp/eng/2014/031114.pdf

 

 

 

Global Liquidity: Public and Private

Jean-Pierre Landau

 

http://www.jeanpierrelandau.com/wp-content/uploads/2013/05/Jackson-Hole-Print.pdf

 

 

CAPITAL FLOWS AND GLOBAL LIQUIDITY

 

http://www.g20.org/English/Documents/Current/201608/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

 

 

 

Why Are Interest Rates So Low? Causes and Implications

Stanley Fischer

October 2016

 

https://www.federalreserve.gov/newsevents/speech/fischer20161017a.pdf

 

 

Longer-Term Challenges for the U.S. Economy

Stanley Fischer

November 21, 2016

 

https://www.federalreserve.gov/newsevents/speech/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

 

http://www.bis.org/publ/qtrpdf/r_qt1206f.pdf

 

 

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

James J. McAndrews

May 19, 2009

 

http://www.imes.boj.or.jp/english/publication/conf/2009/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

 

https://www.whitehouse.gov/sites/default/files/docs/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

https://hkimr.org/uploads/seminars/182/sem_paper_0_210_warnock-paper070104.pdf

http://faculty.darden.virginia.edu/warnockf/papers/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

http://www.dallasfed.org/assets/documents/institute/wpapers/2011/0079.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