Government and Politics →
- 20 Dec 2010
- Research & Ideas
Panama Canal: Troubled History, Astounding Turnaround
In their new book, The Big Ditch, Harvard Business School professor Noel Maurer and economic historian Carlos Yu discuss the complicated history of the Panama Canal and its remarkable turnaround after Panama took control in 1999. Q&A with Maurer, plus book excerpt. Closed for comment; 0 Comments.
- 14 Dec 2010
- Op-Ed
Tax US Companies to Spur Spending
With traditional monetary and fiscal policy instruments to stimulate the economy seemingly exhausted, professor Mihir Desai offers a radical proposal: Use taxes to motivate corporations to spend a trillion dollars in cash. Open for comment; 0 Comments.
- 14 Dec 2010
- Working Paper Summaries
Regulating for Legitimacy: Consumer Credit Access in France and America
Why have American households consistently borrowed so heavily? And why have their counterparts in France borrowed so little? This comparative historical analysis by HBS professor Gunnar Trumbull traces the roots of these different attitudes. In the United States, early welfare reformers embraced credit "on a business-like basis" as an alternative to expansive welfare states of the sort that were emerging in Europe. In France, early social planners saw consumer credit as a drain on savings that threatened to crowd out industrial investment. Regulatory regimes that emerged in the postwar period in the two countries reflected these different interpretations of the economic and social role of credit in society. Key concepts include: Market regulation has conventionally been justified in terms either of the public interest in correcting market failures or of the social welfare interest in restricting market functions. The case of consumer credit suggests that the historical context in which markets have been constructed as legitimate affects the way in which they are regulated. Americans have supported a liberal regulation of credit because they have been taught that access to credit promotes welfare. The French regulate credit tightly because they have come to see credit as both economically risky and a source of reduced purchasing power. These cases suggest that national differences in regulation may trace to historically contingent conditions under which markets are constructed as legitimate. Closed for comment; 0 Comments.
- 30 Nov 2010
- Working Paper Summaries
The New Face of Chinese Industrial Policy: Making Sense of Anti-Dumping Cases in the Petrochemical and Steel Industry
The researchers set out to explain differences in China's antidumping actions against importers in the petrochemical and steel industries. During the study period, 66 percent of the country's antidumping cases targeted petrochemical imports, while steel imports were targeted only in 5 percent of the cases. Why did China's petrochemical and steel industries behave so differently in seeking trade protection? The answers put forward by researchers Regina Abrami (Harvard Business School) and Yu Zheng (University of Connecticut) point toward the structural nature of the industries themselves, and against arguments that antidumping actions in China have been driven by retaliation or national industrial strategy alone. Key concepts include: Existing patterns of antidumping investigations in China mainly reflect how firms may respond to economic challenges in the context of structural constraints. Rather than serving as a defense against global competition, strong local interests in China seem to be facilitating it. They do so by getting in the way of the kinds of industrial consolidations that seem necessary to wage successful battles through antidumping mechanisms. The research does not dismiss a role for economic or political interests as motivating factors, but does suggest that in their own right they cannot explain fully the patterns that exist. The research demonstrates that domestic business interest groups can influence state policy outcomes in China; that their ability to do so is closely related to resolution of collective action problems; and that Chinese industrial strategy is a far less coordinated political outcome than the increasingly popular idea of "China Inc." suggests. Closed for comment; 0 Comments.
- 18 Nov 2010
- Research & Ideas
GM’s IPO: Back to the Future
General Motors reaches a milestone this week as it presents an initial public offering. HBS faculty discuss issues facing the automaker's revival. Closed for comment; 0 Comments.
- 16 Nov 2010
- Lessons from the Classroom
Data.gov: Matching Government Data with Rapid Innovation
Data.gov is a young initiative of President Barack Obama for making raw data available on the Web. In an HBS executive education class for technology specialists, professor Karim Lakhani and the US Chief Information Officer, Vivek Kundra, sparked dialogue about new routes to innovation. Key concepts include: Data.gov makes government data--as long as it does not compromise national security or individual privacy--available on the Web in raw, machine-readable format. Data.gov is part of the Open Government initiative launched by President Barack Obama on his first day in office. As a lean organization with a mandate to move fast, Data.gov posted the first datasets five months later. Its goals are transparency, participation, collaboration, and management of systems and processes. The HBS case study of Data.gov, coauthored by professor Karim R. Lakhani, highlights a number of useful applications sparked by the Web site. One in particular creates benefits for taxpayers by sharing information between the Internal Revenue Service and the Department of Education. Closed for comment; 0 Comments.
- 18 Oct 2010
- Lessons from the Classroom
Venture Capital’s Disconnect with Clean Tech
Clean-tech start-ups depend on patience and public policy to thrive—the Internet models for VC funding don't apply. That's why Harvard Business School professor Joseph Lassiter is making an unusual recommendation to his entrepreneurship students: Spend a few years serving time in a government job. Key concepts include: MBA students and young venture capitalists often assume that all promising start-ups can grow and exit as fast as Internet start-ups, but they're mistaken. Clean-tech start-ups are often stymied by a "valley of death"—that precarious stage between researching and developing a product and going to market. The success of clean-tech companies often is dependent on public policy, so it behooves budding VCs and entrepreneurs to spend a few years learning the ropes in a government or corporate job. Closed for comment; 0 Comments.
- 16 Oct 2010
- Working Paper Summaries
A Comparative-Advantage Approach to Government Debt Maturity
Can the government do anything to discourage short-term borrowing by the private sector? HBS Professor Robin Greenwood, Harvard University and Harvard Business School PhD candidate Samuel Hanson, and Harvard University Professor Jeremy C. Stein suggest the government could actively influence the corporate sector's borrowing decisions by shifting its own financing between T-bills and bonds. Key concepts include: Historically, there is a strong correlation between the maturity of government debt and the ratio of debt-to-GDP. There is effectively a regulatory dimension to the government's debt-maturity choice. The title of the paper refers to the idea that, in choosing the optimal maturity structure of its debt, the government balances the costs of rollover risk with the system-wide benefits of crowding out private sector money creation. In other words, the government should keep issuing short-term bills as long as it has a comparative advantage over the private sector in the production of riskless money-like securities. Treasury could both create valuable incremental monetary services, as well as have a potentially powerful crowding-out effect on the private sector, by issuing more in the way of, say, two and four-week bills. A simple calculation shows that this may be done without much of an increase in rollover risk. Closed for comment; 0 Comments.
- 13 Oct 2010
- Research & Ideas
How Government can Discourage Private Sector Reliance on Short-Term Debt
Financial institutions have relied increasingly and excessively on short-term financing--putting the overall system at risk. Should government step in? Harvard researchers Robin Greenwood, Samuel Hanson, and Jeremy C. Stein propose a "comparative advantage approach" that allows government to actively influence the corporate sector's borrowing decisions. Key concepts include: There is general agreement that the financing of large financial intermediaries puts the larger financial system at risk. The government can dissuade firms from issuing short-term debt by simply making it less attractive to do so. The government could actively influence the corporate sector's borrowing decisions by shifting its own financing between T-bills and bonds. Closed for comment; 0 Comments.
- 07 Oct 2010
- Working Paper Summaries
The Profits of Power: Commercial Realpolitik in Eurasia
The concept of good old-fashioned realpolitik-politics primarily shaped by practicality and power-has returned to Europe, clashing with the traditional ideologies of the European Union, says Harvard Business School professor Rawi Abdelal. Citing supporting evidence from the Russian gas giant Gazprom, he argues that scholars need to pay better attention to the role of large corporations in international relations. Key concepts include: Corporate firms, not states, are responsible for the return of realpolitik in Europe. The international political economy needs a better understanding of the role that these firms play in world politics. Closed for comment; 0 Comments.
- 18 Aug 2010
- Working Paper Summaries
The Role of Organizational Scope and Governance in Strengthening Private Monitoring
Governments have long debated which tasks should be outsourced to the private sector. Although often justified on the basis of the cost-efficiencies of market competition, outsourcing to private firms carries its own risks, which can reduce the quality of services provided. In addition to more conventional services such as garbage and recycling collection, some governments outsource the enforcement of laws and regulations. This paper by Olin Business School's Lamar Pierce and HBS professor Michael W. Toffel examines the automobile emissions testing market in one state where this form of regulatory enforcement has been outsourced to the private sector. Their analysis illustrates the importance of considering organizational scope and private governance mechanisms such as monitoring provided by corporate headquarters and independent third-parties in efforts to assure the reliability of firms that provide outsourced services. Key concepts include: The risk of poor enforcement quality is greatest among firms whose organizational scope includes products and services where enticing customer loyalty can enhance profits. Enforcement quality is higher at subsidiaries and branded affiliates than at independent facilities. Because subsidiaries and branded affiliates will face worse consequences if leniency were to be exposed, they are more likely to invest in private governance mechanisms including standard operating procedures and internal policing. Third-party certification of related services can also be an indicator of higher enforcement quality. Closed for comment; 0 Comments.
- 21 Jul 2010
- Research & Ideas
HBS Faculty Debate Financial Reform Legislation
Harvard Business School professors Robert Steven Kaplan, David A. Moss, Robert C. Pozen, Clayton S. Rose and Luis M. Viceira share their perspectives on the Dodd-Frank Wall Street Reform and Consumer Protection Act, slated to be signed this week by U.S. President Barack Obama. Key concepts include: Overall, faculty see reasons for optimism as well as concern and caution. We need appropriate risk-taking and credit extension to fuel economic growth, says Robert Steven Kaplan. While the Dodd-Frank bill creates safeguards, will it discourage and impede these activities? According to David A. Moss, an open question is how the regulators will use the new authority granted to them. The Dodd-Frank bill fails to reform large mortgage finance institutions such as Fannie Mae, Freddie Mac, and the housing agencies, says Robert C. Pozen. While the bill does tackle some causes of the crisis, says Clayton S. Rose, it may increase risk to the U.S. financial system by skirting the issues of firms "too big to fail" and the excessive use of market-based short-term funding by financial firms. At first sight, Dodd-Frank has elements that indicate we are moving in the right direction, while other parts of the bill leave us uncertain about its future success, says Luis M. Viceira. Closed for comment; 0 Comments.
- 15 Jul 2010
- Working Paper Summaries
Trade Policy and Firm Boundaries
What is the impact of trade policies on firms' ownership structures? Drawing on analysis based on a unique database from Dun and Bradstreet that contains both listed and unlisted plant-level observations in more than 200 countries, HBS professor Laura Alfaro and coauthors describe a simple model in which firms' boundaries depend on the prices of the products they sell: The higher the prices, the more integrated firms will be. More generally, when equilibrium prices converge across economies, so do ownership structures. The reason behind these predictions is that integration, although more productive than non-integration because of its comparative advantage in the coordination of firms' operating decisions, also imposes higher private costs on enterprise managers. At low prices, the productivity gains from integrating have little value, and managers choose non-integration. As prices rise, the relative value of coordination increases, favoring integration. Key concepts include: Results lend empirical support to a simple model of the determination of firm boundaries in a global economy. There is systematic relationship between firm boundaries and the equilibrium price in the product market. Higher prices, as proxied by higher most-favored-nation tariffs, lead to more vertical integration at the firm level. The impact of tariffs on vertical integration is significant. Enterprises' integration choices affect not only their productivity, but also aggregate economic performance and consumer welfare. Closed for comment; 0 Comments.
- 14 Jul 2010
- Working Paper Summaries
From Russia with Love: The Impact of Relocated Firms on Incumbent Survival
The relocation of the machine tool industry from the Soviet-occupied zone of postwar Germany to western regions is a unique laboratory for studying the impact of industrial structures on incumbent survival. Typically, geographic agglomerations of similar firms offer benefits to each member firm by reducing the transportation costs for material goods, specialized workers, and industry knowledge among the firms. Of course, tight geographic concentration comes with countervailing costs as firms compete for local inputs. In this paper, HBS professor William R. Kerr and coauthors study the impact of increased local concentration on incumbent firms by considering postwar Germany, when the fear of expropriation (or worse) in the wake of World War II prompted many machine tool firm owners to flee to western Germany, where they reestablished their firms. Key concepts include: Relocations significantly increased the likelihood of incumbent failure, which suggests that the costs of increased competition for local inputs dominated the potential benefits from agglomeration economies. By contrast, during the same postwar period, new start-up entrants—whose location choices were more opportunistic—were not associated with increased incumbent failure rates. The increased failure rates of incumbents in western Germany due to relocating firms was concentrated in regions where labor forces were constrained due to low inflows of expellees from eastern Germany. In regions with a significant inflow of expellees and favorable input conditions, there was no effect of relocations on incumbent firms' risk of failure. The relocation of the machine tool industry from eastern to western Germany was substantial. In total, a fifth of the industry present in eastern Germany migrated during a narrow window of 1949-1956, representing an 8 percent increase in total industry size for the receiving zones. These location choices were made under extreme duress, with little regard to existing business conditions across regions in western Germany. Upon arrival, the relocating firms substantially impacted local industrial conditions as they quickly regained much of their former production capacity. Closed for comment; 0 Comments.
- 06 Jul 2010
- Research & Ideas
Renewable Energy: Winds at Our Back?
It certainly stirred up controversy in 2001 when an entrepreneur proposed erecting 130 wind turbines off the coast of Massachusetts' Cape Cod. After nine years of struggle over regulatory, environmental, safety, and social issues, the plan appears closer to becoming a reality. HBS professor Richard Vietor reflects on wind energy and innovations in the renewable energy industry. Key concepts include: The Cape Wind project has sparked controversy in the eastern United States related to regulatory, political, environmental, and social concerns. Wind power is important for the near term, but in the longer term solar and nuclear power may gain ground. The United States is rapidly falling behind other developed countries in its approach to renewable energy sources. Nevertheless, President Obama's stimulus package provides significant incentives and subsidies for green energy projects. More than 30 states have renewable production standards that require utilities to purchase or develop from 15 percent to 30 percent of their power from renewables over the next 10 to 15 years. Closed for comment; 0 Comments.
- 30 Jun 2010
- Working Paper Summaries
The Empire Struck Back: The Mexican Oil Expropriation of 1938 Reconsidered
The Mexican petroleum expropriation of 1938 looms large as the beginning of Latin American resource nationalism and the apogee of America's "Good Neighbor" policy. In Mexico, the expropriation is viewed as a patriotic triumph, in which the federal government seized control of the country's most valuable natural resource. In the U.S., the temperate reaction of the Roosevelt Administration is seen as the decisive break with Washington's imperial relationship towards Latin America. Washington "curbed its finance capital," it is said, and downgraded the protection of American overseas private investments. In this paper, HBS professor Noel Maurer explains how the actual historical record diverges substantially from the accepted view. Key concepts include: The oil companies developed political strategies that maneuvered the very reluctant Roosevelt Administration into defending their interests. A detailed understanding of the key players in the executive branch was fundamental to these strategies. The U.S. government succeeded using sanctions and the threat of sanctions to force Mexico to compensate—in fact, overcompensate—American companies. The Mexican oil industry was in decline by the 1930s for geological (not political) reasons. As a result, the American oil companies with interests in Mexico were in financial distress during the same period. The oil companies deliberately provoked the expropriation, because they could not afford to give in to union demands to control all hiring and firing. The expropriation did not increase the Mexican government's petroleum revenues or the wages paid to Mexican oil workers. The key difference between the environment of the 1930s and today is that in the 1930s, domestic courts still refused to use their authority against foreign governments. Today, that is no longer the case. Closed for comment; 0 Comments.
- 24 Jun 2010
- Working Paper Summaries
“An Unfair Advantage”? Combining Banking with Private Equity Investing
Does the combination of banking and private equity investing endow banks with superior information that allows them to identify good prospects and garner superior returns? Or does the combination bestow banks with an unfair ability to expand their balance sheets, capturing benefits within the bank at the expense of the overall market and ultimately the taxpayers? INSEAD's Lily Fang and Harvard Business School professors Victoria Ivashina and Josh Lerner examined nearly 8,000 unique private equity transactions between 1978 and 2009, looking in depth at the nature of the private equity investors, the structure of the investments, and the performance of the firms. Collectively, findings suggest that there are risks in combining banking and private equity investing. The results are consistent with many of the worries about these transactions articulated by policymakers. Key concepts include: The cyclicality of bank-affiliated transactions, the time-varying pattern of the financing benefit enjoyed by affiliated deals, and the generally worse outcomes of these deals done at market peaks raise questions about the desirability of combining banking with private equity investing. These investments seem to exacerbate the amplitude of waves in the private equity market, leading to more transactions at precisely the times when the private and social returns are likely to be the lowest. Investments involving both affiliated and nonaffiliated firms appear particularly vulnerable to downturns. Some information-related synergies, however, are captured internally by the banks. But banks' involvement poses significant issues as well. The share of banks in the private equity market is substantial. Between 1983 and 2009, over one-quarter of all private equity investments involved bank-affiliated private equity groups. Closed for comment; 0 Comments.
- 24 May 2010
- Research & Ideas
Stimulus Surprise: Companies Retrench When Government Spends
Research from Harvard Business School suggests that federal spending in states appears to cause local businesses to cut back rather than grow. A conversation with Joshua Coval. Closed for comment; 0 Comments.
- 29 Apr 2010
- Working Paper Summaries
The Great Leap Forward: The Political Economy of Education in Brazil, 1889-1930
In 1890, with only 15 percent of the population literate, Brazil had the lowest literacy rate among the large economies in the Americas. Yet between 1890 and 1940, Brazil had the most rapid increase in literacy rates in the Americas, catching up with and even surpassing some of its more educated peers such as Mexico, Colombia, and Venezuela. This jump in literacy was simultaneously accompanied by a brisk increase in the number of teachers, number of public schools, and enrollment rates. Why were political elites in Brazil willing to finance this expansion of public education for all? André Martínez-Fritscher of Banco de México, Aldo Musacchio of HBS, and Martina Viarengo of the London School of Economics explain how state governments secured funds to pay for education and examine the incentives of politicians to spend on education. They conclude that the progress made in education during these decades had mixed results in the long run. Key concepts include: Competition in national elections and a literacy requirement may have provided the right incentives for state political parties and state politicians to spend on education in a way that increased literacy rates in a significant way over the period studied. Brazil started from an extremely low base and ended in what today would be considered a low level of literacy as well (around 40 percent of the population). Between 1889 and 1930 there was significant progress in the provision of elementary education in Brazil. It was to a large extent a consequence of the fact that some states got more taxation powers and had the obligation to spend on public education. Positive trade shocks can be converted into long-term development if there is electoral competition, and economic assets are not concentrated in a few hands. Expenditures on education between 1889 and 1930 altered the development path of some states and changed their relative rankings compared to other states in a somewhat permanent way. Closed for comment; 0 Comments.
Funding Unpredictability Around Stem-Cell Research Inflicts Heavy Cost on Scientific Progress
Funding unpredictability in human embryonic stem-cell research inflicts a heavy cost on all scientific progress, says professor William Sahlman. Open for comment; 0 Comments.