Government and Politics →
- 15 Mar 2010
- HBS Case
Developing Asia’s Largest Slum
In a recent case study, HBS assistant professor Lakshmi Iyer and lecturer John Macomber examine ongoing efforts to forge a public-private mixed development in Dharavi—featured in the film Slumdog Millionaire. But there is a reason this project has languished for years. From the HBS Alumni Bulletin. Closed for comment; 0 Comments.
- 25 Jan 2010
- Research & Ideas
A Macroeconomic View of the Current Economy
Concerned or confused by the economic environment? Take some lessons from history and concepts from macroeconomics to get a better understanding of how the economy works. A Q&A with HBS professor David A. Moss, author of A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know. Closed for comment; 0 Comments.
- 06 Jan 2010
- What Do You Think?
Is a Stringent Climate Change Agreement a Pot of Gold?
Reading this month's comments, HBS professor Jim Heskett wonders if we even need a climate change agreement as a catalyst to foster innovation and the VC investment required to support it. (Online forum has closed; next forum opens February 4.) Closed for comment; 0 Comments.
- 16 Dec 2009
- Working Paper Summaries
The End of Chimerica
Economic historians Niall Ferguson and Moritz Schularick of Freie Universität Berlin consider the problem of global imbalances and try to set events in a longer-term perspective. First published in 2009. Closed for comment; 0 Comments.
- 14 Dec 2009
- Research & Ideas
Can Entrepreneurs Drive People Movers to Success?
Call them next-generation driverless taxis or people movers, the age of personal rapid transport is just around the bend. Could PRT change the face of public transportation in cities and smaller communities? HBS professor Benjamin G. Edelman weighs the benefits and opportunities for entrepreneurs and for society. "Right now, the field is wide open," he says. Key concepts include: A typical PRT vehicle carries one to four passengers along a dedicated track. It travels direct routes—no stops along the way—using computer control. Although it sounds futuristic, the PRT concept has been discussed seriously by engineers, designers, and academics since the mid-1950s. A PRT system has been in use since 1972 at the University of West Virginia in Morgantown. An installation at London's Heathrow Airport is slated to open in 2010. Yet general skepticism remains prevalent. PRT could reduce traffic congestion by offering a strong alternative to the private automobile. Other opportunities include establishing PRT systems on corporate or educational campuses, ultimately reducing costly and intrusive parking garages. PRT systems could also improve the value of real estate on land that is not close enough to other public transportation or services. Closed for comment; 0 Comments.
- 10 Dec 2009
- Working Paper Summaries
State Owned Entity Reform in Absence of Privatization: Reforming Indian National Laboratories and Role of Leadership
Is privatization necessary? In India and across emerging markets, state-owned entities (SOEs) continue to make up a large proportion of industrial sales, yet they lag behind private counterparts on performance measures. But SOEs may be able to significantly improve performance even in the absence of property rights, according to HBS doctoral candidate Prithwiraj Choudhury and professor Tarun Khanna. As they document, 42 Indian state-owned laboratories started from a base of negligible U.S. patents, yet in the period 1993-2006 (during which the Indian government launched an ambitious privatization program), the labs were granted more patents than all domestic private firms combined. The labs then licensed several of these patents to multinationals, and licensing revenue increased from 3 percent to 15 percent as a fraction of government budgetary support. Findings are relevant to firms and R&D entities around the world that depend on varying degrees of government budgetary support and government control, especially in emerging markets like India, where SOEs control up to one-third of all industrial activity. Key concepts include: Despite the absence of property rights, 42 Indian state-owned laboratories significantly increased U.S. patents and licensing revenue from multinationals without negatively affecting publication quality and quantity. This development may be due to incentive policy change and leadership change at the labs. U.S. patents as well as revenue from multinationals increased sharply in response to director changes, an event whose timing was dictated by rigid government employment rules. Private firms including multinationals can play a catalytic role in driving up revenue at SOEs. The state-owned labs leveraged the U.S. institutional context in effecting their turnaround. The general point is that organizations in emerging markets can leverage institutions from outside their location of origin, once they have some established source of competitive advantage (in this case, their R&D-generated know-how). Although the labs were able to commercialize projects without sacrificing publication quality and quantity, a question remains as to whether and why national labs should concern themselves with commercialization. Closed for comment; 0 Comments.
- 02 Dec 2009
- What Do You Think?
Should Immigration Policies Be More Welcoming to Low-Skilled Workers?
Immigration is a topic that stirs passions globally, judging from the responses to this month's column, says HBS professor Jim Heskett. Readers suggested ways to bring immigration policy into alignment with the reality of what is happening at borders and in workplaces around the world. (Online forum now closed. Next forum begins January 6.) Closed for comment; 0 Comments.
- 23 Nov 2009
- Research & Ideas
Management’s Role in Reforming Health Care
Health care managers are the missing link in debate over reform. Their skills and ideas are needed to sustain and improve upon multiple advances in the delivery of health care for the benefit of patients. An interview with HBS professor Richard M.J. Bohmer, MD, and an excerpt from his book Designing Care: Aligning the Nature and Management of Health Care. Key concepts include: Many health-care delivery issues are managerial rather than policy issues. Much debate on the U.S. stage assumes the current health-care delivery system is a given. Yet innovations in care delivery could potentially help patients and the U.S. health-care system overall. Bohmer's book explains how to create more knowledgeable, flexible, and responsive delivery organizations. Routine medical practice is a fertile source of innovations in care, in both what to do and how to do it. Closed for comment; 0 Comments.
- 18 Nov 2009
- Working Paper Summaries
India Transformed? Insights from the Firm Level 1988-2005
Between 1986 and 2005, Indian growth put to rest the concern that there was something about the "nature of India" that made rapid growth difficult. Following broad-ranging reforms in the mid-1980s and early 1990s, the state deregulated entry, both domestic and foreign, in many industries, and also hugely reduced barriers to trade. Laura Alfaro of Harvard Business School and Anusha Chari of the University of North Carolina at Chapel Hill analyze the evolution of India's industrial structure at the firm level following the reforms. Despite the substantial increase in the number of private and foreign firms, the overall pattern that emerges is one of continued incumbent dominance in terms of assets, sales, and profits in both state-owned and traditional private firms. Key concepts include: In sectors dominated by state-owned and traditional private firms before liberalization (with assets, sales, and profits representing 50 percent or higher shares), these firms remain the dominant ownership group following the reforms. Rates of return remain stable over time and show low dispersion across sectors and across ownership groups within sectors. The high levels of state ownership and ownership by traditional private firms in India raise the question of whether existing resources could be allocated more efficiently and whether remaining barriers to competition jeopardize the effectiveness of reform measures that have been put in place. Closed for comment; 0 Comments.
- 04 Nov 2009
- What Do You Think?
What is the Role of Government Vis-à-Vis Capitalism?
The debate this month boiled down to the extent of government's role in relation to capitalism, says professor Jim Heskett. While some readers argued for a relatively narrow role for government, others disagreed, and commented on the challenges it faces today. (Forum now closed. Next forum begins Dec. 3.) Closed for comment; 0 Comments.
- 01 Oct 2009
- Working Paper Summaries
Systemic Risk and the Refinancing Ratchet Effect
During periods of rising house prices, falling interest rates, and increasingly competitive and efficient refinancing markets, cash-out refinancing is like a ratchet, incrementally increasing homeowner debt as real-estate values appreciate without the ability to symmetrically decrease debt by increments as real-estate values decline. This paper suggests that systemic risk in the housing and mortgage markets can arise quite naturally from the confluence of these three apparently salutary economic trends. Using a numerical simulation of the U.S. mortgage market, the researchers show that the ratchet effect is capable of generating the magnitude of losses suffered by mortgage lenders during the financial crisis of 2007-2008. These observations have important implications for risk management practices and regulatory reform. Key concepts include: Consider the hypothetical scenario in which all homeowners decide to refinance and extract cash from any accumulated house equity so that their loan-to-value ratio is kept the same as the one for a new purchaser of that house. Suppose that the refinancing market is so competitive, i.e., refinancing costs are so low and capital is so plentiful, that homeowners can implement this refinancing each month. In this extreme case, during periods of rising home prices and falling interest rates, cash-out refinancing has the same risk effect "as if" all houses had been purchased and their mortgages originated at the peak of the housing market, thereby creating a large systemic risk exposure. Then, when home prices fall, the refinancing ratchet "locks,'' causing a systemic event with widespread correlated defaults and large losses for mortgage lenders. While excessive risk-taking, overly aggressive lending practices, pro-cyclical regulations, and political pressures surely contributed to the recent problems in the U.S. housing market, the simulations show that even if all homeowners, lenders, investors, insurers, rating agencies, regulators, and policymakers behaved rationally, ethically, and with the purest of motives, financial crises can still occur. The fact that the refinancing ratchet effect arises only when three market conditions are simultaneously satisfied demonstrates that the current financial crisis is subtle, and may not be attributable to a single cause. There may be no easy legislative or regulatory solutions: Lower interest rates, higher home prices, and easier access to mortgage loans have appeared separately in various political platforms and government policy objectives over the years. Their role in fostering economic growth makes it virtually impossible to address the refinancing ratchet effect within the current regulatory framework. We need an independent organization devoted solely to the study, measurement, and public notification of systemic risk, not unlike the role that the National Transportation Safety Board plays with respect to airplane crashes, train wrecks, and highway accidents. The subtle and multifaceted nature of the refinancing ratchet effect is just one example of the much broader challenge of defining, measuring, and managing systemic risk in the financial system. Closed for comment; 0 Comments.
- 17 Sep 2009
- Working Paper Summaries
Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery
Many professions rely on highly and variably skilled individuals. If a new firm is looking to enter a specific market, in addition to setting up a physical facility the company needs to hire or contract with specialized labor. In the short term, the supply of these specialists is relatively inelastic. From the point of view of economics, there remains a well-known potential for free entry to be inefficient when firms make entry decisions without internalizing the costs associated with the business they "steal" from incumbent firms. In 1996 Pennsylvania eliminated its certificate-of-need (CON) policy that had restricted entry by hospitals into expensive clinical programs, such as coronary artery bypass graft (CABG) programs—leading to an increase from 43 to 63 in the number of hospitals providing this service. HBS professor Robert Huckman and coauthors examine the welfare implications of entry in the market for cardiac surgery. Key concepts include: Following the introduction of new CABG programs in Pennsylvania, volume shifted from incumbent programs to entrants and from lower- to higher-quality surgeons, thereby improving the overall quality of surgical outcomes. The repeal of CON in Pennsylvania improved the market for cardiac surgery by directing more volume to better doctors and increasing access to treatment. The benefit of reduced mortality from the increased use of high-quality surgeons roughly offset the fixed costs associated with free entry. Closed for comment; 0 Comments.
- 11 Sep 2009
- Working Paper Summaries
Financing Constraints and Entrepreneurship
Financing constraints are one of the biggest concerns impacting potential entrepreneurs around the world. Given the important role that entrepreneurship is believed to play in the process of economic growth, alleviating financing constraints for would-be entrepreneurs is also an important goal for policymakers worldwide. In this paper HBS professors William R. Kerr and Ramana Nanda review two major streams of research examining the relevance of financing constraints for entrepreneurship. They then introduce a framework that provides a unified perspective on these research streams, thereby highlighting some important areas for future research and policy analysis in entrepreneurial finance. Key concepts include: Promoting entrepreneurship is an important goal of many governments, and researchers need to define for policymakers a more unified perspective for how studies and samples fit together. The "slice" of entrepreneurship examined is very important for the appropriate positioning of research on financing constraints, but studies too often fail to consider this dimension in the conclusions drawn from empirical results. The framework presented here is useful for thinking about the appropriate role of public policy in stimulating entrepreneurship. Closed for comment; 0 Comments.
- 08 Sep 2009
- Research & Ideas
The Height Tax, and Other New Ways to Think about Taxation
The notion of levying higher taxes on tall people—an idea offered largely tongue in cheek—presents an ideal way to highlight the shortcomings of current tax policy and how to make it better. Harvard Business School professor Matthew C. Weinzierl looks at modern trends in taxation. Key concepts include: Studies show that each inch of height is associated with about a 2 percent higher wage among white males in the United States. If we as a society are uncomfortable taxing height, maybe we should reconsider our comfort level for taxing ability (as currently happens with the progressive income tax). For Weinzierl, the key to explaining the apparent disconnect between theory and intuition starts with the particular goal for tax policy assumed in the standard framework. That goal is to minimize the total sacrifice borne by those who pay taxes. Behind the scenes, important trends are evolving in tax policy. Value-added taxes, for example, are generally seen as efficient by tax economists, but such taxes can bear heavily on the poor if not balanced with other changes to the system. Closed for comment; 0 Comments.
- 31 Aug 2009
- Research & Ideas
Why Competition May Not Improve Credit Rating Agencies
Competition usually creates better products and services. But when competition increased among credit rating agencies, the result was less accurate ratings, according to a study by HBS professor Bo Becker and finance professor Todd Milbourn of Washington University in St Louis. In our Q&A, Becker discusses why users of ratings should exercise a little caution. Key concepts include: Competition in credit ratings forces raters to favor issuers. This is contrary to the interest of those who rely on ratings to make investment decisions or to regulate. There are 10 nationally recognized statistical ratings organizations. The big 3 are Fitch, Standard and Poor's (S&P), and Moody's. Fitch used to be much smaller, but over the past decade has become a peer of S&P and Moody's. Becker and Milbourn used the appearance of Fitch to test for the effect of competition on corporate bond ratings. Policymakers should proceed cautiously when trying to increase competition among raters, and be aware of the potential drawbacks. If you really want to know the value of a security, there is no shortcut to doing the work yourself. Closed for comment; 0 Comments.
- 28 Aug 2009
- Working Paper Summaries
The Impact of Private Equity Ownership on Portfolio Firms’ Corporate Tax Planning
Although private firms are important components of the U.S. economy, their tax practices remains largely unknown due to the lack of publicly available financial information. In recent years, private equity (PE) firms have been broadly criticized based on the substantial tax benefits enjoyed by their owners and managers. Editorials have inflamed public opinion by accusing PE firm owners and managers as having excessively low tax rates, and pointing out that the substantial wealth generated by PE firms can "pay for sophisticated tax planning," including the use of offshore investment companies based in tax havens. More generally, critics contend that PE firms aggressively manage their tax liabilities and those of their portfolio companies. This study investigates the latter contention. In particular, the authors look at whether private companies that are majority-owned by PE firms ("majority PE-backed firms") engage in more tax avoidance than other publicly traded and privately held firms. This may be the first study to compare the tax practices of firms with different private ownership structures. Key concepts include: While majority PE-backed private firms significantly benefit from the tax shield generated by leverage, they otherwise appear less tax aggressive than public firms. In contrast, private firms that are majority-owned by PE firms engage in more tax avoidance than both management-owned and minority PE-backed private firms. On average, majority PE-backed firms pay 15 cents less income tax per dollar of pretax income than other privately held firms, even after controlling for losses and debt tax shields. Closed for comment; 0 Comments.
- 26 Aug 2009
- Op-Ed
Where Cash for Clunkers Ran Off the Road
Marketing professor John Quelch says the federal government's "Cash for Clunkers" program was poorly run and failed to meet its main objectives, proving again the government has no business trying to shape consumer behavior. Join the discussion. Key concepts include: Cash for Clunkers was an unjustifiable drain on American taxpayers. The promotion stole largely from future sales with taxpayers subsidizing over half a million new car sales that would have occurred anyway. The federal government has no experience in such initiatives and proved itself incapable of forecasting demand associated with different incentive levels. Administration expenses might well reach 10 percent of total program costs. Closed for comment; 0 Comments.
- 07 Aug 2009
- What Do You Think?
Why Can’t Americans Get Health Care Right?
Change is desperately needed, agreed readers of Professor Jim Heskett's online forum. But how to make that change remains in doubt. What can Americans learn from solutions implemented by other countries? (Forum now closed; next forum begins September 4.) Closed for comment; 0 Comments.
- 23 Jul 2009
- Working Paper Summaries
Informed and Interconnected: A Manifesto for Smarter Cities
To make our cities and communities smarter, we must become a little smarter ourselves, seeking information and an agenda to forge connections enabling collaboration, according to HBS professor Rosabeth Moss Kanter and IBM's Stanley S. Litow. Their vision is that someday soon, leaders will combine technological capabilities and social innovation to help produce a smarter world. That world will be seen on the ground in smarter cities composed of smarter communities that support the well-being of all citizens. This paper outlines eight challenges facing cities and the communities they encompass, based on experience in the United States. Kanter and Litow provide examples of practices and programs led by both government and nonprofit organizations, many technology-enabled, that point the way to solutions, and they conclude with a call for leaders to embrace an agenda for change. Key concepts include: The need for a new approach to U.S. communities is an urgent imperative because of the biggest global economic crisis since the Great Depression. Significant barriers to solving urban problems include geographic sprawl, residential mobility, the location of jobs, the lack of overarching strategic impact goals, weakened civic leadership, and social isolation. By examining each barrier in turn (and the ways they reinforce each other), it is possible to see the opportunities for significant transformation if communities could become "smarter," with technology helping spread information and facilitate interconnections. Closed for comment; 0 Comments.
Environmental Federalism in the European Union and the United States
Under what circumstances will individual states take the lead in passing the most stringent environmental regulations, and when will the federal government take the lead? When a state takes a leadership role, will other states follow? HBS professor Michael Toffel and coauthors describe the development of environmental regulations in the U.S. and EU that address automobile emissions, packaging waste, and global climate change. They use these three topics to illustrate different patterns of environmental policymaking, describe the changing dynamics between state and centralized regulation in the United States and the EU. Key concepts include: State governments have been an important source of policy innovation and diffusion for automobile emissions in the EU and the U.S., and packaging waste policies in the EU. In these cases, state authorities were the first to regulate, and their regulations resulted in the adoption of more stringent regulatory standards by the central government. With climate change policies, the EU and its member states have developed regulations in tandem, reinforcing each other. In the U.S., state governments developed more innovate regulations than the federal government for both climate change and packaging waste, but these policies have not substantially diffused to other states. Closed for comment; 0 Comments.