First Look

June 3, 2008

While both China and Vietnam enjoy phenomenal rates of annual economic growth—9.88 percent and 7.53 percent, respectively—a peculiar difference remains. The presence of income inequality in China is considerably more pronounced than in Vietnam, even though on their face the economic variables would suggest greater similarity. "The puzzle of divergent patterns of inequality in these two high-growth single-party regimes only remains a puzzle from a bird's-eye view of existing datasets," according to a new working paper available for download [PDF]. As HBS senior fellow Regina Abrami and colleagues write, the construction of Vietnam's institutions, though far from perfect, does allow for economic policies that facilitate greater revenue transfer among provinces and individuals, rather than concentrating among a few. "It is still too early to tell whether the development paths in China and Vietnam will converge or diverge," they conclude. This week also sees a wealth of other working papers and articles, as well as cases on healthcare, blogs, and New York City's multiuse Time Warner Center complex.
— Martha Lagace

Working Papers

Accountability and Inequality in Single-Party Regimes: A Comparative Analysis of Vietnam and China


Over the past two decades, no two economies have averaged more rapid economic growth than China and Vietnam. But while China‘s income inequality has risen rapidly over that same time frame, Vietnam‘s has only grown moderately. Structural and socio-cultural determinants fail to account for these divergent pathways. Existing political variables are also unhelpful. China and Vietnam are coded in exactly the same way, even in the path-breaking work on authoritarian regimes. In this paper, we take a deeper look at political institutions in the two countries, demonstrating that profound differences between the polities directly impact distributional choices. In particular, we find that Vietnamese elite institutions require construction of broader coalitions of policymakers, place more constraints on executive decision making, and have more competitive selection processes. As a result, there are stronger political motivations for Vietnamese leaders to provide equalizing transfers that limit inequality growth.

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Evaluating the Impact of SA 8000 Certification


SA 8000, along with other types of certification standards and corporate codes of conduct, represents a new form of private governance of working conditions, initiated and implemented by companies, labor unions, and non-governmental activist groups. Whether these codes represents a substantive or merely symbolic approach to governing working conditions is the subject of an ongoing debate, which to date has been dominated by philosophical and political discourse due to a lack of systematic evaluation. Very little empirical evidence is available to indicate whether these codes legitimately distinguish adopting companies and factories as providing better working environments (e.g., health and safety, freedom of association, fair pay practices) and whether these codes have affected their business outcomes (e.g., staff turnover and absenteeism, product defect rates, sales growth). In this paper, we review the existing evaluations of other private codes governing workplace conditions, including the Ethical Trading Initiative's Base Code, Nike's code of conduct, and Fair Trade. We then describe several key elements of program evaluation that are becoming standard practice in other domains, which we believe should be incorporated in future evaluation studies of these codes. We emphasize the importance of examining performance over time, comparing adopters to non-adopters, and incorporating strategies to overcome selection bias. Evaluations that meet the highest methodological standards are critical to inform the debates about this new form of private governance, and to highlight opportunities for improvement in their standards and monitoring procedures.

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Corporate Social Responsibility through an Economic Lens


Business leaders, government officials, and academics are focusing considerable attention on the concept of "corporate social responsibility" (CSR), particularly in the realm of environmental protection. Beyond complete compliance with environmental regulations, do firms have additional moral or social responsibilities to commit resources to environmental protection? How should we think about the notion of firms sacrificing profits in the social interest? May they do so within the scope of their fiduciary responsibilities to their shareholders? Can they do so on a sustainable basis, or will the forces of a competitive marketplace render such efforts and their impacts transient at best? Do firms, in fact, frequently or at least sometimes behave this way, reducing their earnings by voluntarily engaging in environmental stewardship? And finally, should firms carry out such profit-sacrificing activities (i.e., is this an efficient use of social resources)? We address these questions through the lens of economics, including insights from legal analysis and business scholarship.

Download the paper from SSRN ($5):

Firm-Size Distribution and Cross-Country Income Differences (revised)


We investigate, using firm-level data for 79 developed and developing countries, whether differences in the allocation of resources across heterogeneous plants are a significant determinant of cross-country differences in income per worker. For this purpose, we use a standard version of the neoclassical growth model augmented to incorporate monopolistic competition among heterogeneous firms. For our preferred calibration, the model explains 58% of the log variance of income per worker. This figure should be compared to the 42% success rate of the usual model.

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Cases & Course Materials

AT&T v. Microsoft (B): District Court Ruling and Appeal

Harvard Business School Supplement 608-081

Supplements the (A) case.

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Blogging at BzzAgent

Harvard Business School Case 508-102

BzzAgent is a word-of-mouth marketing firm. The founder, Dave Balter, sees blogs as an important way to communicate BzzAgent's unique positioning: transparency. He sees the firm's blog—the BeeLog—as a way for the firm to participate in conversations with clients, employees, and "agents." However, he has been unhappy with the level of interaction the blog has been generating and is considering shutting it down. The case provides a context for a discussion about word-of-mouth marketing and social media, as well as about blogs specifically. It also provides examples of other corporate blogs and allows for students to weigh the benefits and drawbacks of this potentially important form of communication.

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The Energy Foundation

Harvard Business School Case 308-078

The Energy Foundation, a philanthropic foundation established through a partnership among major donors with a mission to promote clean energy technology, is the largest funder in the U.S. focusing on the energy sector. The $60 million foundation operates through a range of networks, among funders and grantees, to achieve broad impact. Funder networks and foundations that work through a network approach are relatively uncommon in the philanthropic sector. Eric Heitz, EF's president, seeks to build the broader field of energy philanthropy, scale EF to meet the sector's needs, and utilize the strengths of its grantees and their networks. He must determine how the foundation can achieve greater impact by leveraging not only its own resources, but also those of others in the field.

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Leveraged Loans 2007

Harvard Business School Case 208-145

The leveraged loan market was in a crisis during the summer of 2007, following many years of low realized volatility (less than 4% per annum), an index of leveraged loans had fallen over 5% in the month of July. A sudden drop in capital market prices for an asset class can be caused by news affecting fundamental values or by a widespread liquidity shock. The implication of a shock to fundamental value is that the price drop is permanent, whereas if the underlying cause of the price drop is caused by a liquidity event, the situation may represent a profitable investment opportunity. Investors must assess the likely cause of the recent price drops in the leveraged loan market and determine an appropriate investment strategy.

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Ophthalmic Consultants of Boston and Dr. Bradford J. Shingleton (2004)

Harvard Business School Case 608-151

Dr. Bradford Shingleton has developed some of the highest-quality eye surgery techniques in the industry. He involves his nurses and technicians in creating a surgical service that is constantly improving. The case has many details about how Dr. Shingleton works with his staff and patients and how the provider team focuses on patient care. A key measure of productivity for the surgery center is the time required in the operating room. Shingleton's numbers are impressive as they decrease each year. The business context relates to the particular patients, mostly require cataract or glaucoma surgery and the payer is Medicare/Medicaid, which regulates the price. Yearly decreasing prices make it more difficult for doctors to earn a good income unless they improve their productivity. Other surgeons in the practice do not copy Dr. Shingleton's practices nor use his trained surgical team. The dilemma relates to why his methods do not spread to other doctors and other clinics.

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Quanta Computer and the One Laptop Per Child Initiative

Harvard Business School Case 608-102

When Quanta Computer, Inc., the world's largest manufacturer of laptop computers, first joined the One Laptop Per Child (OLPC) initiative, it faced a challenge trying to balance the cost objectives of a laptop computer targeted at children of the developing world with the escalating content demands from the marketplace and the non-profit OLPC Foundation. It also had to fit the project into its company business model which served global lead PC brands like Apple as a high-volume, low-cost ODM provider. The case is a vehicle for discussing new market disruption and the impact of modularity and the evolution of the value network in the global PC supply chain.

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Reading Rehabilitation Hospital: Implementing Patient-Focused Care (A) (Abridged)

Harvard Business School Case 608-070

Reading Rehab Hospital has experimented with a popular concept in health care—patient-focused care—intended to increase quality and reduce costs by organizing care delivery around particular diagnoses or "service lines," rather than around the functions or disciplines of the care providers. It is equivalent to a product rather than a process focus. Unfortunately, it is not clear whether the benefits of this new healthcare model are sufficient to compensate for the drawbacks.

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The Time Warner Center: Mixed-Use Development

Harvard Business School Case 208-081

Despite the failure of other attempts to bring mixed-use development in New York City, Related Companies in 2004 opened Time Warner Center, a huge complex incorporating offices, shops, restaurants, music auditoriums, a hotel, and luxury apartments on Columbus Circle in Manhattan. Tracing the process by which Related became the site developer, the case examines the risks and rewards of building and marketing the various components of the megastructure.

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Fixing Market Failures or Fixing Elections? Elections, Banks, and Agricultural Lending in India


How vulnerable are economic interventions to capture by politicians, how are captured resources used, and how costly are the resulting distortions? This paper answers these questions in the context of the credit market in India. Integrating theories of political budget cycles with theories of tactical electoral redistribution yields a compelling framework to test for the presence of capture. I find that government-owned banks are subject to substantial capture: the growth rate of agricultural credit lent by public banks is 5-10 percentage points higher in election years than in years after an election, and in election years more loans are made to districts in which the ruling state party had a narrow margin of victory (or a narrow loss) in the previous election. This targeting does not occur in non-election years. This paper then shows that politically motivated loans are economically costly. They are less likely to be repaid. Nor are they put to good use: election year credit booms do not measurably affect agricultural output. Finally, I measure whether the average agricultural loan was beneficial, using variation induced by the 1980 bank nationalization: agricultural credit in villages with nationalized bank branches grew more than twice as quickly than in villages with private branches over the 1980s. However, this additional credit had no effect on measured agricultural outcomes.

Linguistic Network Configurations: Management of Innovation in Design-intensive Firms


In today's business and academic arenas, design is increasingly viewed as a core strategic resource. Whereas much of the literature in the field focuses on the process and methods that lead to better understand user needs and to foster creativity, and much of the business and design press focus on the role played by designers and design firms, innovation driven by design seems to emerge by more complex social interactions among internal and external developers. This article analyses the innovation processes of a set of leading design-driven companies in the furniture industry to identify how they develop product innovations. The empirical investigation is based on several case studies in the industry, where we analyze the interactions between internal and external developers of new products. Successful firms devise peculiar organizational configurations to collaborate with external researchers, who act as interpreters of the evolution of technologies and sociocultural models; moreover they structure themselves in what we have defined as linguistic networks—that is networks that share knowledge on design languages. The paper describes the different configurations and the characteristics of these linguistic networks according to the strategy and features of the organizations.

Technology, Identity, and Inertia: Through the Lens of 'The Digital Photography Company'


Organizations often experience difficulty making technological transitions. Large bodies of research have examined the behavioral, social, and cognitive forces driving this phenomenon, however the role of a firm’s identity remains relatively unexplored. How do a firm’s internal identity (the shared understanding of organizational members) and external identity (how outsiders perceive the organization) influence its ability to capitalize on new technological opportunities? Based on a comprehensive field-based case study of the entire life history of a company, identity is found to be an important inertial force that operates in two ways. First, identity serves as a filter, such that organizational members notice and interpret external stimuli in a manner consistent with the identity. As a result, new technological opportunities inconsistent with that identity may be missed. Second, since identity becomes embedded in the routines and procedures of both the organization and external constituents, explicit efforts to shift identity in order to accommodate new technology are difficult to accomplish, generating an additional source of inertia for firms attempting technological transitions.