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31 Cards in this Set
- Front
- Back
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1) The rationales behind the “convergence”Theory: |
Companiesface similar constraints -> Must compete, driven by profits -> mustimitate successful modes -> converge on best practices & commonorganizational pattern |
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2) The main conclusion of the MIT GlobalizationStudy: |
Convergence: All systems will look alike Divergence: Globalization does not force everyone on the same track 4 conclusions: -Legacy or firm experience matters -Low-wage strategies have no durable advantage -To win, play the game
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Define: Institutional complementarities |
Effectiveness of one institution depends on the design ofanother; All major institutions of capitalism are complementary of each other(ex. Financing, training system, industrial relations, social welfare, etc) |
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Define: Comparative Institutional Advantage: |
Institutional structure provides different economicadvantages |
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Coordinated Market Economy: Corporate Governance |
Insider rules, concentratedshareholders, bank finance, labor represented
Advantage: patient capital results in long-term initiatives, bufferagainst economic shock, builds skilled workforce; labor has a voice;incremental innovation; banks can share information with firmsr |
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Coordinated Market Economy: Product Market Competition: |
Product Market Competition: Inter-firm cooperation,relational contracting.
Suppliers are more flexible with orders, customized production |
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Coordinated Market Economy: IndustrialRelations: |
Corporatist, low labor mobility, centralized and higherunion density
*Firms can develop firm-specific skills and knowledge; stable skilledworkforce stock; stronger labor-management relations facilitates introductionof new technology, labor rules, conditions; company loyalty/trust minimizesmonitoring cost and minimal intellectual and patent leakage; greater workforcesatisfaction may lead to greater productivity |
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Coordinated Market Economy: Training: |
Training: Firm-specific skills or industry-specific skills; vocationaltraining
-Retraining of workers in times of industry or technological changes;demand and supply of worker skills matches; more private-public partnerships inbuilding skilled workforce |
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Liberal Market Economy: CorporateGovernance: |
Outsider rules, dispersed shareholders, equity finance, nolabor on boards -Equity finance buildsdeeper capital markets and leads to faster growth; equity finance gives firmsgreater flexibility in operation (i.e. fewer conditions imposed by lenders);protection of shareholder rights results in greater transparency andaccountability for economic performance; Funds for start-ups/new ventures moreavailable – enhances entrepreneurship; radical innovation |
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Liberal Market Economy ProductMarket Competition: |
inter-firm competition, formal contracts -Maximizing efficiencyby matching with best counterparty (lost cost, better quality); excels inlonger series and large batches (mass production) |
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Liberal Market Economy IndustrialRelations |
Market based, high labor mobility, decentralized, low uniondensity
-Adaptable skillsets(workers can respond easily to changing socioeconomic realities); higheremployment rate |
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Liberal Market Economy Training |
General Skills, High R & D expenditures, individualinvestment -Demand and supplydriven employee retention; more flexible and adaptable industry shifts;potentially more creative due to multi-disciplinary perspective; public/workersacceptance of disruptive changes are high |
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Main critiques of the“varieties of capitalism” approach: |
*Great variation among firms in the same sector in CME and LME * “Legacy” or firm “experience” matters (DNA of each firm varies and is open-ended) *Corporate leadership and strategic choices still matter *downplays autonomous role of political actors *Does not fully address growth of modular production networks |
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Causes of the 2008 Great recession |
1) Global imbalances and capital inflows into the us that created a housing bubble – US savings deficits; capital inflows create conditions ripe for speculation
2)Deficient regulatory approach and excessive risk-taking by financial entities –Government pushes for increase in home ownership and sup-print mortgage market expands. Banks spread their risk through creation of financial instruments.Everyone believes default risk is small.
3)Monetary policy mismanagement – The Fed could have raised interest rates; it’s low-interest rate policy fed the housing boom and forced savers to shift incomeinto riskier investments
-ideology,political interests, and political institutions were permissive or enabling factors (Political bubbles) |
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Define “Political Bubble” and provide an explanation for each factor: ideology, political institutions, and interests:
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Political Bubble: “A set of policy biases that foster and amplify the market behaviors that generate financial crises”
-Ideology:belief that ‘this time is different,’ increasing polarization of American politics, conviction that private credit rating agencies are sufficient, ‘freemarket conservatism’ -Political Institutions: fragmented and super majoritarian structure of US political institutions, electoral system (never ending campaign cycle, representationbased on geography), system of competing regulators with many gaps, great regulatory discretion -Interests:Well-organized financial interests block regulatory efforts; US politicians depend heavily on campaign contributions and information from financial institutions; “revolving door” between banks and the Fed, as well as politicians and lobbyists |
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Soldto Barclays |
Lehman Brothers |
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Firmthat survived 1929 crash |
BaerStearns |
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Largestloan originator prior to ’08 |
Countrywide |
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IgnitedEuropean Sovereign debt crisis |
MortgageBacked Securities |
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Contributedto Asian Financial Crisis |
EquityFutures |
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FlashCrash |
HighFrequency Trading |
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Insurancepolicies that protect against default |
CreditDefault Swaps |
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Instrumentthat derives income from a borrowers’ pool of underlying assets: |
Collateralized Debt Obligations |
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Examples of the government’s unprecedentedinterventions and experimentations to resolve the financial crisis: |
-Provided loans to banks based on questionable collateral(credit easing) -Assisted in the purchase of troubled intermediaries (JPMorgan => Bear Sterns) -Took over Fannie Mae and Freddie Mac -Lent big to failing institutions (AIG) but not all (Lehmanbrothers) -Guaranteed money market funds -Promoted legislation permitting the purchase of troubledassets and direct injections of capital into banks (TARP) -Quantitative Easing -Financial Reform (Dodd Frank)
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Esping-Anderson’s Three World of Welfare States:What are they and provide general characteristics: |
1) Liberal Welfare System: means-tested assistance(discriminatory), modest universal transfers or modest social-insurance plans;limited benefits. Developed by the elite. Ex: US & Australia 2)Social-Democratic System: Universal insurance system, generous benefits. Stateis primary organ for caring for children, needy, aged, etc. Encourages femalelabor market participation. Developed by Labor. Ex: Scandinavia 3)Bismarckian/Social Insurance System: Heavy on social insurance programs basedon previous contributions; maintenance of family structures (excludingnon-working wives/mothers). Developed in coordination with the Church. Ex:Germany, France, Italy.t0d |
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Generalcharacteristics of: Proportional Representationsystem |
Proportional: Promotes greater fairness to minority parties -Enhancesdiversity (inclusion of minority votes) -Higherchances of coalition building – consensus-based -highervoter turnout (less wasted votes -advantageous forthe poor |
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General characteristics of Majoritarian system |
Exclusionary (high percentage of dead votes) -betterfor bigger parties (penalizes smaller parties) -spatialconcentration of votes is critical -emphasison effective governance over diversity (less representation of minority views) -Disadvantageous to thepoor |
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Causes of “Winner TakeAll” economy |
-Sustained hyper-concentration of wealth -Sustained inequality -Limited benefits for non-rich; no trickle down and safety net getting smaller *Executive pay has increased dramatically*Growth of winner-take-all businesses/sectors: some new jobs(notably in finance) have winner-take-all character and people holding themhave enjoyed huge increases in income*Skills Based Technological Change: Lower demand forlow-skill and mid-skill workers performing “routine” tasks and increased demandfor high-skill workers *Winner-take-all politics is enabling/maintaining awinner-take-all economy |
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Majoritarian system = advantages vs. disadvantagesfor the poor ? |
Disadvantageous to the Poor -Rich-middleclass alliance vs. Poor (center-right) -2-partysystem punishes smaller parties like the pro-poor working class parties -Personalisticcampaign funding needs increases the importance of money in politics -Favorspowerful, organized economic interests (poor are generally unorganized) -Lessemphasis on party platform (non-encompassing) and winner-take-all featurecompels parties to target policy benefits to districts that play a pivotal rolein winning elections |
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PR = advantages vs. disadvantages for the poor ? |
Advantageous to the Poor -Rich vs.middle class-poor alliance => Center-left leaning coalitions -Betterfor smaller parties. Working class party more likely to have a voice incoalition governments -morelikely to generate encompassing social policies to cater to broad range ofvoters (encompassing party platform) -Lessneed for campaign financing by individual candidates (hence, less emphasis oncampaign financing/$ from rich donors) |
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Policy drift:definition and example |
The deliberate failure to adapt public policies to the shifting realities of a dynamic economy ex: how rising inflation erodes the value of federal minimum wage -the absence of government response to rising inequality |
