Bozcaga: In Search of New State Capitalism – Reflections on New Paths of SOE Management in China, Brazil, and Turkey

ABSTRACT:

There is an evolving consensus in today’s world indicating that economic markets
need greater state presence and tighter regulation. Such sentiments have naturally
followed the implosion of financial markets in the late 2000s. For most of the 20th
century, national economies had “ideological blueprints” to sustain economic growth
and development. However, the evolving consensus on state presence in national
economies does not have an identifiable blueprint. Without a directive format, novel
forms of state capitalism emerge, not similar to the state capitalism of the past, where
states had full ownership of numerous major state-owned enterprises (SOEs) operating
nearly in all sectors of the domestic economy, and regulated the economy with its
“visible hand”. In these new forms, states do not regulate the economy through full
ownership of these SOEs. Instead, they either hold majority shares of SOEs following a
partial privatization, or they hold minority (but still significant) shares of certain firms.

This paper seeks to probe the practices of recently rising new state capitalism
through new forms of state ownership in SOEs in three distinct developing nations. It will
examine the forms and the concentration of state assets in the SOE shares in the
aftermath of the neoliberal transformation with a focus on China, the champion of state
capitalism in the 21st century, along with the two emerging markets: Brazil and Turkey.
It will claim that, starting from the late 1990s, the role of the state in the economy has
evolved into a new kind of state capitalism concentrating on majority shareholding in
firms operating in the upstream sectors with strategic importance.

 

Available for download here.

Munnell, Aubry & Cafarelli: COLA Cuts in State/Local Pensions

From the Introduction:

One of the more surprising responses of public plan sponsors to the financial crisis and the ensuing recession was their reduction, suspension, or elimination of cost-of-living adjustments (COLA) for current workers and, in a number of cases, current retirees. The response was surprising because it has often been assumed that public plan participants have greater benefit protections than their private sector counterparts. The Employee Retirement Income Security Act of 1974 (ERISA), which governs private pensions, protects accrued benefits, but it allows employers to change the terms going forward. In contrast, most states have legal provisions that constrain sponsors’ ability to make changes to future benefits for current workers. Yet they were able to change the COLA for current workers and often for people already receiving it. This brief provides an overview of the COLA changes made to date, discusses the impact of eliminating COLAs on benefits, and explores the extent to which the courts view COLAs differently from ‘core’ benefits.

 

Available for download here.

Ugarteche: Public debt crises in Latin American and Europe – a comparative analysis

ABSTRACT:

The debt problems of Latin America in the 1980s were of external origin, were related
to external borrowing, exploded when international interest rates hit a historical high,
were basically international commercial bank loans in floating rate notes, and had a
negative impact on the balance of payments. The Brady Plan solved them after a
decade of falling output having undergone IFIs conditionalities, adjustment policies,
structural reforms and financing. The European crisis that started in 2007 is also of
external origin, is related to domestic borrowing, and exploded when the US sub
prime crisis hit the international financial community, is basically privately held in
bonds by European financial institutions in Euros, and has had a negative fiscal
impact. The debt solution in Latin America changed the regional process of trade and
integration begun in the late 1960s through Latin American Integration Association
(1980, previously LAFTA, 1960) as new export led policies were introduced in the late
1980s and four new sub regional schemes were subsequently created: NAFTA
(1994), SICA, MERCOSUR (1991) and CAN (1993). In this paper we are going to
inspect the economic elements of the two sets of debt problems, the international
political economy elements involved and the lessons learnt.

 

Available for download here.

Plotkin & Lewis: International Financial Institutions and the Global War on Corruption

Abstract:

Anti-corruption is now a global concern. Thirty-five years after the United States enacted the Foreign Corrupt Practices Act (FCPA), countries around the world are finally establishing tough anti-bribery laws, including some that appear stricter than the FCPA itself. Although these myriad laws feature many similarities, there are important differences that must be understood, because noncompliance can lead to significant, and potentially crippling, penalties.

Importantly, financial institutions, including bank, hedge funds, and private equity funds, are not immune from these laws. Indeed, recent events suggest that regulators across the globe are increasingly focused on financial institutions’ compliance with these anti-corruption requirements, but also develop and implement effective anti-corruption policies and procedures to address this new global regime.

Tarhan: Banking – A Political Economic Overview

ABSTRACT:

Banking business keeps its importance in an economy since the ancient times.  Banking initially was not a reputable business.  However, from the beginning of the middle of the nineteenth century, banking turned into a respectable business.  This historical period also indicates the establishment of big investment banks in the United States (U.S.).  These investment banks made important contributions in development of the U.S. by financing the big projects via securitizations in financial markets.  The aim of this study is to examine the political powers of these big financial institutions.

 

Available for download here.

Levy-Garboua & Maarek: Three criticisms of prudential banking regulations

ABSTRACT:

The new prudential regulations known as Basel III, introduced in the aftermath of the financial crisis, place four (actually five, in practice) new constraints on banks. These are a solvency ratio, three liquidity constraints and a leverage ratio. The purpose of this regulatory straitjacket is to enhance the financial soundness of banks, prevent a reoccurrence of the contagion seen in 2008 and reduce systemic risk. Unfortunately, these arrangements have some undesirable consequences and shortcomings.

This article highlights three of the problems. The first is that the growing number of constraints, and the parameters applied, will drive up borrowing costs and shrink the supply of credit, even after the period of adaptation and transition is over. Financing market activity could become difficult as the regulations themselves provide an incentive for disintermediation. The second criticism focuses on increased collateral requirements in a world where real mistrust now exists between participants in the financial system. In addition to the collateral requirements for certain transactions, we wish to draw attention to the “hidden” collateral constraint, which requires adequate unencumbered assets to properly cover “unsecured” borrowing. This constraint is no longer merely theoretical; it will affect the banking system’s viability in the medium‑term. Finally, we show how, in an economy that is risk‑free at the macroeconomic level, the fact that banks are interconnected may generate contagion risk and self‑fulfilling prophecies. This situation is less likely to occur in the case of a creditor outside the system. However, each bank’s risk of failure will depend on the structure of cross‑financing and the correlation with risks incurred by other banks. No matter how many constraints are imposed, it is unrealistic to think that regulations applying to banks on an individual basis will be able to ward off systemic risk.

 

Available for download here.

Noyer (Banque de France); Macroprudential policy – from theory to implementation

From the Introduction:

The crisis has demonstrated the need to renew our approach to financial system regulation and notably to complement it with a macroprudential perspective.
There is no single definition of what constitutes “macroprudential” policy. There is, however, some consensus over its broad outlines. First, it involves adding a macroeconomic perspective to the supervision of the financial system, which up till now has only really been addressed from a “micro” standpoint. As the crisis has shown, financial stability does not depend solely on the soundness of the individual components that make up the financial system; it also depends on complex interactions
and interdependencies between these components.

Moreover, the term “macro” refers to the interactions between the real world and the financial world, to the extent that a risk only becomes “systemic” once the imbalances or shocks affecting the financial system pose a significant threat to economic activity. The second characteristic of macroprudential policy is that it is preventive.  Its aim is precisely to prevent the formation of financial imbalances, procyclical phenomena or systemic risks by limiting excessive growth in credit and in economic agents’ debt levels, and increasing the shock‑absorbing capacity of financial institutions or structures ex ante.  Therefore, macroprudential policy is not designed to manage financial crises directly once they have erupted, but rather to prevent them from happening in the first place.

 

Available for download here.

Domonkos: Cure or Kill – The Global Financial Crisis and the Changing Domestic Politics of Pension Privatization in Central and Eastern Europe

From the Introduction:

Between the mid-1990s and the early 2000s, a significant number of countries in Central and Eastern Europe – but also in other regions of the world such as Latin America – decided to  partially replace their public pension systems with mandatory individual retirement savings  accounts managed by the financial services industry (Müller 1999; Orenstein 2008; Guardiancich 2013; Madrid 2003, see also; Weyland 2007; Brooks 2009). Yet, in the wake of the 2008 global financial crisis, policy-makers in those countries began scaling down these private “second pillars” and restoring the role of public provision. They did so in different ways: Thus, for example, Hungary almost entirely nationalized and suppressed its private pension savings plans in 2010-2011. By contrast, Poland kept its mandatory second pillar operational, but started decreasing the level of contributions paid into them from 2011. Finally, a country like Slovakia saw its governments alternate between a willingness to maintain or to weaken the role played by mandatory private pension funds. How can we explain this weakening of the earlier trend towards radical pension privatization? But also why have countries’ trajectories diverged so dramatically?

 

Available for download here.

McDonnell, King & Soule: A Dynamic Process Model of Contentious Politics – Activist Targeting and Corporate Receptivity to Social Challenges

From the Introduction:

Social movements frequently target firms as they seek to gain greater access to conventional channels of corporate decision-making (e.g., Soule, 2009; Reid and Toffel 200; King and Pearce, 2010). Social movements are outsiders to corporate decision-making and corporations have few “conventional access channels” that allow external input (Weber et al. 2009: 122; Walker et al. 2008; King 2011). Like social movements operating in the state context, therefore, these movements usually have limited access and muted influence over the institutional politics of their targets. Still, despite these limitations, recent research has demonstrated that activists are sometimes able to successfully alter corporate behavior, ranging from curbing harmful toxic emissions to granting same-sex domestic partnership benefits to employees (e.g., Maxwell et al. 2000; Raeburn 2004; Lee and Lounsbury 2012; Van Wijk et al. 2013; Soule et al. 2013).

Social movement theory has long emphasized that political opportunities, or the character of the political context in which movements operate, influence “the degree to which groups are likely to be able to gain access to power and to manipulate the political system” (Eisinger, 1973: 25; Tilly, 1978; McAdam, 1982; Kitschelt, 1986; Tarrow, 1994; Kriesi, Koopmans, Duyvendak & Giugni, 1992; Meyer & Minkoff, 2004; Della Porta, Kreisi, & Rucht, 1999; Tarrow, 1988). Like social movements operating in the context of the state, opportunity structures likely shape the outcomes of corporate-centered activism, yet because most corporations lack the democratic procedures of formal political systems, the mechanisms by which activists gain access to powerful decision-making centers are less apparent in the corporate context. Given the relatively closed nature of corporations, what explains the differences in corporate opportunity structures that allow activists to gain access to these organizations? And to what extent are activists’ decisions to target particular companies shaped by these opportunity structures?

 

Available for download here.

Jiang: Red Trojan Horses? A New Look at Chinese SOEs’ Outward Investment

ABSTRACT:

How dangerous is Chinese outward foreign direct investment (OFDI) because of the state’s influence over business, particularly state-owned enterprises (SOEs)? To what extent are business and politics interwoven in Chinese investment decisions? Crucial knowledge is lacking on the relationship between the state and companies in China’s OFDI. This study does not claim to completely refute the conventional view that Chinese companies, particularly SOEs, are controlled by the state in their OFDI activities. However, it tries to provide some evidence that suggests the need for a revised look at them. It argues that although Chinese SOEs are supported by Chinese diplomacy and loans in their OFDI and have a tacit understanding of certain strategic goals of the state, they enjoy autonomy to make business decisions and have prioritized maximizing their own business interests. Importantly, this is enabled by the state’s view that the profit of SOEs is consistent with national interests.

 

Available for download here.