Fitzpatrick & Monahan: Who's Afraid of Good Governance? State Fiscal Crises, Public Pension Underfunding, and the Resistance to Governance Reform

ABSTRACT:

Much attention has been paid to the significant underfunding of many state and local employee pension plans, as well as efforts by states and cities to alleviate that underfunding by modifying the benefits provided to workers. Yet relatively little attention has been paid to the systemic causes of such financial distress — such as chronic underfunding that shifts financial burdens to future taxpayers, and governance rules that may reduce the likelihood that a plan’s trustees will make optimal investment decisions. This article presents the results of a qualitative study of the funding and governance provisions of twelve public pension plans that are a mix of state and local plans of various funding levels. We find that none of the plans in our study satisfy the best practices that have been established by expert panels, but also that the strength of a plan’s governance provisions does not appear correlated with a plan’s financial health. Our most important finding is that, regardless of the content of a plan’s governance provisions, such provisions are almost never effectively enforced. This lack of enforcement, we theorize, has a significant, detrimental impact on plan funding and governance. If neither plan participants nor state taxpayers are able to effectively monitor and challenge a state’s inadequate funding or improper investment decisions, public plans are very likely to remain underfunded. We conclude by offering several possible reform options to address the monitoring and enforcement problems made clear by our study: automatic benefit haircuts, automatic tax increases, a low-risk investment requirement, and market monitoring through the use of modified pension obligation bonds.

 

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JOENVÄÄRÄ & KOSOWSKI: The Effect of Regulatory Constraints on Fund Performance – New Evidence from UCITS Hedge Funds

ABSTRACT:

Based on geographically disparate regulatory constraints, such as share restrictions and risk/leverage limits, we economically motivate and test a range of hypotheses regarding differences in performance and risk between UCITS-compliant (Absolute Return UCITS (ARUs)) and other hedge funds. We demonstrate that hedge funds have more suspicious patterns in their reported returns than ARUs, which have stricter reporting rules. Inconsistent with the notion that UCITS rules reduce operational risk we find that ARUs are more exposed to operational risk measures and exhibit more external conflicts of interest than hedge funds. Although ARUs deliver lower risk-adjusted returns than other hedge funds on average, this difference disappears when we compare subsets of the two groups of domicile matched funds that have the same liquidity or share restrictions. Leverage and margin constraints are less binding for funds that impose tight share restrictions, and thereby, these funds tend to have more exposure to betting-against-beta factor. Finally, we find that there are limits to the ability of investors to exploit the superior liquidity of ARUs through portfolio rebalancing since they exhibit lower
performance persistence.

 

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BĂCANU: The Performance of Public Organization – Still Unclear

ABSTRACT:

Nowadays, the present discussions about the organisation’s performance have revealed the fact that the concept is unclear. The use of the concept is more difficult in public organisations. The paper presents the case of Romanian SOE Hidroelectrica and the case of public universities, to pinpoint the fact that ambiguous objectives are the cause of a dilemmatic management. The general opinion is that the results of the public organisations management reflect a poor performance of the latter.

 

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Lan: Foreign Direct Investment in the United States and Canada: Fractured Neoliberalism and the Regulatory Imperative

ABSTRACT:

Although both Canada and the United States review foreign investment for national security concerns, Canada also requires that the investment be of “net benefit” to Canada.
Recent investments by state-owned enterprises (SOEs) and sovereign wealth funds (SWFs) have prompted the suggestion that the United States should also adopt a net benefit or economic test. This Article argues that the United States should
not adopt the Canadian approach. The Canadian approach attempts to screen out foreign public entities and requires that they act in a “commercial” manner. This approach is based on two assumptions. First, it assumes that one can segregate the public foreign interest from private and domestic interests. Second, it assumes that one can adequately define what it means to act in a commercial manner. This Article contends that both assumptions are incorrect due to their dependence upon classical categories such as public/private and domestic/foreign that are of limited value in a postmodern,
globalized economy. This Article argues that an approach based on addressing specific harms, regardless of identity of the actor, represents a more sustainable approach towards the risks associated with foreign government-controlled entities. This Article suggests that competition law, through its policy-based regulation of harms by economic entities, can form the basis of a new regulatory structure to address concerns, which in retrospect, are about aggregations of power rather than strictly national identity.

 

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Mutamba & Busari: Strategic Coordination for Sustainable Investment in Critical Infrastructure

ABSTRACT:

In demonstrating the prime place of infrastructure investment in its national long-term development framework encapsulated in Vision 2030, as well as in the related New Growth Path, South Africa recently put together a comprehensive National Infrastructure Plan. Aside from mapping out short and medium-term priorities for scaling up investment in strategic sectors and enhancing infrastructure links across the country, the initiative underscores development objectives such as community empowerment and skills development. This paper zeroes into one of the 18 strategic programs in the plan—specifically devoted to water and sanitation infrastructure—and presents the principal elements for pursuing effective inter-project coordination and integration, as well as,
ultimately, for ensuring the sustainable implementation of critical infrastructure. The approaches that have influenced the success of strategic coordination include participatory planning, project prioritization, regular tracking and unblocking of implementation hurdles, localization, active stakeholder engagement and ongoing program integration.

 

Available for download here.

Sansyzbayeva & Ametova: The Role of “Samruk-Kazyna” Sovereign Wealth Fund in Implementation of State Programs of the Republic of Kazakhstan

ABSTRACT:

One of the most important conditions of realization by the state of its functions is a formation of an effective policy in the field of management of the state assets. The role and scales of the state’s participation in this process, degree and methods of its influence on production are covered in this article.

 

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Appel: Just how capitalist is China?

ABSTRACT:

In this paper, we review old and modern conceptions of “capitalism” and then we evaluate how “well” China fares on three touchstones of capitalism: competitive markets, generalization of wage-labour, and private ownership of the means of production. While we accept that China has come a long way under the first two criteria since the 1980s, we do not deem China yet to be a full-fledged capitalist economy for the State still wields great power through the allocation of massive state resources and control of large and highly profitable state enterprises, which dominate key sectors of the economy.

 

Available for download here.

Wang: The Role of the Director Social Networks in Spreading Misconduct – The Case of Reverse Mergers

ABSTRACT:

After 2000, a growing number of foreign firms list in the United States through reverse merger, a non-IPO listing technique that requires less information disclosure. Are the US regulations rigorous enough to deter the listing attempts of weak foreign firms? Using a unique data set, this paper presents the widespread misconduct of Chinese firms that are listed on US exchanges. The firms tend to be US-incorporated reverse mergers that are headquartered in small cities, are audited by small firms, and that change their auditors frequently. Using a social network analysis, I find that the firms are assisted by Western professionals to help them circumvent the US regulations, and they commit fraud and benefit from fast stock sales after listing. Further, I find that the social network of the linked directors facilitates the spread of their misconduct. During the wrongdoers’ listings, the investors in these firms lost at least $811 million. However, the penalties charged to the wrongdoers only accounted for 4.19% of this loss. I also find that the US-listed Chinese firms have a lower average Tobin’s q compared to the China-listed firms, in contrast to the prior research’s findings. These findings contradict the concurrent research that uses the reverse mergers’ financial data, which proves to be unreliable.

 

Available for download here.

Tsheola: Contemporary International Relations and the BRICS Geopolitics of State Capitalism

ABSTRACT:

This article posits that the BRICS set serves to create a “regional” business space for exclusive operations of state-owned enterprises (SOEs) of member states. Far from being forecast as leading emerging economies of future significant standing on the global stage, the BRICS of Brazil, Russia, India, China and South Africa is trapped in the binary-paralysis of private-public partnership governance. The article examines the BRICS set conditionalities and principles for conduct of international relations in order to demonstrate that member countries’ continued reverence of state capitalism governance, manifested through SOEs “champions”, will precipitate intra-set economic and political conflict in ways that perpetuate domestic political-economy of poverty and inequality. It argues that state capitalism, and a nuance hybrid of SOEs that are supported through public funds in order to operate on the global business platform in the same way as private multinational corporations that pursue commercial financial interests, does not serve societal goals of justice and equity. Given that the establishment of the BRICS is framed on the set being the centre of future global growth, consolidation of state capitalism and the nuance hybrid of SOEs imply that domestic poverty and inequality will continue unabated, as public investment share of education and health remains negligible.

The article demonstrates that state capitalism and SOEs “champions” governance, is inherently biased towards greater public investment in industrial production rather than social objectives. It concludes that multidimensional and income poverty will continue to be intensive whilst inequality remains stark among the BRICS member states, whilst their cultural, historical and ideological diversities stimulate economic and political conflict in international relations.

 

Available for download here.

Kamin: IN GOOD TIMES AND BAD – DESIGNING LEGISLATION THAT RESPONDS TO FISCAL UNCERTAINTY

ABSTRACT:

Congress often moves slowly to change tax and spending laws when circumstances change, but there are ways to design legislation to anticipate and prevent the tendency towards “policy drift.” Enactment of major pieces of legislation tends to be followed by periods of legislative stasis, even when economic conditions change. Policies during the Great Recession are an example of this. The Great Recession proved significantly deeper than forecasters had predicted, when the American Recovery And Reinvestment Act was enacted, but as new information became available, Congress did little to alter the fiscal
stimulus in response, other than to continue some expiring provisions. There are ways to design legislation to anticipate and prevent the tendency towards “policy drift.” This paper
identifies four mechanisms: delegation of legislative authority to administrative agencies, triggers that either automatically adjust policy for changed circumstances or try to force an issue onto Congress’s agenda, expirations of legislation that sunset laws on a predetermined date, and indexing to adjust policy in discrete increments in response to changes in conditions.

Each has its advantages and disadvantages, but on balance, triggers that automatically adjust policy to new circumstances tend to be most effective in preventing policy drift, particularly for countercyclical policy and Social Security. When economic conditions deteriorate, triggers could be in place that would automatically adjust levels of aid to states and federal infrastructure spending, provide tax cuts, and adjust the length of eligibility for unemployment benefits. In order to maintain the solvency of Social Security, benefits and taxes could be indexed to changes in estimates of the program’s solvency over 75 years. When there is a projected shortfall or surplus, the law could trigger adjustments in benefits and taxes to compensate. With respect to Medicare, a combination of indexing on the revenue side, and increased delegation on the spending side is recommended. Medicare revenues would be indexed to health cost growth through a combination of payroll taxes and income taxes in order to maintain the current mixed financing system. To keep payments in check, mechanisms like the Independent Payment Advisory Board could be expanded and strengthened.

 

Available for download here.