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on Heterodox Microeconomics |
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Issue of 2014‒07‒21
ten papers chosen by Carlo D’Ippoliti Università degli Studi di Roma “La Sapienza” |
| By: | James Roumasset (University of Hawai‘i at Manoa & University of Hawai’i Economic Research Organization) |
| Abstract: | There is a persistent tendency in economic development circles to jump to policy conclusions without entertaining more fundamental explanations of empirical patterns. After reviewing several examples in the field of agricultural development, I provide an alternative paradigm for understanding behavior and organization. Despite the increased sophistication and vast access to data, modern theories and empirical methods have yet to focus adequately on developing fundamental methods for advancing policy analysis through the nature, causes and consequences paradigm. This assessment points to promising avenues for future research. Two such areas singled out for further attention are black hole economics and the coevolution of specialization and economic development. |
| Keywords: | Farmer behavior, agricultural organization, development policy, new institutional economics, specialization, black-hole economics |
| JEL: | O12 O13 B41 B52 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201421&r=hme |
| By: | Lorenzo Cerda Planas (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | This paper intends to provide an alternative explanation of why societies behave differently from an environmental point of view. To do so, I use a Kantian moral approach at a microeconomic level. Under this premise, I show that two identical societies (according to income and political system) might follow different paths with respect to their "green" behaviour. Additionally, I identify tipping points that could nudge a society from a polluting behaviour to a green one. I find that environmental perception as well as how governments are elected can be important factors in this shift. |
| Keywords: | Environmental motivation; Kantian morale; green behaviour; tipping points |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01018651&r=hme |
| By: | Yann Giraud; Pedro Garcia Duarte (Université de Cergy-Pontoise, THEMA; University of sao Paulo, Economics Department) |
| Abstract: | Some historians argue that the history of economic thought (HET) is useful and important to economists and that historians should remain in economics departments. Others believe that historians’ initiatives toward economists are doomed in advance to failure and that they should instead ally themselves with historians and sociologists of science located in humanities departments. Generally, the contributions that are devoted to reviewing the state of HET take a firm side for either one of these two positions and therefore have a prescriptive view on how history should be written. By contrast, our paper proposes a descriptive account of the kind of contributions to HET that have been published in major economics journals over the past two decades. To avoid definitional issues over HET, we use the B category of the JEL classification to retrieve and analyze the relevant literature. We show that, though contributions to HET are still found in top economics journals, the rate of publication of such papers has become increasingly uneven and the methods and narrative styles they adopt are increasingly remote from that advocated in the sub-disciplinary literature. For this reason, historians who are still willing to address the economics’ community should be more interested in expanding the frontiers of their field rather than in trying to anticipate their targeted readers’ preferences. |
| Keywords: | history of economics, economics journals, American Economic Review, Journal of Economic Literature, Journal of Economic Perspectives, Economic Journal |
| JEL: | B20 A14 B40 B29 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2014-09&r=hme |
| By: | Sofia ADAM (Observatory of Social and Economic Developments, Labour Institute/Greek General Confederation of Labour, Greece) |
| Abstract: | Social economy initiatives are often considered as the most effective social inclusion strategy both in policy guidelines and academic discourse. In particular, social enterprises are expected to provide work integration for those furthest away from the labor market, to foster the development of deprived areas and to contribute to social cohesion. It is the intention of this paper to unfold the relevant discourses around social exclusion and explore the role they attribute to third sector organizations in general and social enterprises in particular. In order to do so, we construct a typology of multiple social exclusion discourses and critically examine the centrality they attribute to work integration and to collective regulations of social problems. This theoretical contribution guides our exploration of the role of social cooperatives for persons with mental health problems in Greece. The results presented refer mainly to goal mixes and work integration outcomes. These results bear in turn important insights for policy orientation in the field of social economy. Social economy initiatives may strive better as a social inclusion strategy if they are not restricted to mere work integration but are allowed to unfold their potential in a multiplicity of fields (socialization, social movement formation, empowerment, etc.) and are internally linked to coherent social protection policies |
| Keywords: | social exclusion, social enterprises, work integration, Greece. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:crc:wpaper:1408&r=hme |
| By: | Mario Mariniello; Marco Antonielli |
| Abstract: | Based on a dataset of manufacturing sectors from five major European economies (France, Germany, Italy, Spain and the United Kingdom) between 2000 and 2011, we identify a number of key sector-level features that, according to established economic research, have a positive impact on the likelihood of collusion. Each feature is proxied by an â??Antitrust Risk Indicatorâ?? (ARI). We rank the sectors according to their ARI scores. At 2-digit level, sectors that appears more exposed to collusion risk are those that tend to score high in most of the ARIs: Tobacco, Pharmaceuticals, Beverages, Chemicals. The 4-digit analysis suggests higher anticompetitive risk in Tobacco products, Spirits, Sugar, Railway Locomotives and Aircraft (high concentration and fixed costs), Coating of Metals and Printing (low import penetration), Tobacco products, Meat products, Footwear and Clothing (high market stability), Plastic products and Spinning/Weaving of textiles (high symmetry of market leaders). We then rank sectors according to the distribution of antitrust intervention by the European Commission between 2000 and 2013, in terms of merger control and anti-cartel enforcement. Tobacco, Paper and paper products, Pharmaceuticals and Food products are the sectors for which a notified merger has a greater likelihood of being deemed problematic by the Commission. There has been a greater incidence of anti-cartel action in Chemicals, Tobacco, Beverages, Electric equipment and Rubber and plastic. Antitrust investigations are based on the identification of narrow product markets. The characteristics of these markets are not necessarily well represented by average measures at sector level. Nevertheless, a simple comparison exercise shows that the European Commissionâ??s interventions have been largely consistent with sector rankings based on market concentration Introduction The object of this paper is twofold: to provide a broad descriptive analysis of the risk of collusive behaviour throughout Europe in the manufacturing sector; and to identify those manufacturing sectors in which the European Commission has been more active in the past in its capacity of antitrust authority. This paper is close in spirit to industry and market studies, although our target is wider and encompasses the whole manufacturing sector in Europe, as explained further below. Our methodology resembles Ilzkovitz et al (2008), in which the authors couple a variety of product market indicators to measures of antitrust enforcement to determine whether an economic sector is characterised by weak competition. In the manufacturing sector they identify Basic metals and Motor vehicles as the sectors in which competition issues are more likely to arise. Symeonidis (2003) asks in which United Kingdom manufacturing industries collusion is more likely, finding no clear link with industry concentration (industries where collusion had a higher incidence were Basic metals, Building materials and Electrical engineering). Yet Symeonidis's (2003) analysis is based on observed collusive agreements that were considered lawful during the period of observation1. Our aim instead is to investigate potential infringements of competition law that could be pursued by an antitrust authority. During our observation period, collusion is illegal and therefore participating to a cartel is risky: the inability to coordinate in an explicit and transparent manner between market players and the threat of antitrust intervention make collusion instable. We are looking after market characteristics that help counter-balancing those effects and make collusion more likely in this context. The exercise that we propose in this paper, ranking economic sectors according to their predisposition to collusion, has an intrinsic limitation. The antitrust definition of a market (our theoretical subject of study â?? referred to in this paper as 'antitrust market') is conventionally based on tests, such as the SSNIP test2, that identify the boundaries of a market by measuring the degree of competition that different products exert on each other. If two products are very good substitutes â?? such that a significant proportion of demand and/or of supply would shift to one product if the price of the other is changed - then the products are considered to belong to the same market. This often leads to markets the boundaries of which are much narrower than those captured by product classification at sector level. However, macroscopic analysis such as the one proposed in this paper, is necessarily based on sector data: that is, data that aggregate information from multiple markets that are grouped together for statistical purposes. In fact, we are only able to capture an imperfect link between antitrust markets and the observable average performance of the sectors they belong to. Previous research has been confronted with the same challenge (see, for example, Griffith et al, 2010, on the effect of the EU Single Market Programme on mark-ups and productivity). To partially mitigate that problem, we focus on market characteristics that we presume could be shared by the majority of products within the same statistical sector. This would be the case if, for example, antitrust product markets within a certain sector share regulatory features (eg similar barriers to entry), production features (eg similar levels of economies of scale) or demand characteristics (eg a customer base which is largely the same). To rank sectors according to their predisposition to collusion we follow the common wisdom in economic literature concerning the role of marketâ??s structural features (see, for an exhaustive overview: Ivaldi et al, 2003, or Motta, 2004). The general intuition is that the more concentrated, stable and transparent markets are, the easier is for players to coordinate on a collusive price and stick to it without yielding to the temptation of undercutting the rivals and break the cartel agreement. On the basis of the available data (see Section 2 below), we are able to measure proxies and account for the following factors: (1) market concentration; (2) likelihood of entry; (3) stability of demand and supply; (4) market symmetry3. The treatment and measurement of each factor is described in the next Section. In the second part of our analysis we look at antitrust intervention by the European Commission. We look specifically at merger investigations and cartel infringement decisions. Both types of competition policy interventions give insights about the treatment of collusion likelihood by a competition authority. Regarding merger control, a merger has a higher chance to be considered 'problematic' from a competition policy perspective if it occurs in an already malfunctioning market where concentration levels are high, likelihood of entry is low, and supply and demand are relatively inelastic. A crucial determinant of a merger decision is, moreover, whether a merger has 'coordinated effects' ie whether the merger will make future collusion more likely. Finally we propose and discuss a simple comparison exercise: the European Commissionâ??s antitrust action is matched with the ranking of manufacturing sectors according to their collusion risk. Gual and Mas (2011) have an approach broadly similar to ours. They focus on Commission antitrust investigations only (ie they do not look at merger decisions), between 1999 and 2004 and check whether the probability of dropping the investigation is lower when industry characteristics suggest a lower likelihood of antitrust infringement. They find positive and weakly significant links consistent with theoretical prediction. For example, higher industry concentration rates are positively correlated with the probability of antitrust sanctioning. It is important to stress that this exercise suffers from the fundamental limitation described above: that sector data does not necessarily convey information for antitrust product markets. Therefore, while the exercise can provide for an interesting consistency check between antitrust action and status of competition at sector level and deliver suggestions for follow-up inquiries, it should not in itself be used in a normative fashion to judge the quality of antitrust intervention. An ad-hoc case-by-case ex-post analysis should instead be performed for that purpose (see Neven and Zenger, 2008, for a good overview of the literature). The paper is organised as follows. We first provide an illustration of the Antitrust Risk Indicators. We then describe our data sample in Section 2. Section 3 reports the sectorsâ?? rankings and discusses the results. Section 4 concludes. 1. The Antitrust Risk Indicators Below we report and explain the construction of the Antitrust Risk Indicators (ARIs) used to rank sectorsâ?? predisposition to collusion. A good summary of the underlying economic theory can be found in Motta (2004). Note that the indicators are computed at European wide level (ie they are cross-country averages) and on a 10 years-wide time period (with two exceptions described below). We are in fact interested in capturing the probability of potential cartels with boundaries that are wider than national, to identify true 'European' issues4. Moreover the time period of observation has to be sufficiently long as anti-competitive behaviours are usually put in place for years (for example: the average duration of an international cartel is between 6 and 14 years â?? See Mariniello, 2013). We note that market structures are generally stable over time; in other words, to give an example: the average market performance within the tobacco sector during the period 2000 and 2011 is a good proxy of the performance of the tobacco sector at any point of time during that period. Again, this is the case if, despite changes prompted by regulatory intervention, sectors tend to preserve their key structural features over time, at least in relative terms if compared with other sectors of the economy. The literature reports consistent findings5. (1) Market concentration A higher degree of market concentration is associated with higher likelihood of collusion. It is easier to coordinate and reach a collusive agreement within a smaller group of players. Also, if concentration is high, deviation from a collusive equilibrium is less profitable: the remaining slice of the market a player would grab by undercutting rivals is smaller if compared to a market where many players are active. This means that cartels are generally more stable when markets are more concentrated. We use three measures to proxy the average level of market concentration within a sector: the average price-cost margin for the period 2000 â?? 2011, the industry concentration ratio for 2010 and the Herfindal-Hirschman Index (HHI) for 2010. Price-cost margins have been widely used in the literature to proxy the degree of market concentration (See Griffith et al, 2010), as the companiesâ?? ability to extract rents and increase the gap between marginal costs and prices is decreasing in the level of competition in the market. They are, however, imperfect indicators: margins may be high, for example, because companies are more efficient or because they benefit from economies of scale, but calculating exact firm-level marginal cost is an extremely difficult exercise affected by other limitations (see Altomonte et al, 2010, for an example of such an exercise). We resort to use sector-wide production value and average variable costs as proxy of marginal costs; that is: we use the sum of the costs of labour, capital and all intermediate inputs as in Griffith et al (2010)6. In order to accommodate for the limitations of price-cost margins measures, we complement that indicator with industry concentration ratios and HHI indexes, calculated respectively as the simple sum of companiesâ?? market shares and the sum of the square of companiesâ?? market shares. These are also widely used measures of concentration (see Ilzkovitz et al, 2007), even if they are possibly even more subject to the fundamental limitation that affect macro-analysis as described above: market shares at sector level are not necessarily a good proxy of market shares at market level. In our case, moreover, market shares are available only for the biggest 4 companies in the sector and only for year 2010. We construct the indicators accordingly: C4 is the sum of the market shares of the four biggest companies in the sector in 2010; HHI4 is the sum of the square of the market shares of the four biggest companies in the sector in 2010. (2) Entry Entry has a disruptive effect on collusive behaviour. The mere threat of entry makes collusion less sustainable: when effective entry is likely, incumbent players may find it difficult to maintain high prices in the market without risking sudden loss of customers. Moreover, a high firmsâ?? turnover implies that coordination is less likely: instability in the identity and in the number of counterparts make collusive agreements more difficult to reach. Sectors where entry is more likely should therefore ceteris paribus be associated with lower probability of collusion. Our dataset does not contain information that can directly help measuring the likelihood of entry; likewise, it does not contain information on the pattern of actual entries by new companies that occurred in the period of observation. The data report just the change in number of companies and do not disentangle entry from exit. Low growth rates may therefore mean low entry rates or high entry rates accompanied by equally high exit rates. The change in the number of companies cannot therefore be used to proxy entry. We nevertheless can exploit the information available in our dataset to measure proxies that provides indications on the degree of a sectorâ??s openness to outside competitive pressure. To do so, we build 2 indicators: (a) firmsâ?? size and (b) import penetration. Firmsâ?? size is computed as the average size of companies within the sector during the period of observation (2000-2011). Relatively bigger sizes imply the existence of economies of scale, possibly due to higher fixed costs and barriers to entry. Bigger average size should therefore imply lower likelihood of entry7. Import penetration is the yearly average of sector imports divided by sector production. This indicator is again computed over the period 2000-2011. A high ratio of imports over total production suggests that the sector tends to have relatively lower barriers to entry to foreign competitors. Moreover, it is reasonable to assume that reaching a collusive agreement with exporters is comparatively more difficult: exporters, for example, tend to be exposed to different costs shocks. Therefore it would be more difficult for local producers to explain price changes by exporters and detect potential deviation from collusive outcomes that may not be justified by change in production costs. (3) Market stability Stable markets are more predisposed to collusion. Collusive agreements crucially rely on playersâ?? ability to capture other playersâ?? deviation from the agreed price. When markets are subject to frequent and unpredictable demand or supply shocks, attributing a change in price to a deviation is more difficult, therefore collusion is less stable. We compute two indicators to capture marketsâ?? stability: (a) variance in market size and (b) variance in import penetration. Variance in market size is computed as the variance of the yearly growth rate of production values in nominal terms. Variance in import penetration is the variance of the yearly growth rate of the ratio of imports over total production. The two variables are calculated over the full period of observation 2000-2011. High variance levels are presumed to indicate lower market predictability and lower likelihood of collusion. (4) Market symmetry The last dimension of analysis is market symmetry. Symmetric markets where players hold similar market shares tend to be more predisposed to collusion. Symmetry aligns playersâ?? incentive to stick to a cartel agreement. Conversely, if a company is much smaller than the others, it may have a relatively higher incentive to deviate, undercut its rivals and enjoy all marketâ??s profits. To test for symmetry we compute an Asymmetry Indicator based on Giniâ??s coefficient8. In our case we employ it on the distribution of the production shares of the top four companies in each sector for year 2010. If the asymmetry indicator is 0, that indicates that the four observed companies have identical production shares ie the market is perfectly symmetric. When the indicator instead approaches 100 that meansthat there exists a huge gap between the market share held by the biggest company and the one held by the smaller ones9. 2. The Dataset Our dataset contains a number of widely-used data for European manufacturing sectors from 2000 to 2011 for 5 European countries: France, Germany, Italy, Spain and UK. The 5 economies together represent 71 percent of the EU GDP10, in 2011, while the manufacturing sector in the five countries observed represents on average 12.5 percent of a countryâ??s GDP11. The primary sources for data are National Accounts, Structural Business Statistics and International Trade databases. The aggregate statistics were compiled by Euromonitor12. The market features variables contained in our database are: total production, value added, gross operating surplus, market size, imports, exports, production and number of firms by employment size, production value and production shares of up to five top companies (all monetary data is recorded in euro)13. Using Eurostat NACE 2-digit classification14, the manufacturing sector can be split in 22 categories: Food products, Tobacco, Textiles, Wearing apparel, Leather products, Wood and wood products, Paper and paper products, Reproduction of recorded media, Chemicals, Pharmaceuticals, Rubber and Plastics, Other non-metallic mineral products, Basic metals, Fabricated metal products, Computers and electronics, Electrical equipment, Machinery and equipment, Motor vehicles, Other transport equipment, Furniture, Other manufacturing15. The 4-digit disaggregation results in 92 sub-categories. The below table provides an overview of the database with few key descriptive statistics relative to 2010 for 2-digit sectors aggregated across the five economies. As it can be noted the total manufacturing production for our database amounted to â?¬3.5 trillion, with the Food, Motor vehicles and Fabricated metal sectors topping the list in terms of production and value added. As for the demand-side, the five economies consumed â?¬3.9 trillion with the Food and Motor vehicles sectors again on the top 3 by market size, and Computers and electronics coming third. The latter sector is ranked first also in terms of imports. Noticeably, imports and exports are originally defined at country level and therefore these aggregates include intra-group trade. The smallest sectors are Tobacco, Electrical equipment and Wood16 by either production or value added. The highest numbers of companies are in the Fabricated metal and Food sectors, with more than 180 thousands firms. 3. Results 3.1 Sector ranking â?? Antitrust Risk Indicators Table 2 and Table 3 above report the ranking of all sectors according to each of the ARI indicators (table 2 reports ranking based on 2-digit aggregation data, table 3 on 4-digit). In terms of market concentration, there is a general consistency between the three indicators, price-cost margins, C4 and HHI4, particularly in pointing to the most concentrated sectors: Tobacco, Beverages and Pharmaceuticals. Reproduction of recorded media and Chemicals, Motor vehicles and Electrical equipment score high respectively in terms of price cost margins and HHI(4) and C4. Divergences between indicators are possibly due to differences in cost structures (this should be the case for Motor vehicles and Other transport equipment for example)17 or differences in the size of antitrust markets. For example, Reproduction of recorded media scores very low for HHI(4) and C4. That is possibly due to the fact that products in these sectors tend to be more heterogeneous and therefore less substitutable to each other. Therefore, even if several players are active in the sector (hence market shares at sector level are low), each player can still enjoy a certain degree of market power (hence price-cost margins are high), because the products sold may not have immediate close substitutes, or be perceived as such by customers. The opposite holds for Electrical equipment and Basic metals: if price-margins are relatively low despite high market shares, that may be due to a higher degree of substitutability between products. Table 3 provides a more disaggregated insight by ranking 2-digit sectors according to the highest score reached by any of their 4-digit sub-sectors. No great difference is noted with the NACE-2 results. Tobacco, Pharmaceuticals and Beverages (Spirits and Beer) still rank high. Interestingly, Food climbs up the concentration ranking thanks to the low level of competition detected in the Sugar market. Other transport equipment (Locomotives and Aircrafts) scores high in terms of market share concentration. Concerning entry, we note that, consistently with intuition, the firm size indicator is highly correlated with concentration. Tobacco, Motor Vehicles, Pharmaceutical, Chemicals, Beverages, Electric equipment, Basic metals are in the upper half of the ranking. This is not surprising given the relevance of research and development or high fixed entry costs and economy of scale featuring most of the products manufactured in these sectors. The NACE-4 analysis confirms Sugar (Food category) as a potentially problematic market, together with Tobacco, Aircraft and Spacecraft (Motor Vehicles), Plastic (Chemicals). The other entry indicator we use, â??import penetrationâ??, scores low for sectors were production tends to have a more narrow geographic scope (Reproduction of recorded media and in particular at 4-digit level, Printing) or has a stronger local dimension (Tobacco, Fabricated/Coated Metals, Other Non-metalic/Cement, Beverages/Soft drinks), while import penetration is high where multinational companies tend to be more present: Computer and electronics, Pharmaceuticals, Chemicals, Motor vehicles. In terms of market stability, Tobacco, Food, Beverages and Pharmaceutical are amongst the sectors where demand varied the least during the period of observation (beside Wearing apparel, a result driven by the stability of the Clothing sector, as the 4-digit analysis shows). Import penetration is stable the most in Rubber and plastics, Wearing apparel, Electrical equipment, Wood and wood products. The lack of overtime variability may be due to the relevance of products where demand is notoriously less elastic (Meat products, Clothing, Tobacco, Beer and Footwear, Clothing, Pulp, paper and paper board, Plastic products, respectively for market size and import penetration variance at 4-digit level). Finally, the least â??asymmetricâ?? sectors according to our Gini-indicator seem to be Rubber and plastic, Textile, Electrical equipment and Tobacco. 3.2 Sector ranking â?? European Commission Merger and Anti-Cartel Decisions Table 4 above reports the ranking of manufacturing sectors on the basis of European Commissionâ??s merger and cartel investigations during the period 2000 - 2013.18 The database was assembled downloading the decisionsâ?? record from the Commissionâ??s website and allocating them to sectors according to the reported economic classification. If more than one sector was reported, all indicated sectors were compiled as affected by the decision. For merger investigations we collected three types of information: the number of mergers that were unconditionally cleared in â??first phaseâ?? ie after a preliminary inquiry usually requiring 1 month of investigation; the number of mergers that were cleared in first phase but did instead require the parties to commit to certain conditions; the number of mergers for which a deeper investigation (â??second phaseâ??, usually lasting approximately 4 months) was deemed necessary. We define as â??potentially problematicâ?? a merger that was deemed as such at the end of the first phase investigation by the European Commission either imposing conditions or requiring further scrutiny in second phase.19 The ratio between potentially problematic mergers and the total number of scrutinised cases is the likelihood indicator used to rank sectors. Sectors display a high heterogeneity in terms of incidence of merger control. The sector where merger scrutiny took place most often is Chemicals with an overall count of 259 decisions, while only 6 mergers were scrutinised in the Tobacco and the Leather sectors during the period of observation. Since most of mergers are cleared without conditions, the likelihood that a merger is deemed potentially problematic by the European Commission is on average low (approximately 11 percent for the manufacturing sector as a whole). The index however varies substantially across sectors. Sectors where the index scores higher are Paper and paper products (25.4 percent), Pharmaceuticals (25 percent), Chemicals (15.1 percent), Other manufacturing (14.6 percent). At the other end, the risk of a finding of problematic merger by the European Commission is lower in Motor vehicles (1.9 percent), Wearing apparel (5.6 percent), Electric equipment (6.5 percent). Tobacco (50 percent) and Furniture and Leather (0 percent) are clearly outliers (these results are due to idiosyncratic factors and the small number of observations). As for hard-core cartels, the Commission took decisions concerning 16 of the 22 sectors during the period of analysis. Chemicals account for the majority of rulings, 27 out of 65. Sectors with no uncovered cartels are Leather, Wood, Recorded media, Other transport equipment, Furniture and Other Manufacturing. To rank the sectors, we weighed the number of cartels to the size of the market as a share of total production in manufacturing. In the resulting ranking the sectors where the incidence of anti-cartel action was stronger in the period of observation are Chemicals, Beverages, Electrical equipment and Other non-metallic mineral products. Tobacco scores high as well, but again this might as well be due to the very small size of the sector compared to the other sectors, since just one cartel in Tobacco was sanctioned by the EC during the period of observation. It is interesting to note that the likelihood that a merger is deemed problematic and the weighed incidence of anti-cartel enforcement are highly and significantly correlated: 51.5 percent (5 percent significance level). This provides comfort that economic sectorsâ?? features affecting the probability of collusion play a role in determining the outcome of merger decisions. 3.3 Sector ranking - comparative exercise We now proceed with an illustrative comparative exercise. Figure 1 below attributes colours to sectors according to their performance with respect to the different computed indicators. The idea is to give a graphical glimpse of the consistency between Antitrust Risk Indicators and the action of the European Commission. As explained above, this exercise is useful to check whether antitrust intervention is more frequent where it is expected to according to from a macro-economic perspective. It is important to keep in mind, though, that this exercise cannot provide indications as regards the quality of antitrust intervention, given the fact that sector data are not disaggregated enough to capture the boundaries of product markets as defined in the course of antitrust investigations. The coloured squares in figure 1 reflect the ranking of the sectors ordered according to their anticompetitive risk or the intensity of antitrust action: red corresponds to the seven sectors at the top, green to the seven sectors at the bottom, and yellow to the eight sectors in the middle. Red sectors in terms of â??problematic merger riskâ?? are, as described above: Tobacco, Pharmaceuticals, Chemical, Food and Paper; in terms of risk of cartel conviction, red sectors are: Tobacco, Beverages, Other non-metallic, Chemicals, Electric equipment, Rubber and plastic, Wearing apparel. Figure 1 suggests a significant degree of consistency between European Commissionâ??s action both in terms of merger control and anti-cartel enforcement and ARIs related to market concentration and firmâ??s average size (simple correlation analysis point to significant correlation coefficients between 45 percent and 75 percent). A much lower degree of consistency is observed as regards the other ARIs and correlation results are all not statistically significant. The variance of market size (a negative proxy of market stability) is however broadly consistent with merger decisions for what concerns negative decisions ie: sectors such as Tobacco, Food products, Pharmaceuticals, Paper and paper products are ranked top both in terms of lack of market variance and of probability of negative merger decision. Cartels discovery seems also overall consistent in the top ranking for what concern import penetration (Tobacco, Other non-metallic mineral products and Beverages), variance of market size (Wearing apparel, Tobacco and Beverages), variance of import penetration and market symmetry (Rubber and plastic, Wearing apparel, Electrical equipment and Other non-metallic mineral products). 4. Conclusions In this paper we have analysed features of European manufacturing sectors. We ranked sectors according to their performance based on indicators that economic wisdom suggests positively affect the likelihood of collusive behaviour by market players. At 2-digit level, sectors that appear more exposed to collusion risk are Tobacco, Pharmaceuticals, Beverages, Chemicals. The 4-digit analysis suggests higher anticompetitive risk in Tobacco products, Spirits, Sugar, Railway Locomotives and Aircrafts (high concentration and fixed costs), Coating of Metals and Printing (low import penetration), Tobacco products, Meat products, Footwear and Clothing (high market stability), Plastic products and Spinning/Weaving of textiles (high symmetry of market leaders). We also have ranked sectors according to the distribution of Europeanâ??s Commissionâ??s antitrust intervention between 2000 and 2013 in terms of merger control and anti-cartel enforcement. Tobacco, Paper and paper products, Pharmaceuticals, Food products, are the sectors in which a notified merger has a greater likelihood of being deemed problematic by the Commission. The incidence of anti-cartel action has been higher in Chemicals, Tobacco, Beverages, Electric equipment and Rubber and plastic. We then checked the consistency of the European Commissionâ??s action with the prediction of economic theory based on sector data, bearing in mind that sector data cannot provide for indications on the quality of antitrust intervention given the fact that antitrust investigations are based on very narrow product market definitions. The comparison exercise suggests that, by and large, both merger control and anti-cartel action have been focusing on sectors displaying a higher level of market concentrations and economic rents or economy of scale. This paper has a descriptive nature and should be taken as a starting point for a deeper reflection on the choice of appropriate instruments to foster competition in European manufacturing sectors and the definition of intervention priorities. Without appropriate regulatory intervention, ex-ante monitoring by the antitrust authority is warranted. The action of the European Commission is sometimes considered to be too much 'case-driven'. Cartels are discovered through whistle-blowers, abuse of dominance or anti-competitive agreementsâ?? investigations are prompted by complaints. Because of such an approach, the restoration of normal competitive conditions that antitrust intervention is supposed to bring comes often with a significant delay with respect to the starting of the infringement. Uncovered cartelsâ?? duration, for example, fluctuates between 6 to 14 years (see Mariniello, 2013) from their commencement. During that time, cartels affect the economy through a higher burden on customers and ultimately on consumers. It would thus be more efficient to anticipate the breaking down of cartels by investing resources in uncovering cartels to monitor markets in which infringements are more likely. The European Commission already has the tools to perform such a job through so-called 'sector inquiries'; an appropriate use of those tools in the identified sectors could yield significant social benefit. *** 1 Symeonidis (2003) uses agreements between competitors that were formally registered in compliance with UK Restrictive Trade Practice Act of 1956 as indication of an industryâ??s propensity to collusion; those agreements were at the time considered lawful. 2 See Amelio and Donath, 2009. 3 There are other factors which may be relevant to explain the likelihood of collusion in a certain market: for example, the existence of cross-ownership links between players or the frequency of their multi-market contacts. However, to our knowledge those factors are not available at sector level and are therefore excluded from our analysis. 4 We presume that the average marketsâ?? performance across the 5 countries reported in our dataset is a good approximation of the average performance of a cross-border market within the European Union. For the sake of illustration, consider the following example: we assume that averaging out the concentration ratio within the tobacco sector in UK, France, Germany, Italy and Spain yields a good approximation of the average concentration ratio of a market within the tobacco sector that has an international dimension (that is: it is not confined to just one European country and therefore falls in the competence of the European Commission). The validity of this presumption crucially depends on the degree of commonality that sectors have across countries in Europe. If the tobacco sector is very open to competition in UK while little competition in the same sector occurs in Italy, then the cross-country average may bear little indication as to the level of competition of a hypothetical tobacco market affecting Italy and UK. Instead, if cross-country variability is limited, this would suggest that sectors have intrinsic characteristics that, despite idiosyncratic country characteristics (such as domestic regulatory policy) are conducive to similar market structures. For example: a production process typically implemented in a certain sector may give raise to sector-specific economies of scale, resulting in more concentrated markets. Strong and highly significant pairwise correlations between EU-wide and national indicators in our dataset support such presumption. Confirmations are also found in the empirical literature. Hollis (2003) for example finds that concentration ratios in 82 sectors are very similar across five European economies (Belgium, France, Germany, Italy and the UK), the US and Japan. 5 Veugelers (2004) analyses 67 manufacturing sectors in the EU15, finding that concentration ratios tend to be quite stable over time. Persistency checks ran on our database point to strong and highly significant cross-year correlations for price-cost margins, import penetration and firm size. 6 We implement Griffithâ??s methodology except that we do not subtract for the capital costs because of data availability. 7 Alternative measures could be used to proxy entry (such as â??businessâ?? churn rateâ?? ie the sum of firmsâ?? birth and date rate) using Eurostat and OECD datasets. However, we believe that using average firm size as an indication of barriers to entry is a better option. First, because the data on firm size are reported at a higher level of disaggregation (up to 4-digit in our dataset, while businessâ?? churn rate is limited to 2-digit in the Eurostat/OECD dataset). Second, because the number of companies that enter or exit a sector is less informative about the disruptive power that those firms can exert on potential collusive agreements. A high number of small firms entering small markets within a sector affect positively the sectorâ??s businessâ?? churn rate, but this is unlikely to represent a threat to collusive agreements between bigger companies in wider markets. An extended discussion on alternative indicators to measure entry likelihood is reported in the Appendix. 8 The Gini index expresses inequality among values of a frequency distribution and ranges from 0 (complete equality) to 100 (extreme inequality). 9 Formally, we compute the Gini index as follows: Index = 1- (7*x4 + 5*x3 + 3*x2 + x1)/4; where x1 is the production share of the top company normalized to the production share of the four companies (or concentration ratio). 10 Source: Eurostat. 11 Source: The World Bank. 12 Euromonitor International (link) is a research and data company that collects and aggregate data at sector level from official sources as well as through market research. The data obtained through market research in our dataset consists of production value and production shares for the year 2010 of up to five top companies for all manufacturing sectors in the 5 target economies for our analysis. 13 Total production is the total revenue of all locally-registered companies, excluding taxes and subsidies on products like VAT; valued added equals total production minus intermediate consumption; the gross operating surplus equals value added minus labour costs and taxes less subsidies on production and therefore includes the remuneration of equity and the depreciation of capital; market size consists of the value of all goods and services sold, either from local or foreign producers and recorded at purchaser prices; imports consist of the value of goods delivered at the frontier and consumed in the country; exports consist of the value of goods shipped out of the country, excluding re-exports; the number of firms is made up by all locally-registered companies, including 0 employees enterprises and single-employed; production values and shares of top companies refer to the revenues made by companies from industry-specific products. 14 http://epp.eurostat.ec.europa.eu/portal/page/portal/nace_rev2/introduction 15 Two 2-digit sectors â?? Coke and refined petroleum products, and Repair and installation of machinery and equipment â?? are left out of our analysis. 16 The great difference between market size and production for the Tobacco sector is given by secondary production, i.e. production of Tobacco products made by companies falling in other categories. 17 Profit margins are calculated with respect to estimation of marginal costs that includes intermediate goods and services. As explained above, this is a standard methodology in the literature, although alternative measures could rely on labour costs only â?? depending on what is considered a better approximation of total marginal costs. The methodology used in this paper therefore tends to bias downwards profit margins of sectors that rely heavily on intermediate goods and services, such as motor vehicles or other transport equipment. 18 Data were retrieved from the website of the European Commissionâ??s Directorate-General of Competition through the case search tool: link. 19 We opted for this definition in order to guarantee the maximum degree of statistical compatibility between merger decisions, since the ones used for the indicators are taken all at the end of a first phase investigation. Alternative definitions could also be possible. For example it could be possible to further segment mergers that were investigated in â??second phaseâ?? in mergers cleared with conditions, mergers cleared with no conditions and blocked mergers. A problematic merger could then be defined as a merger for which conditions were imposed at the end of either first or second phase investigation or a blocked merger. However, this would have implied mixing decisions taken after different administrative processes and with different depth of scrutiny. It should be said in any case that the ranking of sectors is not affected by the choice between the two different definitions. 20 According to the Eurostat definition, â??the enterprise is the smallest combination of legal units that is an organisational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resourcesâ??. Births and deaths account for the creation or dissolution of entreprise units, thus excluding mergers, break-ups or restructuring of a set of enterprises. REFERENCES Altomonte, C., Nicolini, M., Rungi, A., and Ogliari, L. (2010) 'Assessing the Competitive Behaviour of Firms in the Single Market: A Micro-based Approach', Economic Papers No. 409, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission Amelio, A., and Donath, D. (2009) 'Market definition in recent EC merger investigations: The role of empirical analysis', Concurrences No. 3 Buccirossi, P., Ciari, L., Duso, T., Spagnolo, G., and Vitale, C. (2013) 'Competition policy and productivity growth: An empirical assessment', Review of Economics and Statistics No. 95.4: 1324-1336 Combe, E., Monnier, C., and Legal, R. (2008) 'Cartels: The probability of getting caught in the European Union', BEER paper No. 12 Davies, S. W., and Geroski, P. A. (1997) 'Changes in concentration, turbulence, and the dynamics of market shares', Review of Economics and Statistics No. 79.3: 383-391. Griffith, Rachel, Rupert Harrison and Helen Simpson (2010) 'Product Market Reform and Innovation in the EU*', The Scandinavian Journal of Economics No. 112.2: 389-415. Gual, Jordi, and Núria Mas (2011) 'Industry characteristics and anti-competitive behavior: evidence from the European Commissionâ??s decisions', Review of Industrial Organization No. 39.3: 207-230. Ilzkovitz, F., Dierx, A., and Sousa, N. (2008) 'An analysis of the possible causes of product market malfunctioning in the EU: First results for manufacturing and service sectors', Economic Papers No. 336, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission Ivaldi, M., Jullien, B., Rey, P., Seabright, P., and Tirole, J. (2003) 'The economics of tacit collusion', IDEI Working Paper 186 Kee, H. L., and Hoekman, B. (2007) 'Imports, entry and competition law as market disciplines', European Economic Review No. 51.4: 831-858 Kelchtermans, S., Cheung, C., Coucke, K., Eyckmans, J., Neicu, D., Schaumans, C., Sels, A., Vanormelingen, S., and Verboven, F. (2011) 'Monitoring of Markets and Sectors Report', AGORA-MMS project, Katholieke Universiteit Leuven Konings, J., Van Cayseele, P., and Warzynski, F. (2001) 'The dynamics of industrial mark-ups in two small open economies: does national competition policy matter?' International Journal of Industrial Organization No. 19.5: 841-859. Mariniello, Mario (2013) 'Do European Union fines deter price-fixing?' Policy Brief 2013/04, Bruegel Motta, M. (2004) Competition policy: theory and practice, Cambridge University Press Neven, D., and Zenger, H. (2008) 'Ex post evaluation of enforcement: a principal-agent perspective', De Economist No. 156(4): 477-490 Symeonidis, G. (2003) 'In which industries is collusion more likely? Evidence from the UK', The Journal of Industrial Economics No. 51(1): 45-74 Veugelers, R., Davies, S., De Voldere, I., Egger, P., Pfaffermayr, M., Reynaerts, J., Rommens, K., Rondi, L., Vannoni, D., Benfratello, L., and Sleuwaegen, L. (2002) 'Determinants of industrial concentration, market integration and efficiency in the European Union', chapter 3 in Dierx, A; Ilzkovitz, F. and K. Sekkat (eds) European Integration and the functioning of product markets, European Economy, Special Report Number 2, EC, DG ECFIN: 103-212 Appendix 1 â?? Alternative ways to measure likelihood of entry In this paper we have used firm size as an indication of entry costs. Firms in sectors with higher barriers to entry are expected on average to be bigger in size. Another way to proxy likelihood of entry consists in measuring the actual number of enterprise births and deaths using the Business Demography datasets of Eurostat and the OECD20. A summary indicator for firmsâ?? turnover is the business churn, obtained as the sum of the birth rate and the death rate over the number of active enterprises in a given year. The higher is the churn rate, the easier is for firms to enter or exit a sector. Table A below reports the indicator used in this paper, firm size, and business churn in two separate columns at two-digits NACE 2. As it can be noted, the sectoral disaggregation of the two indicators differs. In particular, the Eurostat Business Demography/OECD dataset provides data at a more aggregated level than the level of analysis used in this paper. This makes the comparison between the two indicators difficult as sectors included in the same group in the Business Demography dataset may have very heterogeneous firmsâ?? size. For example, the Tobacco sector has the highest average firm size but Tobacco is aggregated with Food and Beverages in Eurostat and OECD datasets, which have average firm size about 10 times smaller. A rough comparison yields mixed results. Sectors with the highest business churn (ie Textiles, Wearing apparel, and Leather products) have very low firm sizes â?? consistently with the approach adopted in our analysis. However, sectors with higher firm sizes (eg Motor vehicles and Transport Equipment) also display relatively high churn rates. A possible explanation for this divergence is that high entry and exit rates may be due to high flows of small companies in narrow markets within a sector. If a high number of small companies enter or exit small markets in a sector, this significantly increases the sectorâ??s reported average churn rate. However, the â??disruptiveâ?? effect on collusion brought about by these companies can be very limited, given their small size. For that reason, we believe that using firm size is a better measure to indicate the exposure of the sector to external competition for the purposes of the analysis reported in this paper. Another way to measure barriers to entry is to use sector capital and R&D intensity as in Gual and Mas (2011) and Symeonidis (2003). A high capital intensity, as measured by investment in tangible goods over value added, might imply that firms need to make expensive investments in order to operate at an efficient scale. Similarly, a high R&D intensity, as measures by R&D spending over value added, may point to high costs incurred to differentiate or improve their products. Thus, capital and R&D costs may represent fixed or sunk costs that reduce likelihood of entry. The two indicators are also displayed in Table A. Again testing the similarity between these alternative measures and firm size is difficult due to the different level of aggregation of the sectors. Nevertheless, a rough comparison suggests a higher degree of consistency compared to what observed in the case of business churn rate. Excluding Tobacco, the correlations between capital intensity and firm size and between R&D intensity and firm size are respectively as high as 44 percent and 72 percent. Taking the sum of the capital and the R&D intensity the correlation with firm size reaches 89 percent. |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:836&r=hme |
| By: | Shanti Chakravarty (Bangor University, UK); Anthony Dobbins (Bangor University, UK); Lynn Hodgkinson (l.hodgkinson@bangor.ac.uk) |
| Abstract: | The divergence of ownership and management in modern capitalism gave rise to agency theory as a framework for analysing corporate governance. There is now an emerging body of literature questioning the wisdom of the focus on agency theory in business schools. We argue that the poverty of agency theory is compounded by the culture of deference to authority entailed in reliance on technocratic advice. By reference to the concept of hegemony, we conjecture that hegemonic pressures have produced a homogeneous managerial class with similar preference for maximizing short-term profit. The argument is illustrated empirically by the case example of the collapse of The Royal Bank of Scotland, where shareholder representatives followed management advice in pursuing a course of action that led to the demise of the bank. |
| Keywords: | Agency theory, Bank collapse, Corporate governance, Hegemony, Management and ownership, Royal Bank of Scotland, Technocracy. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bng:wpaper:13013&r=hme |
| By: | Sofía ARANA LANDÍN (University of the Basque Country (UPV/EHU), Spain) |
| Abstract: | Different Member States provide for special tax treatment of cooperatives, which in some of them, are constitutionally protected. In some cases, a lower tax burden is granted to cooperatives due to their exceptional contribution to the community. Some of the tax measures applying to cooperatives are technical adjustments, while others are pure tax benefits, the latter seeking the promotion of the cooperative model. Ascertaining in which cases a given legal measure can be considered to be a technical adjustment and can be considered to be fair or when the given measure can be regarded as a State aid is a difficult task, as the ECJ jurisprudence has very often varied its point of view. Throughout this paper, we are going to follow the ECJ jurisprudence on State aid for cooperatives in order to check out if having an Act on Social Economy as the Spanish one may help Social Economy entities in this regard. |
| Keywords: | Social Economy Bill, State aids, Social Economy law, public measures, tax system. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:crc:wpaper:1409&r=hme |
| By: | Pilon, André Francisco |
| Abstract: | Contemporary problems are fragmented by public policies, academic formats, mass-media headlines and market-place interests; unsustainable paradigms of growth, power, wealth, work and freedom are embedded into the cultural, social, political and economic institutions. An ecosystemic approach is posited along the four dimensions of being in the world (intimate, interactive, social and biophysical) to define and deal with the problems of difficult settlement or solution in our times, encompassing culture, education, politics, economics, ethics, environment and the quality of life. |
| Keywords: | education, culture, politics, economics, ethics, environment, ecosystems |
| JEL: | I0 K4 K42 Q2 Q28 Q56 Q57 Q58 R0 R00 |
| Date: | 2014–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45359&r=hme |
| By: | Ã?ric Monnet; Stefano Pagliari; Shahin Vallée |
| Abstract: | Highlights The financial crisis modified drastically and rapidly the European financial systemâ??s political economy, with the emergence of two competing narratives. First, government agencies are frequently described as being at the mercy of the financial sector, routinely hijacking political, regulatory and supervisory processes, a trend often referred to as â??captureâ??. But alternatively, governments are portrayed as subverting markets and abusing the financial system to their benefit, mainly to secure better financing conditions and allocate credit to the economy on preferential terms, referred to as â??financial repressionâ??. We take a critical look at this debate in the European context. First, we argue that the relationship between governments and financial systems in Europe cannot be reduced to polar notions of â??captureâ?? and â??repressionâ??, but that channels of pressure and influence bet-ween governments and their financial systems have frequently run both ways and fed from each other. Second, we put these issues into an historical perspective and show that the current reconfiguration of Europeâ??s national financial systems is influenced by history but is not a return to past interventionist policies. We conclude by analysing the impact of the reform of the European financial architecture and the design of a European banking union on the configuration of national financial ecosystems. 1. Introduction In the long shadow of the euro-area crisis, the relationship between governments and their banks has been brought to the the centre of the policy debate in Europe by the implementation of regulatory reforms, the risks associated with financial fragmentation, and the fight to sustain the flow of credit to governments and corporates. The attempt to interpret the patterns of pressure and influence running between governments and their financial system has led commentators to rediscover and give new life to concepts originating from academic debates of the 1970s such as â??regulatory captureâ?? and â??financial repressionâ??. Government agencies have been frequently described as being at the mercy of the financial sector, often allowing financial interests to hijack political, regulatory and supervisory processes in order to favouring their own private interests over the public good 1. An opposite view has instead pointed the finger at governments, which have often been portrayed as subverting markets and abusing the financial system to their benefit, either in order to secure better financing conditions to overcome their own financial difficulties, or with the objective of directing credit to certain sectors of the economy, â??repressingâ?? the free functioning of financial markets and potentially the private interests of some of its participants 2. But a closer look at the experience of European countries suggests that both the notion of â??captureâ?? and â??repressionâ?? are too narrow to describe the complex relationship between financial stakeholders and their national governments. Instead, the history of European financial systems reveals how governments, central banks, public sector banks and financial institutions have historically been part of deeply interconnected European financial ecosystems bound both by political and financial relations. Patterns of pressures and influence within these financial ecosystems have always run in both directions and have been mutually reinforcing. As Andrew Shonfield argued in 1965 in one of the first detailed analyses of the role of governments and of the â??balance of public and private powerâ?? in western capitalism after WWII, these different financial ecosystems in Europe varied across countries because of different histories and institutions that framed such relationships 3. These national differences have frequently been presented as declining with time and in response to deeper financial integration. The breakdown of the Bretton Woods system in the early 1970s, the removal of restrictions to the circulation of capital within Europe following the 1986 Single European Act, the creation of the single currency, and the process initiated in 2001 by the European Commission with the Lamfalussy Report to extend the single market to financial services have fostered a greater integration of banking and financial activities across national borders that have profoundly altered existing national ecosystems 4. The response to the euro-area crisis seems to have further encouraged this trend, and new institutional mechanisms, in particular the creation of a European banking union, typically aims at Europeanising further banking supervision and resolution thereby potentially reducing further the weight of national historical and institutional idiosyncrasies. However, claims suggesting the end of national financial ecosystems in Europe are at best premature. This paper discusses how national financial ecosystems in Europe continue in fact to exercise a significant influence over financial policy-making and how the transition towards a more integrated financial framework (ie banking union) influences these relations. Our conjecture is that the rapid reversal of financial integration and a re-domestication of financial flows and financial risks triggered by the crisis 5 have built on practices, ties and institutions that have deep historical roots. Meanwhile, the European policy response, which intended to repair financial fragmentation and recreate a more integrated financial sector has attempted to Europeanise the regulation, supervision, resolution of the financial sector thereby trying to break historical ties within national financial ecosystems. It is therefore important to take a critical look at these opposite movements and they way they affect not only the efficacy of capital allocation and credit intermediation at the national level, but also the policy-making process at the European level. 2. Banks and governments: Competing narratives across the Atlantic Attitudes towards the relationship between governments and national financial institutions have historically varied significantly across the United States and Europe. Suspicions over the involvement of politically powerful banks in the political system have been an integral part of the US political debate. These can be traced as far back as the controversy between Alexander Hamilton and Thomas Jefferson about the establishment of the First Bank of the United States in 1791 6. More recently, many commentators seeking to explain the regulatory failures at the origin of the financial crisis have repeatedly pointed the finger towards the political clout of financial lobbies. The Report by the Financial Crisis Inquiry Commission established by the US Congress to investigate the roots of the crisis found that: â??the financial industry itself played a key role in weakening regulatory constraints on institutions, markets, and productsâ??. The Commission explained this influence by making reference to the $2.7 billion in federal lobbying expenses and $1 billion in campaign contributions spent by the financial sector between 1999 and 2008 7. Others have highlighted how the role of the preferential access allowed by the â??revolving doorsâ?? between Wall Street and US regulatory agencies 8. The perception of financial industry groups capable to often act as rule-makers has brought a number of commentators to analyse the relationship between US financial firms and the political system through the lenses of â??regulatory captureâ??. The origins of the term are usually attributed to the work of George Stigler in the early 1970s but this concept has been brought to the fore by Simon Johnson, former IMF chief economist, and other commentators during the recent financial crisis 9. This description of the financial industry as systematically â??capturingâ?? the design and implementation financial regulatory reforms has however resonated more broadly in the US than across the Atlantic. This is in part the result of the fact that the focus of most US-centric analyses on financial resources, campaign contributions and revolving doors as means through which the financial industry is capable to routinely â??buyâ?? regulatory policies does not sit comfortably with the experience of most European countries, where political party financing and electoral rules limit the importance of financial resources in buying political support, while bureaucrats in financial regulatory agencies and central banks are more likely to spend most of their career in the public sector. Campaign contributions and revolving doors are not the only channels through which the interest groups are capable to capture the policy-making process. On the contrary, while theories of regulatory capture developed from the US experience have focused on the resources that different financial groups are capable of deploying in the lobbying of the US Congress or federal regulatory authorities, the European experience is illustrative of the wider and often less visible channels through financial which banks often influence the design of financial policies. A number of structural characteristics of different financial ecosystems in Europe have bolstered the influence of European banks over the design of financial policies. These include for instance the formal and informal links between the political system and the banking system. For instance, German public saving banks (Sparkassen and Landesbanken) that held some 33 percent of the assets of the German Banking sector in 2009 remain owned and controlled by regional governments 10, which naturally create a peculiar relationship. In Italy, state-owned banks have been privatised over the last few decades, but many of these institutions remain still today under the influence or control of foundations (â??fondazioni bancarieâ??) that maintain close ties with the political system and in some cases are directly appointed by political parties 11. In Spain, small and medium size Cajas remained partly owned by the public and largely under the influence and control of regional officials and religious leaders, thus weakening the hand of the central government in supervising and regulating them and favouring undue forbearance by the central authorities. These formal ties are frequently reinforced by informal ties, such as the social networks embedded in the French Grandes écoles where future civil servants, politicians and bankers are trained together and come to form networks of influence organises around the Grands Corps 12. These formal and informal ties between the political system and the banking system make banks particularly receptive to political guidance at the local, state and federal level but also allow these institutions to exercise a significant influence over the regulatory process through their political connections. Another characteristics of the European financial systems that is often ignored by US-centric analysis of regulatory capture is the greater reliance of European countries on bank credit for financing the real economy as well as sovereign debt. This structural feature of European financial systems, gives to banks rather than other financial intermediaries a particular importance and creates channels through which national financial institutions are likely to gain leverage over policy makers. As Cornelia Woll argues, â??decision-makers will act in favour of the industry because they need finance for funding the so-called real economy, for funding the government and as a motor for growthâ?? 13. These kinds of relations also explain why even without strong pressures by the financial industry, governments feel compelled to consider that the interest of the financial sector are aligned with those of the economy and the country as a whole. For example, Sir Howard Davies, the first Chair of the UK Financial Services Authority explained how during the pre crisis period â??on the whole, banks [in the UK] did not have to lobby politicians, largely because politicians argued the case for them without obvious inducementâ?? 14. Indeed, some of the same dynamics have been fully in display during the response to the global financial crisis when concerns about the potential impact of regulation on banks balance sheets and possible consequences on the extension of credit to the economy have brought politicians in a number of European countries to support the demands from their financial industry to water down these regulatory measures. The greater success of European banking lobbies in having their demands met during the implementation of Basel III at the European level has clearly been influenced by the link with the real economy that the financial industry was able to establish 15. Indeed, financial industry lobbies seem to have achieved concessions conditional on their capacity to highlight the impact of different pieces of regulation over their capacity to provide credit to the broader economy 16. At the same time, the watering down of key regulatory requirements has been accompanied by repeated calls from European politicians towards banks which were asked to commit to increase credit to the domestic economy. Overall, the experience of recent banking regulatory reforms in Europe are indicative not only of the fact that the significant political influence of banks is not uniquely a US phenomena. On the contrary, the influence of European banks over the design of financial policies frequently arises from a number of structural characteristics of the different financial ecosystems in which they find themselves operating. But shifting the focus from the direct lobbying of financial institutions towards the characteristics of different financial ecosystems in Europe also reveals a further corrective to notion of â??captureâ?? that has frequently been used to interpret the relationship between banks and government agencies. While many US-centric have focused on the influence of financial actors and other interest groups over the state, channels of pressure and influence between European governments and their banking system within distinct European financial ecosystems have frequently been presented as running both ways and feeding from each other. These reciprocal channels of influence between European governments and their banking systems will be explored in the next section by looking at modern European history. 3. Historical perspectives on financial ecosystems Examples of this symbiotic relationship between European governments and their financial system abound throughout modern European history. European governments have indeed frequently used banks to expand and broaden their reach over the economy either domestically or internationally. The creation of Deutsche Bank in 1870 in the context of the formation of the German Empire and the need to challenge the leadership of British banks in the global markets, as well as the creation of public credit institutions in Italy and France to support national financial development or postwar reconstructions are only some of the many examples throughout modern European history of the way through which financial nationalism and The promotion of â??national banking championsâ?? was also often intended to allow competition with European neighbours and the projection of power internationally to accompany the internationalisation of domestic firms 17. The involvement of the State in financial developments in the nineteenth century went beyond the promotion of international champions. During this period, financial liberalisation went hand in hand with the promotion of national credit and state intervention. Governments were indeed keen on rescuing banks in order to save bankers interests as well as the financing of the economy, and personal connections between politicians and bankers were crucial to this process 18. Central banks â?? which were still at the time institutions with private shareholders granted with a monopoly on the right to issue â?? were perfect examples of these connections between governments and financial capitalism that developed throughout the nineteenth century. European governments or monarchs also exerted controls on some large credit institutions that were crucial for the financing needs and debt repayments of local authorities, as the Caisse des Dépôts and Crédit Foncier in France and the Cassa Depositi e Prestiti in Italy. For a long period, the collusion between State and banks went hand in hand with significant government interference in the activities of financial firms in order to channel and allocate credit in a non-competitive way. But the controls of the State over financial systems strongly increased after the Great Crash throughout the 1930s in democratic and dictatorships alike, and were reinforced after the second world war with bank nationalisations and the increasing role given to public credit institutions. Also in the years following the end of the second world war, western European governments continued to strategically directs their domestic banking system towards the achievement of specific public policy objectives. The term â??financial repressionâ?? â?? coined in the early 1970s to describe developing economies in Asia and Latin America 19 â?? has been used retrospectively to indicate a wide range of targeted prudential controls and requirements such as capital controls, reserve requirements, capital requirements, and various taxes and levies to favour â?? directly or indirectly â?? the holding of government debt. In addition, over the same period, interventionist credit policies were developed to influence the allocation of credit through price or quantity rules so as to offer a competitive advantage to certain economic sectors. A key feature of these interactions during this period was to force financial institutions to extend credit that would otherwise have to be funded by government deficits expenditures 20. This alternative financing of state intervention contained public debt while introducing political pressures and "distortions" of competition in the financial sector. Banks were sometimes requested to hold a certain amount of government bonds and of claims on certain sectors as a percentage of their total asset. The same outcomes could also be pursued indirectly by central banks in their design of monetary policy operations (reserve requirements, credit ceilings, liquidity ratios) and through collateral policy facilitating banks access to the discount window for certain categories of claims. The intervention of governments in the working of their respective domestic markets also frequently occurred through the development of public credit institutions as substitutes to banks and through the direct investment of Western European governments in some specific sectors (housing, agriculture, industry etc) and support industrial policies or resort to the development of state-owned credit institutions or public banks as substitutes to banks. All in all, these policies were used â?? at different degrees across countriesâ?? to control risk in the banking sector, to support industrial policy, facilitate government-financing needs and control inflationary risks 21. These tools also shared a strong national bias; most savings, investments, government financing came from domestic sources and financial regulation aimed to mitigate risks and influence the allocation of credit at the national level. As a consequence, the political economy of these systems relied on connections and coordination 22 at the national level between government agencies, public and private lending institutions and industries. Employees circulated easily and frequently between public administrations and nationalised firms or banks. In the name of the public interest, industries negotiated with governments in order to receive subsidies, to be given priority, and sometimes to be rescued 23. It is only in the late 1970s and 1980s, that these symbiotic relations between Western European governments and their national banking systems approach were challenged by profound intellectual changes about the merits of financial liberalisation and independent central banking and that the negative effects of governments interventions (unproductive rents, crowding out, over-saving by state owned institutions) became more central to economic thinking and policymaking. As a result, the recourse to these interventions and instruments gradually but rapidly vanished. Countries â?? prominently Franceâ?? experienced a radical liberalisation in the mid 1980s and all converged towards and open financial system with a mature money market in the early 1990s. As a result of this new settlement, financial ecosystems were organically but deeply redesigned, and as a result, financial and political relationships were recomposed. The expansion and deepening of cross border capital flows supported further financial market openness, independence of central banks and disengagement from the public sector 24. In sum, while distinct financial ecosystems characterised by symbiotic relationship and reciprocal patterns of influence between governments and their banking industry have exercised a significant influence in the past, these differences have frequently been presented as in decline at the turn of the century. The question remains whether the current crisis has interrupted this decline and reinvigorated past behaviours and historical relationships? 4. The European crisis and the recomposition of national ecosystems The abrupt interruption in cross border capital movement has triggered a clear renationalisation of finance over the last three years and has profoundly modified relations between national financial systems and governments in Europe 25. The vast and ubiquitous use of government expenditures and guarantees to support the financial system 26 has been followed by widespread calls for tighter regulation and supervision of the financial sector as a whole and of the banking sector in particular. In addition, in many instances, the crisis has unsettled governments' access to financial markets and increased their borrowing cost. The economic downturn has in turn woken up a certain desire and a need to address credit shortages and intervene more forcefully in the financial system to improve and augment the extension of credit and facilitate the recovery. However, if governments in Europe have not resorted completely and openly to the policies and instruments that had characterised the Bretton Woods era, a number of developments could indicate a redefinition of the relations between the public and the financial sector along the lines of pre-existing historical relations and behaviours. The most common and clearly identified aspect of these changing landscapes is the extent to which holdings of public debt have been on balance re-nationalised. Debt sustainability concerns, uncertainty about the integrity of the European monetary union and the reluctance of the central bank to address risks of multiple equilibria in sovereign debt markets in the euro area 27 have all contributed to put sovereign debt markets under strain and forced governments to rely on national savings and national financial institutions to finance their expenditures. Despite these developments, the current re-domestication of government debt holding does not appear to be an unseen phenomenon, nor a direct return to the pre-EMU situation. Among countries of the euro area, only Spain has today a level of sovereign debt held by residents (including central banks and financial corporations) higher than before it joined the euro. The huge exposure of government towards their banking system is therefore not a phenomenon that was born during the crisis but is a well-established feature of European economies since the 1980s. Nevertheless, what is true on average is not necessarily true on an individual basis. Ireland and Portugal for instance, have experienced a dramatic increase in this ratio from 2006 to 2011 while in Germany, Belgium and France, on the contrary, the financial crisis has not stopped a downward trend in the domestic holding of government debt. These trends are characterised by a strong path dependency, which supports the argument that historical trends are still important for the structure of bank holdings. A second aspect of these changing landscapes is the evolution in the centrality of central banks in the European national financial ecosystems. This role had significantly been curtailed after the demise of Bretton Woodswith the creation of the Eurosystem, the centralisation of key central prerogatives within the ECB and the emergence of principle of central bank independence. However, during the current crisis, with growing financial fragmentation, impaired transmission mechanisms, the European Central Bank was forced to take a more active role to repair transmission channels and it contributed to increase the holding of government bonds held by central banks of the Eurosystem. This modification of its collateral framework also allowed National Central Banks to exert some discretion in the types of claims they could accept as collateral which may have increased the national bias in the refinancing of credit claims 28. These dynamics have provoked a vivid reaction denouncing both financial repression and â??fiscal dominanceâ?? 29 of central banks but these criticisms seem to ignore the fact that the most striking feature of European national central banksâ?? balance sheet expansion is not the result of greater accumulation of public debt but rather of an historically unprecedented increase in central bank credit to the private economy. Central bank balance sheet usually increased during wars and recessions mostly to ease government financing. After 1945, some central banks became more involved in directed credit and used their balance sheet to finance long-term investment and influence the allocation of credit through re-discount privileges and choices. However, even in the central banks that used these techniques extensively such as France, the ratio of central bankâ??s claim on the domestic banking sector never really exceeded 8-10 percent of GDP. In the euro area, it has now reached more than 30 percent of GDP. This contrasts starkly with the UK and the US where the Bank of England and the Fed assets purchase were largely government and quasi-government liabilities 30. Arguably, a large part of these claims, are in reality claims on the financial sector caused by the extension of large amounts of liquidity to the banking sector. Indeed, never in history did central banks support an entire financial system to this extent. While the UK stands out here as having provided relatively little liquidity support to its banking sector beyond purchase of government bonds, the ECB, on the contrary, has accumulated claims to the banking sector by a record amount. In 2011, central bank claims on the banking sector in the euro area was 30 percent of GDP, ranging from 0.1 percent for the Bank of Finland to 68.7 percent for the Bank of Ireland. Interestingly, those central banks that have the least government debt, tend to have the most claims on the private sector thereby potentially revealing important differences in the structures of national ecosystems. The intervention of central banks in the financial sector has further been increased by the acknowledgement that macro-prudential regulation is a necessary complement to modern central banking. The new macroprudential mandate acquired granted during the crisis to central banks is in part a return to the theory and practice of central banking 30 years ago in Europe (even though the term â??macroprudentialâ?? was coined recently) when central bankers thought their role extended well beyond the narrow remit of monetary policy. A third significant evolution in the relationship between governments and the financial system that has in part turned the clock back can be found in the return of â??public credit institutionsâ?? (also known as â??development banksâ??). These state-owned lenders in France, Germany, Italy and Spain, respectively the Caisse des dépôts et consignations (CDC), the Kreditanstalt für Wiederaufbau (KfW), the Cassa depositi e prestiti (CDP) and the Instituto de Crédito Oficial (ICO) have considerably increased their scope as of recently. The CDC and CDP are old state owned institutions (created respectively in 1816 and 1863) that played an important historical role in the economic development of France and Italy. The KfW was created in 1948 to support the reconstruction of the German economy while the Spanish ICO is more recent (1971). Their role in the economy has increased greatly and rapidly during the financial crisis.While total assets of the credit institutions of the Euro Area increased by only 4 percent from 2008 to 2012, assets of public credit institutions increased by at least 30 percent and even 128 percent for the ICO. These institutions have also, together with the European Investment Bank, which has also expanded its lending activities quite substantially by 56 percent over the same period (2008-2012), collectively created the â??long-term investorsâ?? club to promote their role in the economy as a provider of long term financing 31. The detailed balance sheets of these institutions show that they have performed various functions over time with different emphasis in each country. The Cassa de Depositi e Prestiti for example has expanded its credits to the public sector tremendously, extending some â?¬85bn worth of loans to public (mainly local) entities and purchasing some â?¬90bn in Italian government bonds and bills. In France, the CDC has repositioned its portfolios away from European peripheral countriesâ?? debt into French sovereign debt where the exposure almost doubled. The CNP insurances company, which is the 6th European insurance company in assets size and which is owned by the CDC, has also accomplished a similar portfolio rebalancing towards domestic debt. Meanwhile, in Germany, KfW played a quite different role by first being largely used to provide capital, loans and guarantees to the financial sector 32 during the first wave of the crisis in particular in the case of IKB. It also expanded its financing to local SME and infrastructure in Germany and abroad. Indeed, the KfW played an important role in German financial aid to other European countries as in Greece with some â?¬22bn of outstanding credits at the end of 2011, Italy with some â?¬1.7bn, Ireland with â?¬1.4bn, Spain with â?¬3.2bn. These institutions are therefore not only important to understand the political economy of national eco-systems but also of new financial relationships between European nations during the crisis. Indeed, in Spain for instance, KfW lends to Spanish SMEs through the ICO. It is also interesting to observe that the countries that did not have an important â??development bankâ?? (such as Portugal and Greece) are now in the process of creating one 33. In essence, the existence of these institutions has allowed reactivating practices and mechanisms of intrusion in the intermediation system that were an essential part of the financial ecosystem over the last century. Their role is probably even reinforced in European countries today by the fact that national central banks and governments cannot provide direct public support or target specific sectors via subsidised loans as they used to do in the immediate post war period. In many countries (but not in all) national credit institutions never really disappeared, they just blended in. The CDCâ??s total assets for instance represent 15 percent of GDP in 2012 when it was equal to 17 percent of GDP in 1970. Governments for the most part therefore never really disbanded the institutions they had built of the last century and they proved relatively easy to awaken and mobilise as the crisis hit. Contrary to Carmen Reinhartâ??s argument, it is misleading to these developments as a mere â??return of financial repressionâ?? 34. The intervention of European states in their financial system have not intended to become substitute for fiscal or industrial policy and thus differ drastically from historical quantitative tools used by central banks thirty years ago. Nonetheless, it is clear that the greater re-nationalisation in the holding of public debt by domestic financial institution, the unprecedented increase in central bank credit to the private economy, and the return of public credit institutions are three developments since the financial crisis that have reaffirmed the centrality of distinct European financial ecosystems after two decades in which these ties had been eroded by financial liberalisation and the process of European monetary integration. 5. European financial ecosystems and the move towards a banking union The previous section has discussed how the changes in the patterns of financial intermediation and sovereign debt holding emerged in response to the crisis, but the implications of these trends extends well beyond economics and deep into the political arena and the debate concerning the reform in the European financial architecture. The long and troubled history of the construction of an integrated market for financial services in Europe has often been described as a â??battle of the systemsâ?? across different European countries, in particular between systems such as Britain where capital markets played a key role as the main source of financing and the continent where banks dominated the provision of credit 35. But on the continent itself, national practices and structures also differ greatly and are somewhat embedded in the domestic institutions and possibly in different varieties of capitalism 36. The realisation of an integrated financial market encouraged first by the Banking Directive in 1977, the Single European act in 1986 and the Lamfalussy Report in 2001 had partially redesigned the fault lines in European financial policies. The traditional conflicts across different countries reflecting the preferences of their national champions was complemented by the emergence of coalitions of large pan-European groups with a strong interest in removing obstacles to the emergence of an integrated financial market for financial services in Europe, often pitted against firms with a more local or national outlook threatened by this trend. The dynamics triggered by the financial crisis have reinforced the channels of pressure and influence between European governments and their banking systems. The greater nationalisation of financial intermediation as well as the wave of re-regulation revive strong national preferences and tensions in the design of financial policies. Debates surrounding the design and implementation of Basel III for example, have instead witnessed the re-emergence of traditional national cleavages, with different European regulatory authorities frequently running in support of their banking industry at the negotiating table. The violent realisation that the monetary union did imply lesser avenues for economic adjustment in response to shocks has certainly strengthened the reluctance of national governments to deprive themselves of policy levers to influence credit intermediation. On the other hand, the financial sector seems to have been able to use this dependency in order to extract concessions from national regulatory authorities that would serve its own interests. The influence of financial industry groups over the position of their respective governments has not been confined to countries with large financial sectors, but it has been pervasive also in countries where the financial industry occupies a smaller position in the economy 37. The path towards a banking union â?? a single supervisory mechanism applying a single rulebook and eventually a single resolution mechanism â?? is therefore particularly important in this respect. If successful, it should precipitate a profound redefinition of national financial ecosystems in Europe and have broader consequences on the underlying structure of financial intermediation in Europe. This may not be completely compatible with sustaining national preferences as far as the organisation of the financial system is concerned. But it could also reduce the ability of member states to use their financial system to play a cushioning role in the event of economic downturns. This could imply a further reduction in the ability of member state to stabilise their economies and entail much more radical changes in the structures of national capitalisms. The tensions existing between these changes and the historical ties between different governments and their banking systems explain the opposition of domestic financial interests and some national governments have been source of resistance on the way for the establishment of a banking union. The resilience of history within national financial ecosystems and the symbiotic relationships remaining between western European governments and their national banking systems are a key factor shaping the path towards the Europeanisation in the regulation, supervision, resolution of the financial sector that the banking union entails. Will the union break national ties, create a new balance of public and private power at the European level or, on the contrary reinforce domestic specificities and relationships such that a dual system might emerge with two separate levels of activities and political economies (national and European)? There is a wide research agenda ahead as very little has been written up to now on the potential consequences of the banking union for the political economy of national financial ecosystems. The debate has not even fully started and insights from economics, history and political sciences are more than needed at this stage. 6. Conclusion Despite their renewed popularity among economists and policymakers since 2008, neither the notions of â??captureâ?? nor â??financial repressionâ?? appear sufficient to fully understand todayâ??s European dynamic and complex patterns that characterise the relationship between governments and their financial industries at the national and increasingly at the European level. These seem to be evolving profoundly in two directions. First an apparent rapid reduction of banksâ?? balance sheets that will probably increase the role of non-banks in the provision of credit and thereby certainly affect profoundly the ties between banks and government insofar as they influence the extension and allocation and credit to the economy. Second, and maybe more importantly, the ongoing process of Europeanisation of financial policy is likely to have profound ramifications for both financial ecosystems themselves and for the relationships that governments and financial institutions develop. In particular, it could be expected that relationships that were so far developed within the confines of national borders would be gradually transferred over the to the European level via the process of the banking union, thereby side-lining or at least minimising the importance of national governments. However, developments in the last few years very much question this notion as it appears clearly that the financial crisis has actually awakened institutions, practices and relations that have strengthened the ties between governments and their respective financial ecosystems. Starting from the breadth and scope of financial support 38, to the reactivation of certain supervisory and even monetary practices, the ties between national governments and the banking system has been in many ways reactivated in a way that tends to blur the rigid categories of capture and repression. As a result, a more nuanced prism is needed, focusing on agency that national specificities will be able to develop within European contexts as well as on the non-trivial equilibria between public and private interests. The political science literature, which has highlighted the existence and persistence of â??varieties of capitalismâ?? in Europe and the resilience of national ecosystems, will be particularly helpful in this respect. This strand of work should also help us to introduce the perspective brought by the political economy literature in the debates about the European monetary union over and above the importance of the need for a banking union as a necessary stabilising feature of the single currency. *** 1 Baxter has defined capture as occurring â??whenever a particular sector of the industry, subject to the regulatory regime, has acquired persistent influence disproportionate to the balance of interests envisaged when the regulatory system was establishedâ??. Lawrence G. Baxter (2011) 'Capture in Financial Regulation: Can We Redirect It Toward the Common Good?' Cornell Journal of Law & Public Policy 175-200. The origins of the concept: see George J. Stigler (1971) 'The Theory of Economic Regulation', The Bell Journal of Economics and Management Science, Vol. 2, No. 1. See also Dal Bó, Ernesto (2006) 'Regulatory Capture: A Review', Oxford Review of Economic Policy, 22(2), 203â??225. For a recent discussion of the problem of capture in the context of the financial crisis see Carpenter, Daniel and David A. Moss (eds) (2013) Preventing Regulatory Capture: Special Interest Influence and How to Limit it, Cambridge University Press; Johnson, Simon (2009) 'The Quiet Coup', Atlantic Monthly, May; and Daron Acemoglu and Simon Johnson (2012) â??Captured Europeâ??, Project Syndicate, May. 2 Reinhart, Carmen. M. (2012) 'The return of financial repression', Financial Stability Review, 16, 37-48; Kirkegaard, Jacob F. and Carmen M Reinhart (2012) 'Financial repression, then and now', VoxEU.org, May; Allianz Global Investors (2013) Financial Repression. It Is Happening Already. 3 Andrew Schonfield (1965) Modern capitalism: The changing balance of public and private power, Oxford University Press. A subsequent literature in political sciences has coined the term i>â??varieties of capitalismâ?? to study these differences and their institutional roots: Colin Crouch and Wolfgang Streeck (eds) (1997) The Political Economy of Modern Capitalism: Mapping Convergence and Diversity, London: Sage; Peter A. Hall, David Soskice (eds) (2001) Varieties of Capitalism. The Institutional Foundations of Comparative Advantage, Oxford University Press. 4 ;De Larosière Jacques (2009) Report on financial supervision to the European Commission; Mügge, Daniel (2006) 'Reordering the Marketplace: Competition Politics in European Finance', Journal of Common Market Studies, 44(5), 991â?? 1022. 5 For the literature on financial retrenchment globally see for example Lund, Susan et al (2013) Financial globalization: retreat or reset'McKinsey, available at Milesi-Ferretti, Gian Maria and Cedric Tille (2011) 'The Great Retrenchment: International Capital Flows during the Global Financial Crisis', Economic Policy vol. 26(4), pp. 285-342. Re-nationalisation of financial intermediation and financial policy has emerged as a response to the contradiction between international market integration and spatially limited political mandates, as highlighted in the political science literature: Pontusson, J. and Raess, D. (2012) 'How (and Why) Is This Time Different? The Politics of Economic Crisis in Western Europe and the United States', Annual Review of Political Science, 15, 13-33; Clift, B. and Woll, C. (2012) 'Economic patriotism: reinventing control over open markets', Journal of European Public Policy, 19(3), 307-323; Schmidt, V. A. and Thatcher, M. (eds) (2013) Resilient liberalism in Europe's political economy, Cambridge University Press. 6 Goldstein, Morris and Veron, Nicolas (2011) 'Too Big to Fail: The Transatlantic Debate', Working Paper No. 11-2, Peterson Institute for International Economics; Johnson, Simon and Kwak, James (2011) 13 bankers: the Wall Street takeover and the next financial meltdown, Vintage. 7 FCIC (2011) The Financial Crisis Inquiry Report. Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. Washington, DC: The Financial Crisis Inquiry Commission. See also Johnson, Simon (2009) 'The Quiet Coup', Atlantic Monthly, May. 8 US GAO (2011) 'Securities and Exchange Commission. Existing Post-Employment Controls Could be Further Strengthened', Government Accountability Office, GAO-11-654 Report, Washington DC. 9 Stigler (1971). See footnote 1. 10 The Landesbanken are themselves partly owned by regional confederations of Sparkassen (saving banks) and respective federal states. See also Grossman Emiliano (2006) 'Europeanisation as an interactive process: German public banks meet EU competition policy', Journal of Common Market Studies, vol. 44, n°2, p. 325-347. 11 Giani, Leonardo (2008) â??Ownership and Control of Italian Banks: A Short Inquiry into the Roots of the Current Context', Corporate Ownership & Control, Vol. 6, No. 1, pp. 87-98. 12 On the role of these networks for banking reforms, see Butzbach Olivier, Grossman Emiliano (2004) 'La réforme de la politique bancaire en France et en Italie : le rôle ambigu de lâ??instrumentation de lâ??action publique', in Lâ??instrumentation de lâ??action publique (sous la dir. de Pierre Lascoumes et Patrick Le Galès), Presses de Sciences Po, Paris, pp. 301-330. More general references are Swartz, David (1985) 'French Interlocking Directorships: Financial and Industrial Groups', in Stokman, Ziegler and Scott (eds) Networks of Corporate Powers: A Comparative Analysis of Ten Countries; Kadushin, Charles (1995) 'Friendship Among the French Financial Elite', American Sociological Review, Vol 60, N_2, pp 202-221. For a quantitative approach highlighting the role of networks of former high ranking civil servants in shaping board composition of banks and other corporations, see Kramarz, Francis and Thesmar, David (2013) 'Social networks in the boardroom', Journal of the European Economic Association, 11:780â??807. 13 Woll, Cornelia (2013) 'The power of banks', Speri, University of Sheffield, July. 14 Davies, Howard (2010) 'Comments on Ross Levineâ??s paper â??The governance of financial regulation: reform lessons from the recent crisisâ??', Bank for International Settlements; see also The Warwick Commission on International Financial Reform (2009) In Praise of Unlevel Playing Fields, University of Warwick. 15 Howarth, David and Quaglia, Lucia (2013) 'Banking on Stability: The Political Economy of New Capital Requirements in the European Union', Journal of European Integration (May), 37â??41. 16 Pagliari, Stefano and Young, Kevin L. (2014) 'Leveraged interests: Financial industry power and the role of private sector coalitions', Review of International Political Economy, 21(3), 575â??610. 17 Morris and Veron (2011), see footnote 6. Gerschenkron, A. (1962) Economic backwardness in historical perspective. Economic backwardness in historical perspective, Harvard University Press. 18 Hautcoeur, Pierre Cyrille, Riva Angelo, and White Eugene N. (2013) 'Can Moral Hazard Be Avoided? The Banque de France and the Crisis of 1889', paper presented at the 82nd Meeting of the Carnegie-Rochester-NYU Conference on Public Policy; Caroline Fohlin (2012) Mobilizing Money: How the Worldâ??s Richest Nations Financed Industrial Growth, New York: Cambridge University Press. 19 McKinnon, Ronald (1973) Money and capital in economic development, Brookings Institution Press. 20 Hodgman Battilossi, Stefano (2005) 'The Second Reversal: The ebb and flow of financial repression in Western Europe, 1960-91', Open Access publications from Universidad Carlos III de Madrid; Monnet, Eric (2014) 'The diversity in national monetary and credit policies in Western Europe under Bretton Woods', in Central banks and the nation states, O.Feiertag and M.Margairaz (eds), Paris, Sciences Po, forthcoming; Monnet, Eric (2013) 'Financing a planned economy, institutions and credit allocation in the French golden age of growth (1954-1974)', BEHL Working Paper n°2, University of Berkeley; Hodgman, Donald (1973) 'Credit controls in Western Europe: An evaluative review', Credit Allocation Techniques and Monetary Policy, The Federal Reserve Bank of Boston.21 Monnet Eric (2012) 'Monetary policy without interest rates. Evidence from Franceâ??s Golden Age (1948-1973) using a narrative approach', Working Papers 0032, European Historical Economics Society (EHES). 22 Eichengreen, Barry (2008) The European economy since 1945: coordinated capitalism and beyond, Princeton University Press. 23 Pontusson & Raess (2012) 'How (and Why) Is This Time Different? The Politics of Economic Crisis in Western Europe and the United States', Annual Review of Political Science, vol. 15, pp. 13-33; Zysman, John (1983) Governments, markets, and growth: financial systems and the politics of industrial change, Cornell University Press. The academic literature that builds on the â??varieties of capitalismâ?? has studied extensively how these national characteristics and â??institutional complementaritiesâ?? were shaped and reinforced by the role of the state, then shaping these various forms of â??capitalismâ??. Schonfield, A. (1965) Modern Capitalism: The Changing Balance of Public and Private Power, Oxford University Press. Peter Katzenstein (1985) Small States in World Markets, Ithaca, Cornell University Press; Peter Hall, David Soskice (eds) (2001) Varieties of Capitalism, Oxford University Press. 24 Mügge, Daniel (2006) 'Reordering the Marketplace: Competition Politics in European Finance', Journal of Common Market Studies, 44(5), 991â??1022. 25 Carmen Reinhart (2012) 'The return of financial repression', CEPR, DP8947; Sapir, André, and Wolff, Guntram (2013) 'The neglected side of banking union: reshaping Europeâ??s financial system', Policy Contribution, Bruegel; Goodhart, Charles (2013) 'Lessons for monetary policy from the Euro-area crisis', Journal of Macroeconomics. 26 Stolz, S. M., and Wedow, M. (2010) 'Extraordinary measures in extraordinary times: Public measures in support of the financial sector in the EU and the United States', Occasional Paper 117, European Central Bank. 27 De Grauwe, Paul (2011) 'The European Central Bank: Lender of last resort in the government bond markets?' CESifo working paper: Monetary Policy and International Finance (No. 3569). De Grauwe, Paul, and Ji, Yuemei (2012) 'Mispricing of sovereign risk and multiple equilibria in the Eurozone', Centre for European Policy Working Paper 361. 28 Merler, Silvia, and Pisani-Ferry, Jean (2011) 'Hazardous tango: sovereign-bank interdependence and financial stability in the euro area', Financial Stability Review, (16), 201-210. 29 In a 25 November 2013 speech, J. Weidmann said that â??Monetary policy runs the risk of becoming subject to financial and fiscal dominanceâ??. 30 For example, speech by David Miles from the BoE: 'Government debt and unconventional monetary policy', at the 28th NABE Economic Policy Conference, Virginia, 26 March 2012. 31 The long-term investors club: See also green paper by the European Commission on long-term finance. 32 Between the end of 2007 and February 2008, IKB had to go through several rounds of financial support in which banks and the KfW agreed to two more bailout packages, which ended up increasing KfWâ??s participation in IKB from 38 percent to 90.8 percent. For more details see Cornelia Woll (2014) The Power of Collective Inaction: Bank Bailouts in Comparison, Ithaca, Cornell University Press. 33 'Germany to help Spain with cheap loans', EUObserver, 28 May 2013, http://euobserver.com/economic/120278. 34 Reinhart, C. M. (2012) 'The return of financial repression', Financial Stability Review, 16, 37-48. 35 Story, Jonathan, and Walter, Ingo (1997) Political Economy of Financial Integration in Europe: The Battle of the Systems, MIT Press. 36 Hall, Peter and Soskice, David (2001) Varieties Of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford University Press. 37 Howarth, David, and Quaglia, Lucia (2013) 'Banking on Stability:â?¯ The Political Economy of New Capital Requirements in the European Union', Journal of European Integration (May), 37â??41; Bruegel blogpost by Nicolas Veron. 38 Woll (2014). See footnote 32. |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:838&r=hme |
| By: | Mueller, Georg P. |
| Abstract: | Contradictory and missing outcomes are problems common to many qualitative comparative studies, based on the methodology of crisp-set QCA. They also occur in public policy analyses, e.g. if important background variables are omitted or outcomes of new policies are technically censored. As a new solution to these problems, this article proposes the use of three-valued modal logic, originally introduced by the Polish philosopher Jan Lukasiewicz (1970). In addition to true and false, indeterminate is the third truth-value in this alternative approach, which serves to code missing or contradictory data. Moreover, modal operators allow a differentiation between strict and possible triggers and inhibitors of policy outcomes. The advantages of three-valued modal logic in crisp-set QCA are illustrated by an empirical example from comparative welfare policy analysis. Its conclusions allow comparisons with the corresponding results from a conventional crisp-set QCA of the same data-set. |
| Keywords: | Three-valued modal logic; qualitative comparative analysis (QCA); public policy; social security; international comparisons |
| JEL: | C65 H43 H55 Z18 |
| Date: | 2014–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:fri:fribow:fribow00450&r=hme |