Challenges of national regulation of international markets

The Bundesbank has proposed what the Financial Times characterizes as a "system of 'self-regulation plus'" under which hedge funds would "open up their books for public grading by rating agencies and introduce a code of conduct." The proposal reflects concern about the risks entailed by heavy hedge-fund borrowing from banks and recognition "that national regulatory authorities would be virtually powerless if they acted alone."

Ralph Atkins and Mark Schieritz, "German central bank calls for hedge fund openness," Financial Times, U.S. edition, 17 May 2006, 2.

This calls to mind the words with which Alan Greenspan urged Congress in 2000 to exempt the then-$80 trillion market for over-the-counter derivatives from regulation, which illustrated how the "race to the bottom" dynamic, so familiar in U.S. history, works internationally: "I see a real risk that, if we fail to rationalize our regulation of centralized trading mechanisms for financial instruments, these markets and the related profits and employment opportunities will be lost to foreign jurisdictions that maintain the confidence of global investors without imposing so many regulatory constraints."

Joseph Rebello and Dawn Kopecki, "Greenspan Urges Congress to Execmpt OTC Derivatives From U.S. Regulation," Wall Street Journal, 11 February 2000, C11.

More on intra-EU regulatory arbitrage

"Since a European High Court ruling in 2002, EU companies are free to incorporate anywhere in the region," reports the Financial Times. "Some 30,000 small German companies have since registered as limited companies in the UK, mainly attracted by the lower cost."

The trend is now spreading, it reports, to medium-sized German companies that anticipate expanding and listing publicly. For such firms the attraction of UK incorporation (unlike incorporating as a Societas Europaea or SE) is that it would enable them to avoid Germany's co-determination law, which applies only to German company forms (Aktiengesellschaften)--though that interpretation may be challenged in court.

Gerrit Wiesmann, "Germans eye UK listings as a way out of worker law," Financial Times, U.S. edition, 24 May 2006, 16.

Solutions to regulatory competition in the EU?

In an op-ed piece in yesterday's Financial Times, a Belgian economics professor argues that "a flaw in the design of the eurozone" that leaves wages policies to be determined by the member states of the EU, rather than centrally, produces an unhealthy competition among the states. He cites the example of German wage restraints, which "improve Germany's competitive position at the expense of the other eurozone countries."

To stop "the downward spiral on wage increases set in motion by Germany," he sees two basic alternatives: either centralize policy in the EU or "further liberalize [EU states'] labour markets so wages are set by demand and supply instead of being dictated by government-sponsored cartels of trade uions and employers' associations."

An historian can't help noticing that the dynamic he depicts looks very "American" -- that is, it resembles the economic competition among the American states that first emerged in the 1850s and reached full force by the 1890s, producing what some scholars call a "race to the bottom" in state regulation. (The competition continues because so much economic policy remains in the hands of the American states. No one really disputes the existence of the dynamic, though assessments of it--good or bad?-- differ sharply.) In the U.S., the outcome of this dynamic was de facto liberalization of labor (and other) markets.

From this standpoint, the available solutions to the EU situation appear slightly differently: either centralize wage policymaking or let state-level competition do its work in liberalizing labor markets. But however one arrives at liberalized labor markets, the U.S. experience suggests that they won't prevent a downward spiral in wages, especially in the 21st-century context of global, inter-nation competition.

Paul De Grauwe, "Germany's pay policy points to a eurozone design flaw," Financial Times, 5 May 2006, 13.

Antitrust in the Noughties

Current antitrust policy, Stephen Labaton argues in the New York Times, harkens back to the late 1980s--and one might even say, to the 1890s: it takes a dim view of cartels and price-fixing, but generally regards mergers with equanimity.

Much of the article, however, is actually about signs of impending conflict between the Justice Department and the FTC over the latter's effort to combat what appears (to the legal amateur) to be cartel-like behavior--inter-firm agreements in which name-brand drug manufacturers pay generic manufacturers to delay the introduction of rival products.

Stephen Labaton, "New View of Antitrust Law: See No Evil, Hear No Evil," New York Times, 5 May 2006, C5.

What next? Mashups

Combining data with Google Maps -- a new Internet phenomenon, it seems. I'm a big fan of mapping historical data, especially for lectures. But I'm not really versed enough to do it effortlessly, so I often just can't find the time. Now here's a new twist.

Jane Gordon, "Mapping the Invisible City Outside Their Walls," New York Times, 3 May 2006, A25.

Early computers and national security

Yesterday's New York Times carried an obituary for Henriette D. Avram, whose career exemplifies both the role of national security in the genesis of the American computer industry and the spill-over effects from that early collaboration. After studying mathematics in the early 1950s at GW while her husband worked for the National Security Agency, she, too, "went to work for the N.S.A., where she learned computer programming." After a hiatus at a software company, she moved to the Library of Congress in the mid-1960s, where she led the project that produced Machine Readable Cataloging, or Marc. In the 1970s, Marc became the national, and then the international standard for electronic library catalogs. It remains the basis for the newest iteration, Marc 21.

Margalit Fox, "Henriette D. Avram, Modernizer of Libraries, Dies at 86," New York Times, 3 May 2006, C15.

Competing social conceptions of the corporation

Because of the striking differences in their styles of corporate governance, I've been following rather closely the news reports on the efforts of Netherlands-registered Mittal to take over Luxembourg-registered Arcelor. Two recent reports, including a long one on Mittal's governance structure:

Peter Marsh, "Arcelor investors expected to take issue with E4bn loan," Financial Times, U.S. edition, 27 April 2006, 21.

John Plender, "Mittal kingdom: why governance may be an impediment in the pursuit of Arcelor," Financial Times, U.S. edition, 28 April 2006, 9.

In a paper that I presented last month at a conference at Washington and Lee University's School of Law, I used the Mittal-Arcelor case briefly to illustrate competing social conceptions of the corporation today -- will post a link to the article manuscript when I'm finished revising it. Meanwhile, I am delighted to hear that historian Philippe Mioche at the Université de Provence, Aix-en-Provence, is writing an article on the history of the two firms.

For news reports on Arcelor's annual shareholder meeting, held on Friday, click here.

The political creation of uniform markets

In a preliminary ruling, the European Court of Justice has declared "quite patently discriminatory" the French practice of levying higher taxes on dividends paid to non-residents.

Quoted in Vanessa Houlder, "Decision on withholding taxes set to spur reform," Financial Times, U.S. edition, 28 April 2006, 3.

Principles for Responsible Investment

An international consortium of pension funds, holding assets of more than $2 trillion, has pledged to adhere to six "principles for responsible investment" that address environmental, social, and corporate governance issues. The underlying assumption is that these issues affect the long-term performance of their investment portfolios.

Mark Turner, "Pensions funds sign pact to ensure ethical investment," Financial Times, U.S. edition, 27 April 2006, 6.

Containerization

Economist Marc Levinson previewed his new book, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton Univ. Press, 2006) in a column in this morning's Financial Times (April 25, 2006, 17). This sounds like a "must read" for those interested in the history of business, technology, and globalization.

Anyone interested in this topic should also keep an eye out for a forthcoming book by Shane Hamilton, asst. prof. at the University of Georgia and a former undergraduate of mine, on truck drivers and the post-WWII food economy.

Another try

So my efforts last year to be more concise and therefore more regular in blogging failed abysmally. Also, like so many others, I've been completely overwhelmed by email for the last year.

Techno-twit that I am, I am now trying out a new technological fix to both problems: an amazing little Windows Mobile-based smartphone called the HTC Universal, made by a Taiwanese company. I have Cingular's version of it, simply called the Cingular 8125. Amazing is an understatement. (The screen doesn't actually swivel; it slides. But who cares, given its other capabilities.)

More on cross-border mergers

For the views of Italy's minister for European affairs on cross-border mergers, see Giorgio La Malfa, "Cross-border M&A does not suit most banks," Financial Times, 2 June 2005, 15.

Most interesting part: "Finally and crucially: the bigger, the less flexible. There are specific, lcoal circumstances even for banking. Italy's industrial production, and with it a large share of the country's wealth, is based on small and medium-sized enterprises, often clustered in lcoal districts. Most of these companies are too small to raise capital on the markets. Access to credit is their lifeline. And local banks have traditionally provided this credit. They have developed over the years a detailed knowledge of their clients' needs that is hard to replace. It is thus a legitimate concern that flexibility and specialisation could be lost in the process of banking consolidation."

There's now a large political-economy literature on flexible specialization as a mode of production in Italy (for an early example, see Charles Sabel and Michael Piore, The Second Industrial Divide).

Access to local knowledge and large-scale banking are not necessarily incompatible, however. Case in point: At the Business History Conference in Minneapolis last month, I heard a paper (by Fed Reserve scholars, if I remember right) on bank branching via merger in California. There the parent banks have tended to retain local executives and managers precisely because of their detailed knowledge of the local community.

Pressures for federal regulation of American insurance companies

Joseph B. Treaster, "Coalition Seeks a Federal Insurance Regulator," New York Times (natl. ed.), 15 June 2005, C5.

Here's an(other) instance of business pressure for federal in place of state regulation. Business interests (at least the big players) seem fairly united behind the initiative to create "an efficient, uniform regulatory structure" nationwide in place of the usual "patchwork" or "mosaic" of regulation by 50 states (the article doesn't use the latter terms but they are typically used by critics of state regulation). The proposed solution is to give companies the option to be regulated by Washington or their home state. Critics suspect that insurers and bankers see federal regulation -- in the current political environment in Washington -- as a means of deregulation. "'If the federal government was a little less laissez-faire, the insurers and banks wouldn't be doing this,' said J. Robert Hunter, insurance director at the Consumer Federation of America."

The American practice of leaving incorporation policy and broad areas of regulation (insurance, banking) to the state governments seems increasingly anachronistic in an age of globalization. But in many ways it serves effectively to minimize regulation because the state governments have encountered serious legal-structural or political obstacles to regulation since the 1850s.

Background reading on insurance: Peter J. Wallison, ed., Optional Federal Chartering and Regulation of Insurance Companies (Washington, D.C.: The AEI Press, 2000).

Well, so much for my effort to write expediently!

HVB Group-UniCredito merger

Heather Timmons, "2 European Giants Betting Banks Can Blur Borders," New York Times (natl. ed.), 15 June 2005, C6. Cross-border (German-Italian) bank merger.

Click here for the geneaology of the HVB Group. HVB = Hypo- und Vereinsbank or HypoVereinsbank, and its lineage extends back to the Bayerische Hypo- und Wechsel-Bank AG (1835). The HypoVereinsbank headquarters in Munich had rather extensive archival records, but when I worked in them in the late 1990s, there was a good possibility that the archive would be closed as a cost-cutting measure. Whether that has happened, I don't know, but it would be a significant loss for historians.

Changing format

Well, my plans for this blog clearly aren't working out the way that I had envisioned. I just can't seem to find time to write up reflective notes about news items that are relevant to my research or teaching, and if I can't do it in the summer, when will I ever be able to? But I don't want to revert to clippings, since I can never find time to organize them either; they just sit around in piles on my desk.

So -- with due apologies to anyone who may have been "listening in" on my browsings -- I'm going to take a more expedient approach. I'll just make brief note of news articles and indicate ever so briefly (cryptically?) why they are interesting. Now let's see if that's a more effective way of keeping track of useful news.

Wealth and democracy

Whoa! For a mixture of the usual and a few unusual reasons, I've been totally swamped since spring break. Maybe blogging is like exercising -- once you get addicted to it, you can't live without it (so I hear), but until then it's tough to find time for it when the going gets tough. Well, I have a small stack of clippings to report on and I'll chip away at those (so to speak) as time allows. It's finals week here.

For the moment, just a quick comment about Cornell economist Robert H. Frank's column in this morning's New York Times about the estate tax. Popular support for repeal of the estate tax seems to run high, he writes, but how one asks the question can (as usual) make all the difference, and he illustrates this with the results of a (very) small comparative survey.

Robert H. Frank, "Economic Scene: The much-reviled estate tax: efficient, fair, painless as possible and misunderstood," New York Times, May 12, 2005, C2.

Perhaps, as he suggests, when people register opposition to the estate tax, they're really just saying that they oppose taxes in the abstract. But, still, what is striking is the way that concentrations of wealth have become so acceptable, politically and socially. In the usual discourse, there's hardly any recognition that concentrations of wealth might pose a fundamental challenge to a democracy and that the estate tax helps to level the playing field and to stave off the rise of a monied aristocracy in the United States.

Andrew Carnegie, one of the wealthiest Americans in the late nineteenth century, supposedly favored an estate tax (so I understand--I haven't verified this myself) because he thought people should do what he did, work their way to wealth. Granted, he had social access to investment circles (see Pamela Laird's forthcoming book, Pull), and it was arguably more difficult to climb the ladder of capitalism by the late 19c precisely because of the gigantic increases in scale that he and men like him wrought in the world of business. But, in his extensive philantropic activities (e.g., Carnegie-funded public libraries), he did put his money where his proverbial mouth was.

Further reading on this theme: Entering the title of this post reminded me of Kevin Phillips' book by the same title. Also, see the collection of essays entitled Ruling America: A History of Wealth and Power in a Democracy, edited by Steve Fraser and Gary Gerstle.

Ramifications of German Saabs

General Motors' recent decision to produce Saabs in Germany rather than in Sweden raises a host of interesting issues:

1. Do consumers care where cars are produced? GM, citing American-made BMW and Mercedes SUVs, doesn't think so. Saab lovers might be different, except that those (like yours truly) who really loved Saabs -- and thus might have cared -- abandoned the car after GM bought the company and changed the Saab's feel.
2. It is an example of the kind of competition among states to attract or retain business that has gone on in the U.S. since the interstate mobility of capital increased around the 1850s -- but now it occurs on an international scale. In this case, Sweden's offer to improve transportation between the Saab facility and the local port "drew cries of foul from German officials," the New York Times reports. This kind of promotional competition is the flip side of the "race to the bottom" or "competition in laxity" that has shaped regulation by the American states since the mid-nineteenth century.
3. It also offers a good example of the way that the ability to shift production among plants -- first gained in the wave of horizontal consolidations that culminated in the Great Merger Movement at the turn of the 20th century -- can alter the balance of power between labor and capital, if labor is not also organized on a scale that matches that of capital. In this instance, multinational GM negotiated with nationally based unions in Germany and Sweden. According to the Times, "[a] crucial ingredient [in GM's decision] was a new job contract [in the German plant] that reduced annual wage increases, or in some cases froze wages, and made labor rules more flexible." The German union "also agreed on a plan to reduce the work force by 9,500 by the end of 2007."

Mark Landler, "G.M. Picks Germany, Not Sweden, as Home of New Saabs," New York Times (natl. ed.,) 3/5/05, B3.

Process vs. social conservatives

I'm certainly not the first one to notice that the Republican position on the proper role of government these days seems rather contradictory. An article in the Times this morning on the Schiavo story, however, introduces an illuminating distinction. There is no "Republican position" as such -- instead, Republicans are divided between "social conservatives" and "process conservatives" (quoting David Davenport of the Hoover Institute). For social conservatives, social issues trump concerns about the allocation of power within the fractured American political structure, while the priorities of process conservatives are exactly the opposite.

Adam Nagourney, "G.O.P. Right Is Splintered On Schiavo Intervention," New York Times (natl. ed.), 3/23/05, A14.

"Social" works in the Schiavo case, but a broader term is needed to encompass those conservatives for whom certain economic issues (e.g., deregulation) also trump concerns about federalism or separation of powers.

More on the "diversity of time"

It is difficult to understand how people dealt with time on a daily basis before standard time zones were created in the early 1880s.

Case in point: Williams's New-York Annual Register for the year 1834 includes "A TABLE FOR THE EQUATION OF TIME For Regulating Clocks and Watches for the year 1834" (p. 21). The column headings are the months of the calendar, and the row headings are the alternate days of the month (1, 3, 5, etc.). Each cell gives a number of minutes and seconds and either "fast" or "slo." At the bottom of the table appears the following explanation:

How to Set a Clock or Watch by the above Table. -- EXAMPLE. -- January 1st, I find by looking into the table, that the Clock to be right must be 3 minutes and 49 seconds faster than the Sun-dial : therefore, I set it so much faster. And so of the rest. -- Twelve o'clock is the best time to a set a Clock or Watch by a Sun-dial.

NOTE. -- A Sun-dial shows Solar or Apparent Time, but a Clock, &c. should be set to Mean or Equal Time, as the Table directs.

So clocks had to be adjusted every other day to be "right," that is, set to Mean Time; and, although it doesn't say so, one has to assume that this table was accurate only for the longitude of New York City.

Lowest long-term interest rates in 300 years?

The Guardian Online reports on new research by Professor David Miles, Morgan Stanley economist, suggesting that "long-term interest rates [i.e., yields on 30-year government bonds], adjusted for inflation, could be at their lowest for the past 300 years." He isn't able to explain why, apparently, but the implication is that such low levels are not sustainable.

Charlotte Moore, "Low rates mean long-term liablities," The Guardian, March 14, 2005.