Industrial and Corporate Change - current issue

Financialization of the global economy

Dore, R. — 2008-11-06

The instability of the world financial system, starkly revealed in the recent debacle, is not the only problem it poses. Its secularly increasing dominance over the real economy is in itself a phenomenon that needs examining. The article traces the source of this increasing dominance not just to the increasingly leveraged and increasingly incomprehensible forms of intermediation between savers and those in the real economy who need credit and insurance, but also to the increasingly universal doctrine that maximizing "shareholder value" is the sole raison d’être of the firm and the promotion by governments of an "equity culture." Some of the social consequences of financialization are exacerbating inequalities, greater insecurity, misdirection of talent, and the erosion of trust.

Determinants of entrepreneurial engagement levels in Europe and the US

Grilo, I., Thurik, R. — 2008-11-06

In this article, the process of the entrepreneurial decision is decomposed in seven engagement levels ranging from "never thought about starting a business" to "gave up," "thinking about it," "taking steps for starting up," "having a young business," "having an older business," and "no longer being an entrepreneur." By using a multinomial logit model, we allow the effect of covariates to differ across the various entrepreneurial engagement levels. Data from two Entrepreneurship Flash Eurobarometer surveys (2002 and 2003) containing over 20,000 observations of the 15 old EU Member States, Norway, Iceland, Liechtenstein, and the United States are used. Other than demographic variables, the set of explanatory variables used includes the perception by respondents of administrative complexities, of availability of financial support, and of risk tolerance, the respondents’ preference for self-employment and country-specific effects. Among our results, we find that the perception of lack of financial support has no discriminative effect across the various levels of entrepreneurial engagement while perception of administrative complexities plays a negative role only for high levels of engagement.

The micro-level dynamics of declining labour share: lessons from the Finnish great leap

Kyyra, T., Maliranta, M. — 2008-11-06

In contrast with the experiences of the United Kingdom and the United States, the distribution of labour and capital income has changed sharply in favour of capital in most Continental European and Nordic countries during the past two decades. We examine forces behind the evolution of the aggregate labour share by analysing the dynamics of labour shares within and between firms/plants in the Finnish business sector. Using a decomposition method applied in labour economics and productivity analysis, we show that much of the decline in the aggregate labour share stems from the reallocation of resources between firms and plants, while labour shares at the firm/plant level have remained relatively stable.

The evolving landscape of banking

Boot, A. W. A., Marinc, M. — 2008-11-06

The structure of the financial services industry is in flux. Liberalization, deregulation, and advances in information technology have changed the financial landscape dramatically. Interbank competition has heated up and banks face increasing competition from nonbanking financial institutions and the financial markets. The predictability of the industry with low levels of financial innovation, little innovation in distribution channels and well defined and rigid institutional structures is gone. Product innovations, new distribution channels, and emerging new competitors are in abundance. Moreover, the subprime crisis that has hit the financial sector in 2007–2008 appears to have a major impact on the structure of the industry. This article emphasizes the importance of understanding the economics of banking for assessing the changes in the industry. In particular, we point at relationship banking as a prime source of the banks’ comparative advantage. The proliferation of transaction-oriented banking (trading and financial market activities) does however seriously challenge relationship banking. In order to focus on these issues in a rigorous way, we will evaluate the key insights from the relationship banking literature, including the potential complementarities and conflicts of interest between intermediated relationship banking activities and financial market (underwriting, securitization, etc.) activities. We also address the issue of the optimal conglomeration of bank activities, including the empirical evidence on scope and scale economies. We analyze the strategic positioning of banks in the currently highly uncertain competitive arena, and link this to the theory of the firm and particularly firm boundaries and learning.

Competing technologies and market dominance: standard "battles" in the Local Area Networking industry

Fontana, R. — 2008-11-06

The rise of Fast Ethernet as the dominant standard for high-speed connection in the Local Area Networking industry is chosen to study the interaction between increasing returns to adoption and technical change in innovation diffusion. Contrary to most of the empirical papers on diffusion with increasing returns, which study competition between an "entrenched" technology and a new competitor, the focus is on the case in which several and different versions of a new technology are competing at the same time for market dominance. Within this context, this article studies under which conditions an early technology may fail to capitalise on its initial time advantage and a new version, without a clear early lead, may become dominant. In particular, we will consider a case in which the initial time advantage is made ineffective by consistently adverse technological expectations. Then, we analyse how the arrival on the market of different categories of buyers, sensitive to specific applications, further contribute to weaken the early leader and strengthen a competing version. This is more likely to occur when buyers are highly familiar with the characteristics of that specific version.