Day 1 of the BHC has been excellent. I’ve heard a number of good papers, including an excellent one on the early history of the Bank of Montreal. Frankfurt is a delightful city– easy to navigate, good food. It’s surprisingly diverse as well.
Most of the conference sessions are taking place in the former headquarters of IG Farben. I must admit that I was expecting the IG Farben headquarters building to have been larger. Based on Alfred Chandler’s description of the company, I was expecting the building to be massive, much like the headquarters of General Motors and Du Pont. In reality, it was modest, long but only three stories high. The building was the hq of the firm during the Third Reich. Given that the theme of this year’s BHC conference is corporate morality, the IG Farben building was a brilliant choice of venue. People who worked in this building supervised the IG Farben synthetic rubber plant at Auschwitz.After the war, the US zone of occupation in Germany was run out of this building. During the occupation, IG Farben was broken up by New Dealers who wanted to German chemical industry to be more competitive. The building now belongs to the university. On a more personal level, one of the highlights of Day One was to see a book by Graham Broad, my grad school officemate, on the table at the BHC book auction.
AS: I see a number of papers on Canadian business history topics on the programme of the forthcoming Business History Conference. That’s very encouraging to me, as it suggests that the study of the history of Canadian business is being revived.
1.H Business Scandals
Room 0.454
Chair and Discussant: Christopher McKenna, Saïd Business School, University of Oxford
“. . . she cannot earn anything in Europe”: Insider Networks, Marine Investments, and the Failure of the Home Bank of Canada, 1916-1923
[Abstract] [Paper]
AS: Another great article review from Nep-His. This one concerns the use of “creative accounting” by 19th century factory owners in response to regulation.
Creative accounting in the British Industrial Revolution: Cotton manufacturers and the ‘Ten Hours’ Movement
Abstract
The paper examines an early case of creative accounting, and how, during British industrialization, accounting was enlisted by the manufacturers’ interest to resist demands, led by the ‘Ten hours’ movement, for limiting the working day. In contrast to much of the prior literature, which argues that entrepreneurs made poor use of accounting techniques in the British industrial revolution, the paper shows that there was considerable sophistication in their application to specific purposes, including political lobbying and accounting for the accumulation of capital. To illustrate lobbying behaviour, the paper examines entrepreneurs’ use of accounting to resist the threat of regulation of working time in textile mills. It explains why accounting information became so important in the debate over factory legislation. In doing so, it shows that a significant element was the accounting evidence of one manufacturer…
Mexican President, Jose Lopez-Portillo y Pacheco ( 1920-2004 , president 1976-1982) during his speech and address to the Nation, in which he is nationalising the banks in 1982. He is crying and also stated “I will defend the peso like a dog [to his master]” (another reason why the speech is famous and call “dog tears speech”.
AS: I thought I would bring your attention to an interesting forthcoming lecture at Bangor University.
Bank nationalization, reprivatization, crisis and financial rescue: Using testimonials to write contemporary Mexican banking history
By Enrique Cardenas (Centro de Estudios Espinosa Yglesias)
ABSTRACT: The Mexican banking system experienced a large number of transformations during the last 30 years. Although important regulatory changes were introduced in the 1970s, all but a couple of the commercial banks were nationalized in 1982, consolidated into 18 institutions and these were re-privatized in 1992. Shortly after, a balance of payments crisis in 1995 (i.e. Tequila effect) led the government to mount a financial rescue of the banking system which, in turn, resulted in foreign capital controlling all but a couple of institutions. Each and every one of these events was highly disruptive for Mexico’s productive capacity and society as a whole as their consequences have had long lasting effects on politics, regulation and supervision of the financial sector as we as polarising society. Not surprisingly the contemporary narrative accompanying these events has been highly controversial and full of conflicting accounts, with competing versions of events resulting in a long list of misconceptions and “urban legends”.
Brief curricula: Dr Cardenas graduated in Economics from the Instituto Tecnologico Autonomo de Mexico (ITAM) and Economic History from Yale University. He was president of Las Americas University (Puebla, Mexico) where he also taught economic history. More recently and since 2005, he has been Executive Director of the Centro de Estudios Espinosa Yglesias and acts as trustee of El Colegio de Mexico.
Date: Monday April 7, 2014
Time: 14:00hrs to 16:00hrs
Place: Bangor Business School (London Campus),Broadgate Tower, 20 Primrose Street, London EC2A 2EW (off Liverpool St station)
Everyone welcomed
NOTE: There is controlled access to the building. So please confirm attendance by April 3, 2014 with b.batiz-lazo@bangor.ac.uk
AS: I’ve been planning which papers I’m going to hear at the forthcoming Business History Conference meeting in Frankfurt. It so happens that I’ve been teaching about “Varieties of Capitalism” this week. It is common to distinguish Liberal Market Economies, such as the UK and the US, from Coordinated Market Economies such as Germany and Japan. I was, therefore, especially intrigued, by the second paper in the following panel.
Torsten Feys, Universiteit GentThe Battle for the Migrants: The Introduction of Steamshipping on the North Atlantic and Its Impact on the European Exodus
Laura Phillips Sawyer, Harvard Business SchoolInstitutionalist Economics and Managed Competition: The U.S. Experiment with a Coordinated Market Economy, 1920-1940
[Abstract]
Simone Selva, Università degli Studi di Napoli L’OrientaleMoney Market, Industrial Credit, Foreign Trade: American Assistance Policies and the Shaping of West European Consumer Societies from Bretton Woods through the 1970s Recession
[Abstract]
This week, I’m lecturing on the emergence and social impact of the ideology of shareholder value. Shareholder value is the view that the sole function of a company is to benefit its shareholders and that the interests of other stakeholders ought to be disregarded. The viewpoint began to be expressed with greater stridency in the late 1970s, perhaps as a response by institutional investors and business intellectuals to the post-1973 slowdown in economic growth and drop in corporate profitability. During the heyday of the Keynesian consensus (1940s-1970s), we heard far less about the need to subordinate the interests of all other stakeholders to those of the shareholders. The shareholder value ethos of corporate governance, which was loosely associated with the libertarian political ideology of the Reagan-Thatcher era, was popularised by a number of eloquent public intellectuals, most notably Milton Friedman, and by those academics who taught it to MBAs.
I’ve asked the students to read a number of academics sources about shareholder value, including
Kemper, A., & Martin, R. L. (2010). After the fall: The global financial crisis as a test of corporate social responsibility theories. European Management Review,7(4), 229-239.
Chang, H. J. (2010). 23 things they don’t tell you about capitalism. Bloomsbury Publishing USA.
Tabb, W. K. (2013). Economic Governance in the age of Globalization. Columbia University Press.
I’ve also asked them to look at this Forbes magazine article, which provided a nice gateway into Roger L. Martin’s ideas about shareholder value.
A number of academic authors, including William Lazonick, have argued that the development of the shareholder value ethos on Wall Street damaged American society and, indeed, many American companies.
In the 1990s, there were attempts to export the ethos to other capitalist countries, most notably Germany, but these efforts have failed, in part because the shareholder value approach was discredited by the bursting of the Dot.com bubble and then, a fortiori, the post-Lehman GFC. Germany seems to prove that you can run profitable companies using the rival stakeholder model of capitalism. Today, an increasing number of American business academics and, more important, corporate leaders, are pushing back against the ideology of shareholder value. Jack Welch, the former head of GE, recently called shareholder value “the dumbest idea in the world.” Moreover, as this video shows, business school academics are starting to push back against the ethos of shareholder value, as the following video shows:
It is, therefore, great to see that a panel on shareholder value has been organized at the Business History Conference, which is taking place next week in Germany, the heartland of the stakeholder variant of capitalism. I’m really looking forward to hearing these papers.
6.C Reassessing Shareholder Value
Room 254
Chair and Discussant: Jonathan Levy, Princeton University
Marie Carpenter, Télécom School of Management, Bob Bell, University of California, Berkeley, Henrik Glimstedt, Handelshögskolan i Stockholm, andWilliam Lazonick, University of Massachusetts Center for Industrial Competitiveness
Cisco Systems and the Virtues and Vices of the New Economy Business Model
[Abstract]
Daniel Raff, Wharton School, University of Pennsylvania, and NBER
What Became of Borders?
William Lazonick, University of Massachusetts Center for Industrial Competitiveness
Investing for the Future or Living Off the Past? How Stock Buybacks Can Damage Your Company and Your Country
[Abstract]
I gave a lecture last week to our first-year International Business students on technological innovation. I spoke about national innovation systems around the world and noted that a fairly high percentage of R&D spending in the US is funnelled through the military-industrial complex (see below). I also pointed out that many military technologies end up having lots of civilian applications.
Here is a great example of this phenomenon: Facebook may be looking to buy a drone manufacturer so that it can use permanently airborne drones to bring internet access to consumers in developing countries. Titan Aerospace is developing solar powered drones that can stay aloft for five years at a time.
Facebook may be preparing its next major purchase. According to TechCrunchandCNBC, Facebook will buy drone manufacturer Titan Aerospace for $60 million and plans to use its vehicles to help spread internet access worldwide. A drone manufacturer would obviously be a strange acquisition for Facebook, which has largely focused on buying consumer technology companies and apps — most notably, WhatsApp and Instagram. But both outlets report that the purchase will serve Internet.org, an initiative launched by Facebook CEO Mark Zuckerberg last year that holds the goal of bringing the entire world online.
Kai P. Kaufmann is a PhD student here at the Management School of the University of Liverpool.
The puzzle he designed inverts certain assumptions of game theory by requiring cooperation to succeed and has been praised by several public intellectuals.
Here is the puzzle.
N persons are kidnapped by aliens. If they solve this puzzle, they are made board members of the intergalactic council; otherwise our planet will be colonized: The panopticon is a ring-like building with N+1 empty, soundproof cells, each of which has two (shared) automatic doors that give access to the neighboring cells. Walls, doors, ground and ceiling are white and solid. On each door, there are two light bulbs (one on each side of the door). The N individuals are placed one by one inside the first N cells and instructed:
(a) Knowing the number N, they have O(N³) minutes to walk through the N+1 cells and get back to their original cell, proceeding from 1 to 2, from 2 to 3, …, from N to N+1, from N+1 to 1.
(b) Sitting in their cells, they receive a signal that indicates the beginning of the countdown and that consists of all door light bulbs being turned on nearly simultaneously.
(c) Person 2 may not rise before person 1, person 3 may not rise before person 2, …, person N may not rise before person N-1.
(d) Initially, all doors are closed. When someone presses the automatic door opener, his/her neighbor may not be inside that cell.
(e) One minute before the end of the countdown, a light signal of the same kind as before will be given.
(f) When the time is up, person 1 needs to sit in cell 1, person 2 in cell 2, …, person N in cell N.
(g) Person 2 may not sit down before person 1, person 3 may not sit down before person 2, …, person N may not sit down before person N-1.
To prevent boredom, an infinitely stretched Nelly Furtado song is played. After the experiment, they get their previously collected time measuring/communicative devices back and are returned to Earth.
With the fate of mankind at stake, describe how the humans got out of the panopticon to win the second prize of £100, and explain the reasoning of the panopticon builders to win the first prize of £1000. (Side comment: Answers to both questions exist, are well-defined and unique.)
You can get more information about this contest here.
Motivating statements
“Many thanks, Kai, for sharing that intriguing puzzle.” Steve Pinker (Harvard)
“thanks! i’m at a conference now … i’ll chat about this when i see magdalena.” Dave Chalmers (Australian National University, NYU)
“Thanks! I won’t even try – I’m not a natural born mathematician; lack patience to become even a half-decent chess player, and didn’t even get the second layer right on Rubik’s cube. Would Tower of Hanoi lead in the right direction?” Per Davidsson (Queensland University of Technology, Australia)
“Thanks Kai for sharing” Michael I. Norton (Harvard Business School)
MorganStanley has published a report on the future of driverless cars. The future looks bright indeed, unless you are a professional driver. The MorganStanley analysts predict that the technology will penetrate the US market like the image above.
I’m a little bit taken aback but the equation of driverless cars with “utopia.” Yeah, it would be cool to be able to work on my laptop while driving, but is that really utopia?
On a more personal level, one of the highlights of Day One was to see a book by Graham Broad, my grad school officemate, on the table at the BHC book auction.
The Past Speaks 