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Why We Need Traditional Banking

This now-standard tallying of the benefits and risks of securitization omits the costs involved in the decline of old-fashioned banking itself. And those costs are quite significant. A financial system that downgrades the role of banks becomes dangerously dependent on nearly blind trust in generic credit scores — a risk still underappreciated even a decade after the financial crisis. The marginalization of traditional banking also discourages lending to small businesses, which are essential to America’s economic dynamism. And it tends to over-centralize the supply of money, and therefore of credit, in ways that distort our economic life.

Instead of applauding the greater “completeness” of anonymous debt markets, we should lament the marginalization of traditional banking. And we should work to reverse it.

Read the full piece from Prof. Amar Bhidé in National Affairs

Fletcher Faculty Features: Jette Steen Knudsen – “Visible Hands: Government Regulation and International Business Responsibility”

From time to time we like to feature the recent work of a number of our esteemed business faculty here at The Fletcher School. The series continues with Jette Steen Knudsen, Professor of Policy & International Business and Shelby Cullom Davis Chair in Sustainability at The Fletcher School.


The latest work from Professor of Policy & International Business and Shelby Cullom Davis Chair in Sustainability, Jette Steen Knudsen, examines the changing relationship between the regulator environment across the globe and the corporate social responsibility (CSR) initiatives of multinational corporations. Learn more:

https://target.scene7.com/is/image/Target/53000053?wid=520&hei=520&fmt=pjpegVisible Hands:  Government Regulation and International Business Responsibility
by Jette Steen Knudsen & Jeremy Moon

A growing number of states are regulating the corporate social responsibility (CSR) of domestic multinational corporations relating to overseas subsidiaries and suppliers. In this book, Jette Steen Knudsen and Jeremy Moon offer a new framework for analysing government–CSR relations: direct and indirect policies for CSR. Arguing that existing research on CSR regulation fails to address the growing role of the state in shaping the international practices of multinational corporations, the authors provide insight into the CSR issues that are addressed by government policies. Drawing on case studies, they analyse three key examples of CSR: non-financial reporting, ethical trade and tax transparency in extractive industries. In doing so, they propose a new research agenda of government and CSR that is relevant to scholars and graduate students in CSR, sustainability, political economy and economic sociology, as well as policymakers and consultants in international development and trade.

Learn more about this exciting new work from Prof. Knudsen

Real Leaders Negotiate: Fletcher Professor Jes Salacuse Discusses New Book at Ginn Library

The Fletcher School is no stranger to literature involving leadership and negotiation. As professor and former Fletcher dean Jeswald Salacuse noticed, however, these two genres often fail to address one another. Rather, leadership and negotiation are often treated as subjects unto themselves: matters of vision and drive on the one hand, and agreements and alternatives on the other.

Drawing on his experience in academic and private-sector leadership, Salacuse came to the following conclusion: “To lead is to negotiate.” Contrary to popular opinion, leadership is not simply a matter of developing a vision and then cracking the whip. The act of leadership certainly involves vision and execution, but the journey of leadership fundamentally involves negotiation at every stage, he said.

Salacuse traces that journey in a new book, Real Leaders Negotiate!: Gaining, Using, and Keeping the Power to Lead Through Negotiation (Palgrave MacMillan, 2017), which he presented to the Fletcher community in a book talk sponsored by Ginn Library on Nov. 1. Building on his insights, Salacuse’s book unites leadership and negotiation literature and distills from them frameworks, strategies and tactics for negotiating the journey of leadership.

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New from Prof. Kim Wilson – “Migration’s Middlemen and How to Pay Them”

by Kim Wilson, CEME Senior Fellow

Posted originally by the Center for Financial Inclusion

How do refugees finance their journeys and which expenses need financing? This was the question that a team of us at Fletcher set out to answer in our study “The Financial Journey of Refugees.” We studied the routes and financial challenges of more than 100 refugees in Greece, Jordan and Turkey, between July 2016 and April 2017. The refugees we interviewed had traveled from South Asia, Central Asia, the Middle East, East Africa and West Africa.

Regardless of their country of origin, with the exception of Syria, a refugee’s biggest expense was the cost of hiring a smuggler. Smuggling expenses ran about 85 percent of the total cost of the journey. The smuggler’s fee included important services: travel by air or overland, depending on the refugee’s budget, guide services across borders, payment of bribes at border crossings, and documentation falsification expenses. Smuggling prices varied widely by country of origin (some borders being porous, others sealed tight), by how deluxe a trip was (air versus ground), by numbers of borders crossed (affecting the number of falsified IDs required). To give an example, journeying overland from Afghanistan through Pakistan, Iran, and Turkey to Greece might cost $7,500 per person, a price that went up or down based on shifting rules and border crackdowns. Traveling from Eritrea to Greece might cost the same amount. Traveling from Syria to Turkey could cost as little as $500.

The price of the journey was one factor in a traveler’s safety – the higher the cost, the better the traveling modes, and the safer the travel. While what refugees paid their smuggler was important, how they paid them was equally important. Did the refugee pre-pay the kingpin smuggler in advance of the journey? Did she post-pay him after arriving safely in Greece or Germany? Did she pay leg by leg? All these strategies were in play and we outline them in our report summary and they are detailed by the refugees themselves in a Compendium of Field Notes. Below we describe two of many strategies.

Strategy 1: Guarantee Scheme via a Financial Third Party

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Prof. Amar Bhidé – “Media Equifax Critics Are Missing the Bigger Point”

Media Equifax Critics Are Missing the Bigger Point

Outrage that Equifax exposed more than 143 million credit records to identity thieves misses the point. We really should worry about what makes impersonation so easy—why do lenders know so little about the people to whom they issue credit?

Read the op-ed from Prof. Amar Bhidé in the Wall Street Journal (subscription required)

New Research from Jette Steen Knudsen: Government Regulation and International CSR

Government Regulation of International Corporate Social Responsibility in the US and the UK: How Domestic Institutions Shape Mandatory and Supportive Initiatives
by Jette Steen Knudsen

Abstract

While most scholarship on corporate social responsibility (CSR) focuses on company-level CSR initiatives, it increasingly also examines government programs for CSR. However, research on how governments contribute to CSR has mainly focused on domestic and not international CSR challenges. This literature also does not specify whether governments shape CSR through mandatory regulation or supportive initiatives. This article adopts a processtracing approach to determine how governments regulate international CSR. It demonstrates that the legal and political systems in the liberal market economies of theUK and theUS lead to different forms of public CSR regulation—notably in the areas of labour standards in apparel and tax transparency in extractives. The UK government has been more likely to support bottom-up collaborative multi-stakeholder initiatives, whereas the US government has favoured top-down mandatory regulation.

Download and read the full paper from the British Journal of Industrial Relations

Domestic Regulatory Traditions & CSR: Prof. Knudsen featured in Global Policy Journal

From time to time we like to feature some of the outstanding work of The Fletcher School’s business faculty. Today we look at a new article from Jette Steen Knudsen, Associate Professor of International Business and The Shelby Cullom Davis Chair in International Business.


A Global Policy special issue on public and private protections of labor and social standards in the global economy explores whether public and private regulations of such standards develop in harmony or tension with one another. Included in this issue was a piece researched and written by Prof. Jette Steen Knudsen titled, “How Do Domestic Regulatory Traditions Shape CSR in Large International US and UK Firms?”

Read the abstract below and follow the link to learn more:

This article examines corporate social responsibility (CSR) pertaining to labor standards in apparel and tax transparency in extractives and explores how domestic regulatory traditions shape CSR in large international US and UK firms. Reflecting their more collaborative business-government traditions, British firms are more willing to join international CSR multi-stakeholder initiatives with business-critical actors such as unions and civil society actors. The US has a more top-down regulatory approach, which promotes hard law international CSR or encourages business-driven voluntary CSR initiatives. This article makes three contributions. First, it argues that while corporations are the key actors in international CSR, their behavior reflects their respective national business systems. Second, focusing on a range of international CSR initiatives, this article finds that UK firms are more interested in adopting international (multi-stakeholder) CSR initiatives than US firms. Finally, the article shows that the US and the UK governments play a key role in driving an international CSR agenda, and in doing this it highlights government agency more so than other research has.

Learn more and read the full article from Prof. Knudsen

An Alternative to ‘Alternative Facts’: Prof. Klein, Murrow Center Launch EconoFact

Facts, as John Adams once said, are stubborn things. Even in what seems like a “post-truth” world, or especially then, they matter.

In an era when political polarization drives the perception of truth and falsehoods are spun as “alternative facts,” Fletcher School professor and renowned economist Michael Klein wanted to provide, well, an alternative. That’s how he, along with Fletcher’s Edward R. Murrow Center for a Digital World,  came to create  EconoFact, a non-partisan publication presenting the facts behind national debates on economic and social policies, delivered with analysis from a network of 30 top academic economists. The website, launched on January 22, provides analysis from both sides of the aisle, written in the form of short, accessible, jargon-free memos, aiming to put the cart back in its proper place behind the horse — you get facts before being overwhelmed with contentious opinions.

“We want to emphasize that you can choose your own opinions, but you cannot choose your own facts,” Klein wrote in an article for The Hill announcing the launch of EconoFact.

Some of the first pieces published — written by Klein, fellow Fletcher School professor Joel Trachtman, and other economists from leading universities such as Harvard and Georgetown — focus on the proposed border wall, currency manipulation, the trade deficit, and US manufacturing. Forthcoming memos will look at economic growth, financial regulation, corruption, immigration, and more.

The project’s network has been expanding since Klein began assembling it in the weeks following the 2016 Election, as more and more economists are alarmed by how the angry divisions between Republicans and Democrats, globalists and nationalists, and the many groups in between that threaten to undermine rational policy-making. EconoFact also has the enthusiastic support of the Murrow Center at Fletcher. The Center’s Director, former journalist and Fletcher professor Edward Schumacher-Matos, serves as Executive Editor alongside Klein.

“The emotions and distrust are such today that many of us often find ourselves sticking to our instinctual biases, ignoring the data,” Schumacher-Matos said. “But Americans are overwhelmingly people of goodwill, and want to have a rational debate.”

The memos are meant for policymakers, journalists, commentators, and, most importantly, citizens seeking to become better informed.

By grounding the debate in the facts, EconoFact hopes to let truth lay the groundwork and allow opinions and recommendations rise from there. To emphasize the explanatory nature of EconoFact, posts follow a memo format, with the first two sections presenting the issue and relevant facts, often accompanied by charts or graphics. Only at the end of each post does the economist draw a conclusion or make a policy recommendation. The facts help inform the beliefs, rather than beliefs forming the facts.

“We need a well-informed electorate to demand reasonable policies and to hold accountable those who put in place policies that fail,” Klein wrote. “[And] we believe that … the American public too will want to become more informed as events unfold.”

Read more at EconoFact.org

Originally presented at the Center for Digital Transformation at The Paul Merage School of Business at University of California Irvine’s “Road to Reinvention: Leadership in the Digital Age” conference, which was hosted on March 24, 2016.

Don’t miss the Washington Post op-ed from Dean Bhaskar Chakravorti on Bowie’s innovation lessons

Fletcher Faculty Features: Prof. Michael Klein

As part of an ongoing series, we will be featuring the recent work of a number of our esteemed business faculty here at The Fletcher School. The series continues with Michael Klein, the William L. Clayton Professor of International Economic Affairs at The Fletcher School.
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Michael Klein worked with a group of 4 others to construct a new dataset on capital controls.  The paper the group wrote, “Capital Control Measures: A New Dataset,” will be published in the IMF Economic Review and presents an updated and extended dataset of capital control restrictions on both inflows and outflows of 10 categories of assets for 100 countries over the period 1995 to 2013. It discusses in detail the construction of the dataset and characterizes the data with respect to the prevalence and correlation of controls across asset categories and between controls on inflows and controls on outflows, the aggregation of the separate categories into broader indicators, and the comparison of this dataset with other indicators of capital controls.

The latest version of the dataset can be downloaded in both Stata and Excel formats

Prof. Klein also worked with Carlos Arteta (the World Bank) and Jay Shambaugh (Council of Economic Advisors) on research that was published in the World Bank’s Global Economic Prospects titled, “Exchange Rate Regimes and Capital Controls.” The essay explores the empirical linkages between a country’s choice of currency regimes and of capital flow measures.

In a policy memo for The Atlantic Council, who is now partnering with Fletcher, Prof. Klein and Pavel Vidal wrote about the need for financial development in Cuba as it reforms its economy.  They identify five  main challenges facing Cuba, and outline recommendations for both the Cuban and US governments. The memo is completed and will be published soon.

Additionally, a paper written with Jay Shambaugh on monetary policy, exchange rate policy, and capital controls was published in American Economic Journal: Macroeconomics in October 2015. The paper, “Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy,”  considers whether partial capital controls and limited exchange rate flexibility allow for full monetary policy autonomy.

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