Economics

Article 1.Impact of Financialisation on Management and Employment Outcomes

This article explores the emergence of financial business models over the last three decades, the new kinds of financial capitalism which have become necessary in current terms and the ways in which new financial intermediaries influences the employment incomes and firms’ management.  The article highlights the industrial relations rules that have shaped and constrained the managerial decisions and the bargaining power of unions on contracts that influences on human resource practices. The article further notes that weakening power of unions, labour markets deregulation, globalization and deregulation of product markets have moved the power to capital from labour the  results of which includes stagnation of wages , high rate of income inequality and declining quality of job for a the big part of the workforce.  The article attributes the emergence of a new financial capitalism to various institutional changes in United States that destroyed the managerial capitalism system that had been in existent 50 years prior to 1950 (Batt and Eileen,2013). These changes comprised of both organizational and regulatory, so that the regulatory changes changed the business external environment while internal organizational changes brought about new decision making strategies at the corporate level (Batt and Eileen, 2013). This in turn resulted to the separation of business ownership and management, which made it possible for firms focus on capital accumulation while using retained earnings to invest in skills, technology, machinery and research and development.

The emergence of new business models for financial management can be attributed to vulnerability of large corporations to hostile takeovers due to long inflation and recession period, raise of many large competition firms and poor performance. In addition the large corporations that were performing well were seen as having excess cash in hand while poor governance practices allowed complacency among executives who also took advantage of various parks to live in posh lifestyles. Another reason highlighted for the emergency is the  retained earning control conflict between shareholders who preferred high divided to earning ration for more returns and strategic managers who sought low divided to earnings ratio so as to fund internal investments(Batt and Eileen,2013). Financial intermediaries resulted from regulatory changes that availed more capital for stock market investment including pension legislation that made it possible for insurance firms and pension funds to hold high risk bonds and stock shares in their investment portfolios.

Article 2.Against agency

The article provides a critique of agency functionalism approach using the changing theoretical and historical frames used for consideration of investor claim and management compensation and comes up with an alternative explanation of these rewards. The article explores the problem arising from what is perceived as a lack of relationship between management compensation and performance which is normally defined as shareholders value. After considering the academic work and public concern, the article highlights the lack of empirical relation on such pay, with boards failing to restrain managers while holding the assumption that managers are supposed to act on shareholders behalf. The problem of agency functionalism assumption is highlighted as being that it encourages a focus on top managers in a big firm and historically ignores the shareholders claim which had previously rested on parasitic claims (Erturk, Froud, Johal, Leaver & Williams, 2006). These two aspects are indicated as forming the argument against the agency functionalism.

The article outlines an alternative explanation, which relates to past form of positional explanation which had been used for criticizing the shareholders, to give an explanation of high management pay inside big corporations and payments for outside intermediaries. The articles explanation is that management positions allow for managers to draw heir high pay from capturing value. The managers employed in large firms can now be held accountable while the intermediaries such as accountants and investment bankers can barely be traced. Capitalism in the current times incorporates responsibility with neo-liberalism and brings inside and outside managers together while creating opportunities for higher income among these intermediaries who advocate for restructuring and compliance (Erturk et.al 2006). Essentially the paper discusses the changes in theoretical and historical frames that inform the payment of managers and claims by investors. There should be an intellectual inquiry and thorough political discussion on the agency in the current world capitalism (Erturk et.al 2006). Such discussion should focus on value creation and in a present new kind of world economy.

Article 3.Dreaming with BRICs

The article discusses the concept of BRICs as being innovation in finance regimes classificatory, that are perceived as enduring cultural constructs. The paper highlights that these classifications have been done on the basis of differences in developing and developing economies and that various assumptions have been made in relations to expected returns and the various risks related to these differences. The international finance cultural constructs are normally used by economists for classifications of economies. The grouping of BRICS as emerging economies challenge the developed economies in regard to influence and size, and the use of growth projections for the long-term is done on growth models involving neoclassical convergence (Wansleben, 2013).  This classification is done to highlight the absence of representation of real economic superpowers or even the emerging ones within the global bodies instituted for economic governance. The high economic growth among the BRICs presents a challenge for stagnant economies of the incumbent giants made up of developed economies. The article notes that BRICs concept highlights the obvious disparity between the core economies perception and actual proportions shift in global economy (Wansleben, 2013).  This category of economies is primarily aimed at discrediting the current classification by grouping the developing economies with high forecasted growth as being members of core world economy.

The Goldman Sachs economists innovation does not comprise of modeling but rather a model which is already established so as to indicate the investment opportunities availed by the emerging markets. The introduction of the BRICs concept attempts to bring change to finance cultural constructs, reflecting the commercial interests of the economists which are re-defined in cultural terms (Wansleben, 2013). In fact, by coming up with this concept and the resulting attention it receives from the company help in creation of Goldman Sachs Brand (Wansleben, 2013). The article relates this to effort by economists to structure some aspects of modern society in economic terms and offer the structure as important intervention tools. The innovations of various concepts by the economist do not necessarily involve modeling, but may involve innovations for inducing new investment ideas or strategies of doing business. The innovation in economists’ expertise is defined by the way macro-economic analysis changes economic stratifications and pre-conceptions that direct the international investments (Wansleben, 2013). A narrative concept is created so that BRICS projection is analogized by use of huge historic developments. The cultural strategies are further connected to branding and marketing efforts in the global markets of economists’ firms.

Article 4

 

This article provides an argument in favor of financial innovation re-conceptualization that has been blamed for present crises by those who once supported it. The paper proposes a new financial innovation concept with conjuncture, frame and bricolage as its main elements (Erturk et.al 2006). The article highlights the result of 2007-2008 financial crisis as huge financial capital write offs and large intellectual capital destruction. This crisis was a challenge to the pre-2007 wisdom about the benefit of the advent of new financial instruments to the efficiency of the market (Erturk et.al 2006). The proponents of financial innovation understood from the financial crisis that the idea of financial innovation can bring destruction to the financial system and collapse a capitalist economy. The problem with this idea was attributed to too much innovation of the wrong type of innovation: to the extent that journalists and various mainstream economist unleashed an attack on financial innovation, while recommending less financial innovation. Their arguments did not take into account the available literature that offers discussion about capital and credit in organizational growth and economic system and the possible source of income from money market (Erturk et.al 2006).  

The shifting of the problem to the financial innovation brings about three main problems that comprises of making financial innovation definition to be tautological or circular; reducing the range of possible innovation drivers; supporting benefits claim that have low empirical backing (Erturk et.al 2006). The article views changing structural conditions as being relevant since they provide a sort of macro-frame around financial innovation and such conditions are part of innovation explanation. In addition, conjuncture is a vital innovation condition since it forms the structure for immediate limitations and possibilities for innovation.  Financial bricolage describes the state of finance before the financial crisis. The article argues that bricolage is relevant to financial innovation process since it defines innovation results and portrays the innovation activity in a certain point in a chain of activities. It is important to recognize the frame and conjuncture side of innovation while arguing for financial markets re-regulations (Erturk et.al 2006). Bricolage will always be practiced by well-positioned as long as there are large amounts of loans and savings.

 

Article 5

The paper carries out a research on the topic of leadership in a divided world by addressing key issues related to trust inequality and includes actions, engagement, values and employee advocacy. In the survey the majority of the population – 67 % questioned indicated that CEOs place too much focus on achieving short term financial goals while 57 % indicated that CEOs focus too much attention on lobbying.  A section of 57 percent indicated that CEOs do not stay long enough to have a long-term positive impact on their role while 49 percent showed trust in CEOs creating jobs (Edelman Trust Barometer, 2016).

In matters relating to profits 7 out of 10 indicated that CEOs should be present in financial results discussion. A population of 8 out of 10 indicated that CEOs should be present in discussing society issues relating to income inequality, public policy and personal views on the issues. On matters relating to business trust impacts, 59 percent attributed increase in business to economic growth production, 45 percent to contributing to greater good while 40 percent to the opportunity allowed being productive in the society. Failure to impart greater good, absence of economic growth and public service are reasons shown for decrease in business trust. For the purpose of building trust in CEOs, integrity is indicated as the best attribute that can achieve this with 51 percent approval (Edelman Trust Barometer, 2016). Engagement, products and purpose follow in that order while operations in the business have lesser impact in building trust in CEOs.  In survey on qualities that make CEO trust worthy done in various regions of the world, being honest and ethical is indicated as the best personal characteristics(Edelman Trust Barometer, 2016). Moreover, employees were the most trusted persons to provide honest and credible information about a firm’s operational performance and financial earnings, treat customer and employees well and handle crisis.   Media spokes person is the least trusted to provide credible results. Further results show that employees’ engagement with society issues increases their level of advocacy through relationships and programs with other firms. The most trusted information by the general public is one which has been created by family and friends on various networking and sharing sites and online-only source of information (Edelman Trust Barometer, 2016). Based on the above information, effective leadership should use purposeful action to create not only profit but societal impact.  It should involve expression of values though ethical engagement and honesty impart advocacy attribute in employees and meet stakeholders through cross channels engagement on what concerns them and where they are.

 

Article 6 –Digital globalization

  The article discusses the issue of digital globalization in terms of rapid growth in digital flows as seen in transmission of ideas, information and innovation across the world which has resulted to broad participation in the world economy.  The articles attributes the soaring of digital flows to a more interconnected world and cross-border bandwidth growth  which has changed how business across borders is carried out and  small businesses globally are becoming micro-multinationals by use of the digital platforms. In addition, digital platforms have enabled individuals to directly take part in globalization in learning, finding work building personal networks and showcasing their skills and talents.  The change to a more digital kind of globalization has informed who participates, the way business activities are carried out and the direction of economics benefits flow (Mckinsey Global Institute, 2016).

 

The article highlights the need for countries and companies to take advantage of various opportunities provided beyond their borders by digitalization. This calls for companies to also to re-evaluate the present business models, strategies and operations. In addition, policy makers face new challenges such as cyber security while companies should be privy to cut-throat global competition, pricing pressures and digital business models that can be very disruptive. The strategies for addressing these challenges should address the administrative and policy barriers that prevent global flows, dislocations and investment in human capital (Mckinsey Global Institute, 2016). Moreover, closing the digital divide through building infrastructure, a strong business environment and ensuring that efforts aimed at protect the privacy of data leaves the internet open.

 

Article 7

The article comprises of a speech on ownership of public company, and considers as a major ingredient the second industrial revolution across the world and as capitalist economies’ fulcrum. A history of companies is described, that involve the various enacted company legislation that have defined the rights, purpose and obligations of companies’ stakeholders. The path of such legislation has been defined by economic, legal and social environment existing at the time (Haldane, 2015). In England, an Act of Parliament or Royal Charter laid the basis of companies’ incorporation, which normally had public good as among their objectives. Limited liability companies arose from the various barriers that unlimited liability had to expansion hindering investors from venturing into unlimited liability investments. Despite the companies directors’ obligation on public good and maximizing shareholders returns, questions arose on how such would be enforced or safety of shareholders investment would be assured (Haldane, 2015).

 

Amidst a fraying legal framework and proliferation of fraud cases, there was increased acceptance of primacy of shareholders as key goal of a company and various legal cases in US and UK enshrined this objective. The model of shareholder-centric company leads to various challenges especially from the society point of view (Haldane, 2015). This extend beyond shareholders returns to the impact the companies have to the society for common public good and an evaluation of company law is necessary for striking the right balance.

 

 Article 8: business and ethics

This article discusses the issue of business ethics with a focus on ethics in financialization and finance and an interpretation of finance and ethics and considerations of principal themes in financialisation. A look into financial regulation and ethics shows that most of the ethical issues have already been covered in industrial self-regulation and legal regulations (Ertürk, 2016). Regardless of such regulations, problems still arise as seen in various financial scandals begging the question of why it is hard to follow such regulations. In regard to market economy, the article tries to relate the idea of financial efficiency with ethics concept by giving an outline of classical economic theory’s basic assumptions.  In a market functioning at equilibrium, it becomes reasonable to assume that operations of the agents are performed ethically, justifying the market economies. However , the market economies’ operations have seen the a sharp rise in income inequalities a trend made worse by emergence of new working rich , quest for higher returns for shareholders and intermediaries who are highly paid (Ertürk, 2016).

The  house pricing and limited income distribution limited  participation of low earning groups  in ownership , hence holding back downward wealth diffusion. The notion of increasing wealth disparity has attracted a lot criticism more so from individuals who have supported supply side fixes as main way of economic growth stimulation (Ertürk, 2016). The financialisation of the society through market economies has brought about various ethical issues in both the developing and developed economies. The need to have individuals be efficient for higher returns and avoid risk of being unemployed and benefits arising from such has negated other aspects that affect ones’ future wealth , intermediaries actions, asset price volatility and markets instability(Ertürk, 2016). This underpins the assumption by finance halo effect that everyone acts the same, having a collective interest. Finance practices, however, have become mechanism of control, class expression or rationality narrative related to present capitalism rather than neutral capital allocation.  

 

Main topic: Business ethics in contemporary business environment

Although market economy has been viewed to be an important condition where needs of many people are met but some lessons have been learnt in the process at a high social cost.  The society and firms have realized the need to focus on how wealth is made, distributed and the sustainability of any business venture. This has happened amidst the growth in size of corporations to sheer might due to globalized neo-liberalism which has also seen unimagined amount of political power being surrendered to corporations. In the developed countries’ business environment, there has been a change in capitalism cultural logic so that states have taken the role of supporting the legitimacy and freedom of corporations.   These firms have become powerful players in political scene while being subject to decreasing control by the state. The effect of such trend is the corporation power which has expanded to the point that it has become comparable with the state, and it is in the context that business ethics has become essential to self-organization and self-regulation and corporations want to make clear their ethical status (Rhodes, 2016). These business ethics have been used to hinder the need for corporations external regulatory control through the inculcation of a system whereby businesses claim they are able o self-regulate. Presently, corporations are not only expected to behave responsibly but they are advocating their ethicality virtues like never before. However, there arguments that the issue of responsibility and ethics has been reduced to a form of moral imperative with a purpose of competition in line with corporate capitalism agenda. 

 With the interest of corporations being at the forefront, the proclamation of corporate social responsibility and business ethics is seen as an excuse for business unregulated activity. In practice, businesses have failed to use their autonomy and discretion in the production of generous and fair outcomes for all the stakeholders’ groups (Rhodes, 2016). This has led to the case of increasing income inequality in the developed economies due to disproportional wealth gains that favours the top earners , and this is seen in households in such countries having not had  advanced incomes as compared to past generations. In fact, their incomes have been falling or remaining flat, which can lead to decrease growth in demand and increase in the social spending need. The impact of this disproportionate income distribution is more paramount on the young population with less education, women and especially the single mothers (Mckinsey Global Institute, 2016). The falling or flat income growth phenomenon can lead to severe social and economic consequences due to domestic unemployment and hence low purchasing power.

In the advanced economies business environment, business ethics has become an important aspect.  Firms today are expected to adhere to business conducts standards in their business activities and which extends beyond what is conventionally expected. Even though the discussion normally concentrates on products, profits and jobs, it accepted across the divide that businesses must remain responsible member of the community in which it operates. The pursuit of economic progress and business return should never lead to ignorance of values, norms and various standards set for quality, respect and integrity (Hamzaee & Baber, 2014). For corporations to engage in reversing the increasing level of income inequality, they must selflessly embrace business ethics that will serve as control measures against the negative consequences of modern capitalism that encourages a form of financialisation whose focus is high capital returns and neglect of public good(Ertürk, 2016).  Improved performance in the business realm in terms of economic progress and profits happen to companies that effectively serve the reasonable expectations of main stakeholders who comprise of customers, investors, employees, suppliers, managers and shareholders and the physical environment in which they operate. Corporations that fail on social responsibility front fail to recover their costs since they cannot meet such expectations.  

References

Batt, R., and Eileen, A. (2013). "The Impact of Financialization on Management and Employment Outcomes." Upjohn Institute Working Paper 13-191. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. Retrieved from: http://dx.doi.org/10.17848/ wp13-191

 

Erturk,I., Froud,J., Johal S., Leaver,A., Williams,K.(2006).Against agency : a position critique ,Economy and Society. Vol 36.1

 

Wansleben,L.(2013).Dreaming the BRICs. Innovating the classificatory regimes of international finance. Journal of Cultural Economy. 6:4. 453-471

 

Erturk,I., Froud,J., Johal S., Leaver,A., Williams,K.(2010).Reconceptualizing financial innovation: frame,conjuncture and bricolage: Economy and Society. Vol. 39.1

 

Edelman Trust Barometer, (2016).Leadership in a Divided World.

 

Mckinsey Global Institute, (2016).Digital Globalization: the new era of global flows. McKinsey & Company

 

 

 Haldane, A.G., (2015). Who owns a company? University of Edinburgh Corporate Finance Conference.

 

Ertürk, I. (2016).Business and ethics: Leading and managing in a Global Environment.

 

Rhodes, C. (2016).Democratic Business Ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies 2016, Vol. 37(10)

 

Mckinsey Global Institute, (2016).Poorer than their parents? Flat or falling incomes in advanced economies. McKinsey & Company

 

Hamzaee,R., Baber,J.(2014).Ethics and Market Economic System: A General Review and a Survey: International Journal of Applied Management and Technology. Vol.13.1. 1–32. Retrieved from: http://scholarworks.waldenu.edu/cgi/viewcontent.cgi?article=1079&context=ijamt