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Working Paper No.226
01 February 1998
The Political Economy of Corporate Governance in Germany
AbstractResearch Associate Mary O’Sullivan, of INSEAD and the Center for Industrial Competitiveness at the
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University of Massachusetts–Lowell, is investigating systems of corporate governance to find which lead to
successful decisions for individual firms and for an economy as a whole. She believes that success requires a
form of corporate governance that generates conditions that permit cumulative and collective learning, provides
financial commitment to innovative investment, and integrates human and physical resources in the
development and use of technology. She warns that because both the real and financial sectors are in a
continual process of change, a successful system of governance cannot be determined in the abstract. Strategies
that work at one time may not work at another. In her examination of corporate governance in Germany, she
therefore makes a detailed study of postwar German economic history.
According to O’Sullivan, financial commitment to innovative investment in -
Working Paper No.225
01 January 1998
The Development and Reform of the Modern International Financial System
AbstractThe international financial system might be said to be in crisis. It requires frequent
intervention by central banks and other national and international bodies to reduce fluctuations
of currencies. It does not tend to eliminate current account deficits or surpluses; exchange rate
fluctuations do not lead to movements toward balanced trade, nor do they appear to follow
from flows of international reserves: some countries run persistent surpluses while others run
persistent deficits.This paper first examines the functioning of the modern international financial system
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in order to design a reformed system that will make it easier to deal with some of the
problems that face the international financial system today. The paper advocates reformation
of the international financial system along the lines of Keynes’s famous bancor proposal.
Most importantly, the reform would eliminate the current bias toward “austerity” that results
from the way in which existing international financial institutions operate. -
Working Paper No.224
01 January 1998
The Diagnostic Imaging Equipment Industry
AbstractWhile diagnostic imaging equipment is not by any means a typical industry, it
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offers an example of a rapidly changing, high technology sector—the kind of industry in which,
according to many observers, United States manufacturers ought to excel. And indeed, for most
of the 100-year history of this industry, American producers have led the field, generating
engineering jobs aplenty and production jobs paying well above the average wage economywide. But in the last two decades, there have been dramatic transformations, which have
changed the face of the industry and pose new challenges for US companies. -
Working Paper No.223
01 January 1998
The Kaleckian Analysis and the New Millennium
AbstractVisiting Scholar Malcolm Sawyer, of the University of Leeds, commemorates Michal Kalecki’s 100th birthday by
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considering how Kalecki’s macroeconomic analysis of developed capitalist economies should be adapted in
light of the institutional changes that have occurred since he did his major work. Sawyer believes that although
Kalecki’s reputation rests on his theoretical work, his theorizing was firmly based on his perceptions of the
institutional, political, and social realities of the economies he sought to analyze. According to Sawyer, Kalecki’s work is best
viewed as a mixture of “high-brow a-institutional” theory and “low-brow” institution-specific applied theory.
Because it is “virtually inevitable that the analysis of any . . . ‘middle-brow’ theorist will be rendered to some
degree obsolete by the passage of time,” Sawyer sets out to evaluate to what extent Kalecki’s theories are still
relevant and how they might be adapted for the new millennium. -
Working Paper No.222
01 January 1998
Money and Taxes
AbstractSenior Scholar L. Randall Wray traces the development of the chartalist approach to money from Adam Smith,
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Georg Friedrich Knapp, and John Maynard Keynes to the later theorists, including Hyman Minsky, Abba
Lerner, and Kenneth Boulding, who follow the endogenous money approach. -
Policy Notes No.1
01 January 1998
Welfare Graduates
AbstractAre the effects of college-level education on income and financial independence positive enough to make it worthwhile for states to extend support to qualified welfare recipients to enable them to pursue such education? Welfare reform around the country has tended to focus on immediate work experience as a means to achieve financial independence. While many states continue to provide and encourage short-term education and training as a complement to job search, they often actively discourage longer-term education, especially two- and four-year college degree programs. Grants and loans may make it possible for low-income students to attend a college or university, but they are unlikely to be sufficient to enable those students to support a family as well. Low-income single parents may find themselves able to finance college tuition and fees, but unable to attend because they cannot support their family during the time required to earn their degree.
A proper analysis of this issue requires evaluating the benefits of providing welfare assistance to college students. Are the outcomes sufficiently positive that states should continue to support those welfare recipients with the necessary ability and desire to pursue postsecondary education? The results of this study indicate that the returns to a college degree for welfare recipients are sufficiently high to make postsecondary education a particularly promising avenue to financial independence.
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Public Policy Brief No.38
11 December 1997
Who Pays for Disinflation?
AbstractUsing theoretical predictions, econometric results, and the example of the Volcker disinflation, Willem Thorbecke establishes that through disinflation’s burden on the durable goods and construction industries, small firms, and low-wage workers and its benefits to bond market investors, it effects a redistribution of wealth from the poor to the rich. Because of this distributional consequence, he argues, engineering a disinflationary recession now to wring more inflation out of the economy would be inappropriate. On the contrary, with inflation as low as it is and with upward pressure on wages that could trigger a rise in inflation also low, now is the time for the Federal Reserve to let the economy grow—to seek policies that promote distributive justice and that help those individuals most at risk for shrinking income.
Download Public Policy Brief No. 38, 1997 PDF (154.75 KB) -
Public Policy Brief No.37
10 December 1997
Investment in Innovation
AbstractSince the 1970s corporate America has become obsessed with shedding employees to cut costs and with distributing revenue to stockholders. However, the way for it to regain its competitive edge and thus to restore the promise of secure and remunerative employment for its workers is to reform its system of governance. It must reject organizational segmentation and extraction of short-term returns and instead emphasize organizational integration and long-term value creation through financial commitment to investment in the collective and cumulative learning that is the foundation of industrial innovation.
Download Public Policy Brief No. 37, 1997 PDF (209.27 KB) -
Working Paper No.221
01 December 1997
Policy Innovation As a Discovery Procedure
AbstractEconomist Adolph Lowe’s instrumental analysis examines the process of policy formulation as a regressive
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procedure of discovery. Taking as given a predetermined desired end state, the task of an innovator is to
discover the technical and social path from the present position to the end state. The role for the economist in
policy formulation, therefore, is not simply to examine the results of current policy, but to discover the means
that will lead to the desired end state. Lowe cites others before him who had held a similar
perspective—philosopher Charles Sanders Peirce, mathematician George Polya, and chemist Michael
Polanyi—but Lowe does not elaborate on the connection between his analysis and theirs. Visiting Scholar
Mathew Forstater, of Gettysburg College, investigates the relationship between the work of these scientists and
Lowe’s instrumentalism. -
Working Paper No.220
01 December 1997
Employment Policy, Community Development, and the Underclass
AbstractThere has been widespread recognition of the existence of an “underclass” in American society, but no
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consensus on how to address the problem or even how to define it. The term was first coined in 1982 by New Yorker
writer Ken Auletta, who used it broadly to include individuals with “behavioral and income deficiencies”; other definitions have been advanced by William Julius Wilson (1987), Erol Ricketts and Isabel Sawhill (1986), and Christopher Jencks (1992). In this working paper, Executive Director Dimitri B.
Papadimitriou defines the underclass as residents in urban neighborhoods characterized by concentrated
poverty, joblessness, violence, and a lack of institutions that support the community. He focuses specifically on the issue of urban
poverty and the changes in the urban-poor population, and relates these changes to changes in the economic and policy landscape that has evolved over the
last 15 years. Policy lessons drawn from other industrialized countries are also reviewed, and consideration is given to various proposals for
public action to alleviate the problems of the underclass, including community development that can be achieved via a network of community banks.
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Working Paper No.219
01 December 1997
Linking the Minimum Wage to Productivity
AbstractOne of the principal problems with the minimum wage is that adjustments to it must be
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voted on by Congress. Although recent congressional action solves the immediate problem of
restoring value to a wage that has otherwise failed to keep pace with inflation, it has not removed
the issue from the political agenda. Every time Congress acts, it does so amidst debate about the
legitimacy of the wage. When Congress does act, it is usually too little and too late. Therefore, it
might be preferable to create an automatic mechanism for adjusting the minimum wage that would
not only assume the value of a wage floor to society, but be tied to levels of productivity. Such an
approach would accomplish two objectives. First, it would be in keeping with the economic
argument that an artificial wage floor can lead to greater productivity, rather than to the
disemployment effect assumed in traditional economic textbooks. Second, because increases to
the wage would be regular and expected, unlike the shocks attendant to sporadic increases. In the
end such a plan might not only lead to less political opposition, but to greater efficiency. -
Working Paper No.218
01 December 1997
Selective Use of Discretionary Public Employment and Economic Flexibility
AbstractFlexibility is a desirable feature of an economic system. Structural rigidities can result in
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sluggish growth and inflationary pressures; many economic models, however, display
considerable system flexibility because of the use of unacceptably unrealistic assumptions. The
primary “real-life” features endowing the system with flexibility are unemployment and excess
capacity. While realistic, unemployment is economically costly and socially undesirable. In
economic theory, there appears to be a trade-off between flexibility and realism. In reality, there
appears to be a trade-off between flexibility and full employment. What has not been adequately
recognized, however, is the degree to which policies are available that can promote higher levels
of employment—and even full employment—without resulting in deleterious rigidity. -
Working Paper No.217
01 December 1997
The Economic Contributions of Hyman Minsky
AbstractFinancial economist Hyman P. Minsky believed that because there are many types of capitalism determined by circumstances and an evolving
set of institutional structures, an abstract economic theory could not be applicable in all times and places but
must be institution-specific. Therefore, he focused his attention on the changing institutional structure of
developed capitalist economies in the 20th century.
Minsky refused to accept the interpretation of Keynes that was being popularized in the 1950s by Alvin
Hansen and others. He saw this version of Keynesianism as flawed because it was almost a mechanistic use of
countercyclical fiscal policy that ignored the role of uncertainty and finance in the complex capitalist economic
system. In the first of several papers examining Minsky’s contributions, Executive Director Dimitri B.
Papadimitriou and Senior Scholar L. Randall Wray assess Minsky’s integration of post-Keynesian theory with
an institutionalist appreciation for the varieties of past, current, and feasible future economic institutions. -
Working Paper No.213
01 November 1997
Government As Employer of Last Resort
AbstractSince the Employment Act of 1946 a stated policy of the United States government has been to pursue simultaneously
high employment and stable prices. However, because many economists and policymakers do not believe that it
is possible to have both high employment and stable prices, monetary policy has generally been geared, at least
for the past two decades, toward increasing unemployment as a means to achieving stable prices. Senior
Scholar L. Randall Wray demonstrates that stable prices and “truly full employment” are in fact compatible
with each other if a properly targeted employment program is used. -
Working Paper No.212
01 November 1997
An Efficiency Argument for the Guaranteed Income
AbstractAuthors Karl Widerquist and Michael A. Lewis use a “multischool” approach to
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poverty policy, asking the following question: Given the many
proposed causes for poverty, and the conflicting theories about how
potential solutions would work, what conclusions can we draw
about policy? They conclude that the guaranteed income is
the most efficient and comprehensive policy to address poverty. -
Working Paper No.211
01 November 1997
Income Distribution, Macroeconomic Analysis, and Barriers to Full Employment
AbstractThe distribution of income is conspicuous by its absence from most mainstream macroeconomic analysis.
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Visiting Scholar Malcolm Sawyer, of the University of Leeds, makes an effort to remedy this situation by
discussing three aspects of the relationship between macroeconomics and the distribution of income: the effect
of conflicts over the distribution of income on the NAIRU (nonaccelerating inflation rate of unemployment),
the effect of the distribution of income on aggregate demand, and the effect of monetary policy on the
distribution of income. -
Working Paper No.210
01 November 1997
The Effects of Immigrants on African-American Earnings
AbstractThe improvement in the relative economic status of African American workers in the 1960s and 1970s was reversed in the 1980s. During that decade immigration to the United States reached its highest level since the early part of this century, and many immigrants entered lesser-skilled labor markets, where most African American labor is concentrated. Yet, in what George Borjas terms an "unresolved puzzle," most researchers have been unable to find any significant negative wage effects caused by immigration. Research Associate David R. Howell and Elizabeth J. Mueller, both of the Robert J. Milano Graduate School of Management and Urban Policy of the New School for Social Research, point out that most of this research has used across-metropolitan tests despite the fact that immigrants tend to be concentrated in only a few metropolitan areas. Howell and Mueller attempt to solve the puzzle of the relationship between immigration and wages by focusing on specific jobs in specific metropolitan areas in which immigrants are concentrated.
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Working Paper No.216
01 November 1997
The Impact of Racial Segregation on the Education and Work Outcomes of Second-generation West Indians in New York City
AbstractMary C. Waters, a professor of sociology at Harvard University, examines one way in which race matters in
the United States by studying black children of immigrants in New York City. She demonstrates that the
segregation and concentrated poverty in black neighborhoods have long-lasting effects on the acquisition of
skills. These youth face direct employment discrimination by employers, and in response to discrimination
many develop an oppositional attitude, refusing to take jobs in which they feel they must show deference to
white supervisors.Waters examines the effects of segregation on black West Indian immigrants and their children in Brooklyn.
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Her data come from a 1990–92 field study in New York City of black immigrants to the United States
from the Caribbean. Waters cites research showing that in the United States racial segregation for blacks is more extensive than for
any other ethnic group. Active discrimination and institutional racism lead to fewer city services and less private
investment in residentially segregated neighborhoods. Blacks are highly segregated at all levels of income.
Middle- and working-class blacks, seeking better schools and less crime, purchase housing in predominantly
white neighborhoods, but white flight and bank redlining lead to declining property values in those
neighborhoods, decreasing investment, and increasing poverty and crime. -
Public Policy Brief No.36
09 October 1997
Dangerous Metaphor: The Fiction of the Labor Market
AbstractThe concept of a labor market, responding to familiar underpinnings of supply and demand, completely colors thought on the relationship between employment, wages, and inflation, according to James K. Galbraith. However, he asserts, wages are determined not by such market forces, but by what he calls the job structure—a complex set of status and pay relationships involving individual qualifications, job characteristics, and industry patterns. What is the meaning of the job structure for policy? Notions of natural rates of unemployment and inflationary barriers to full employment fade away. Supply-side measures can no longer been seen as adequate to deal with problems of unemployment and inequality. Questions of distribution of income and adjustment of the wage structure are returned to the political context. The active pursuit of full employment is returned to the list of respectable, and essential, policy goals.
Download Public Policy Brief No. 36, 1997 PDF (95.66 KB) -
Working Paper No.209
01 October 1997
Cumulative Regional Decline, Institutional Inadequacy, and the “Democratic Deficit”
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Working Paper No.208
01 October 1997
On Budget Deficits and Capital Expenditure
AbstractNo further information available.
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Public Policy Brief No.34
07 September 1997
Safeguarding Social Security
AbstractThe falling ratio of workers to retirees in the United States has raised concerns about Social Security’s ability to continue to provide a base level of support for all retired workers and to remain in balance with all of government’s other fiscal obligations. Of alternative plans that have been proposed to safeguard the system, Walter Cadette argues against radical revamping through privatization and suggests instead minor modifications in the existing tax and benefits structure.
Download Public Policy Brief No. 34, 1997 PDF (263.80 KB) -
Public Policy Brief No.33
06 August 1997
Is There a Trade-Off between Unemployment and Inequality?
AbstractRebecca M. Blank considers how the flexibility of American labor markets and the regulation and redistribution policies of European labor markets may determine employers’ responses to worldwide economic transformations that result in increasing wage disparity in the United States and continuing high unemployment in Europe. She suggests that since the transformations will undoubtedly continue, governments should seek to develop plans to offset and reduce the adverse labor market effects.
Download Public Policy Brief No. 33, 1997 PDF (122.96 KB) -
Public Policy Brief No.32
05 August 1997
What’s Missing from the Capital Gains Debate?
AbstractThe recent enactment of a capital gains tax cut resulted, according to the authors, from the absence of a true appreciation or consideration of the real beneficiaries of such a cut, its probable actual effects, the distinction between productive and nonproductive sources of capital gains (two-thirds of capital gains accrue to real estate, which is a fixed, nonproductive asset), and distortions in our current income accounting system (which shield most real estate income from taxation). The across-the-board cut, which treats real estate appreciation and true capital gains as the same, is a giveaway to real estate and will steer capital and entrepreneurial resources to a search for unearned income.
Download Public Policy Brief No. 32, 1997 PDF (116.86 KB)