Category Archives: Regulations

Is Silicon Valley’s giant foundation just hoarding money?

By Ben Paynter – In late July, the Institute for Policy Studies warned that one of the fastest growing ways of giving to charity could be manipulated to benefit super-rich donors instead of those most in need.

The charitable vehicle in question is called a donor-advised fund (DAF), which allows donors to give money and non-cash assets, including public stock, to charity to receive an immediate tax benefit, but then wait to distribute the money. It’s a clever incentive that’s particularly en vogue among the 1%, in part because it allows for contributions of non-cash assets, such as stock, private company shares, and real estate, to avoid capital gains tax.

The issue is that there isn’t any formal timetable for that money to flow back out again, or necessary guidance on how particularly large sums might effectively be spent. Both issues appear to affect the Silicon Valley Community Foundation, a $13.5 billion cause fund that has received donations from Mark Zuckerberg, among other tech elite.

Among the 80% of charities that have tried to expand in recent years, half have exceeded their sustainable budgets, a precarious position for any organization that relies on (hard to access) grant money to remain afloat. Per Open Impact’s report, the region’s tech elite may be giving billions to philanthropy annually, but community groups have historically received next to nothing. more>

Are Stock Buybacks Starving the Economy?

By Annie Lowrey – Stock buybacks are eating the world. The once illegal practice of companies purchasing their own shares is pulling money away from employee compensation, research and development, and other corporate priorities—with potentially sweeping effects on business dynamism, income and wealth inequality, working-class economic stagnation, and the country’s growth rate. Evidence for that conclusion comes from a new report by Irene Tung of the National Employment Law Project (NELP) and Katy Milani of the Roosevelt Institute, who looked at share buybacks in the restaurant, retail, and food industries from 2015 to 2017.

Buybacks occur when a company takes profits, cash reserves, or borrowed money to purchase its own shares on the public markets, a practice barred until the Ronald Reagan administration.

The regulatory argument against allowing the practice is that it is a way for companies to manipulate the markets; the regulatory argument for it is that companies should be able to spend money how they see fit.

In recent years, with corporate profits high, American firms have bought their own stocks with extraordinary zeal.

Federal Reserve data show that buybacks are now equivalent to 4 percent of annual economic output, up from zero percent in the 1990s. Companies spent roughly $7 trillion on their own shares from 2004 to 2014, and have spent hundreds of billions of dollars on buybacks in the past six months alone. more>

American power at stake in great innovation race


By Peter Engelke – Americans like to think of themselves as the most innovative people in the world. At least since 1945, they have had good reason to believe so. During the Cold War, the United States built the most formidable technology-producing innovation system the world has ever seen.

Coordinated action by the U.S. government, the private sector and academia, combined with America’s unique postwar culture, crafted this system.

But the American system has seen better days. America’s leaders, at federal and state levels, have failed to maintain this system much less upgrade it.

As a result, America’s long list of difficulties includes falling public investment in research and development (R&D, a critical and under-appreciated factor in national innovativeness), an under-skilled workforce, flagging support for public higher education, decaying infrastructure and much more.

The global tech-innovation economy therefore is more than a just crowded place. It is also crowded where it counts: at the very top, where it no longer can be said that the U.S. stands alone. Several of the countries listed here, plus others, routinely score higher than the United States in global innovation rankings.

The U.S. will not long remain the global leader in innovation unless it takes decisive action across several fronts. more>

Why The Only Answer Is To Break Up The Biggest Wall Street Banks

By Robert Reich – Glass-Steagall’s key principle was to keep risky assets away from insured deposits. It worked well for more than half century. Then Wall Street saw opportunities to make lots of money by betting on stocks, bonds, and derivatives (bets on bets) – and in 1999 persuaded Bill Clinton and a Republican congress to repeal it.

Nine years later, Wall Street had to be bailed out, and millions of Americans lost their savings, their jobs, and their homes.

Why didn’t America simply reinstate Glass-Steagall after the last financial crisis? Because too much money was at stake. Wall Street was intent on keeping the door open to making bets with commercial deposits. So instead of Glass-Steagall, we got the Volcker Rule – almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.

Now those loopholes and exemptions are about to get even bigger, until they swallow up the Volcker Rule altogether. If the latest proposal goes through, we’ll be nearly back to where we were before the crash of 2008. more>

Crisis Of Globalization: Restoring Social Investment Is Key

By Robert Kuttner – Why is democracy under siege throughout the West? How much of the story is cultural or racial, and how much is economic? And can the slide into authoritarianism be reversed? I think it can.

In the remarkable three decades after World War II, the economy delivered for ordinary people and there was broad support for democracy. That era was unique in two key respects.

First, the economy not only grew at record rates for peacetime, but it also became more equal. Second—and not coincidentally—this was a period when raw capitalism was tightly regulated, on both sides of the Atlantic, economically and politically.

Banking was very limited in what products it could offer, and at what prices. It was almost like a public utility. There were no exotic securities like credit derivatives to deliver exorbitant profits and put the whole economy at risk. Globally, there were fixed exchange rates and capital controls, so bankers could not make bets against currencies and entire economies.

Organized labor was empowered. Unions were accepted as legitimate social partners and had substantial influence. This was true in both Europe and America.

In the years since then, political and financial elites have redefined trade agreements to mean not just reciprocal cuts in tariffs but broader changes in global rules to make it easier for banks and corporations to evade national regulation.

Laissez-faire, discredited and marginalized after 1929, got another turn at bat(ting). Hyper-globalization was a key instrument. And that reversion had economic and ultimately political consequences. more>

We Don’t Have Elections

BOOK REVIEW

Terms of Service: Social Media and the Price of Constant Connection, Autor: Jacob Silverman.

How tech companies merge with the nation-state
By Jacob Silverman – It should shock no one if Facebook emerges from its latest privacy imbroglio with a meager fine and a promise to do better—even as our elected leaders, whose lack of knowledge of Facebook’s workings reflected their advanced age, tut-tutted that this time Facebook has to do better.

The canon of American regulatory practices tends toward the ceremonial, with extreme deference shown toward corporations that may one day hire former regulators. Senator Lindsey Graham even invited Zuckerberg to submit possible regulations—an example of regulatory capture so blatant that “corruption” doesn’t even seem like the proper word.

Playing along, Zuckerberg expressed an openness to regulation, though he asked for a light touch, which, barring another data spillage, he should expect.

Beyond a few mild critiques, Congress’s overriding opinion of Zuck seems to be that he was a classic American success story, and perhaps—in his cunning acquisition of ungodly riches on the backs of others’ labor—he is.

To better understand Silicon Valley’s politics, we might return to the nation-state metaphor and consider technology companies as recently ascendant great powers. Endowed with impressive resources, making themselves known in assorted global capitals, their CEOs are greeted in the manner of heads of state. Their vast offshore cash reserves resemble sovereign wealth funds, whose investments have the power to shape politics. more>

Updates from Chicago Booth

Why policy makers should nudge more
By Alex Verkhivker – When policy makers around the world want to influence their constituents’ behavior, they have a few options. They can offer a carrot, such as a tax incentive, stipend, or other reward. They can use the legislative stick by passing a mandate or a ban.

But research suggests they should turn more often to a third tool, a “nudge,” which in many cases is the most cost-effective option.

Nudging is the word used in behavioral science for structuring policies and programs in ways that encourage, but don’t compel, particular choices. For instance, requiring people to opt out of rather than into a program, such as a retirement savings plan, might nudge them toward participating. So might reducing the paperwork necessary to enroll. more>

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updates from Chicago Booth

Why it’s so hard to simplify the tax code
By Dee Gill – Simplifying the tax code ostensibly has bipartisan backing. Both the Bush and Obama administrations advocated for simplification, in reports, as have House Speaker Paul Ryan (Republican of Wisconsin) and Senator Elizabeth Warren (Democrat of Massachusetts). But when the Senate passed a tax bill this past December, there was no postcard.

What happened? The same thing that always does, suggest researchers. While simplicity is a stated goal, complexity wins the day. Hence companies and individuals will hire accountants to wade through the latest bill, interpret the new rules, offer guidance, and help work through the inevitable corrections and amendments.

And this comes at an economic cost. Research by James Mahon and Chicago Booth’s Eric Zwick, and others, collectively indicates that the complexity leads individuals and companies to fail to take advantage of billions of dollars in offered breaks, many of them presumably intended to stimulate the economy. In this way, complexity undermines what tax incentives are purported to accomplish. more>

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Why a trade war with China would hurt the U.S. and its allies, too

By David Dollar and Zhi Wang – Two-thirds of world trade now occurs through global value chains that cross at least one border during the production process, and often many borders. As a result, the typical “Chinese product” that the United States imports has a lot of value-added from countries other than China.

Furthermore, in computers and electronics, more than half of China’s exports come from multinational firms operating in China.

U.S. firms are also involved in production chains. Thirty-seven percent of U.S. imports from China are intermediate products used by American firms to make themselves more competitive. Putting tariffs on intermediate products is shooting oneself in the foot. The list of targeted products posted by the United States includes some intermediates, such as aircraft propellers.

Many of the targeted products are consumer goods such as televisions and dishwashers.

What all this means is that tariffs are a very poor instrument for punishing China for any unfair trading practices. Some of the cost will be borne by American consumers; some by American firms that either produce in China or use intermediate products from China; some by firms in countries (mostly U.S. allies) that supply China; and some by Chinese firms (mostly private ones). more>

Creating Shared Value (CSV)

Operationalizing CSV Beyond The Firm

BOOK REVIEW

How to Fix Capitalism and Unleash a New Wave of Growth, Authors: Michael E. Porter, Mark Kramer.

By Henning Meyer – Under the CSV concept, firms participate in different markets to create social and economic value but Porter and Kramer do not analyse the nature of markets nor do they provide any explanation for how the creation of social value via market mechanisms is necessarily rooted in the social nature of markets themselves.

The standard neoclassical model of transactional markets that are driven by purely rational players is an ideal type in Max Weber’s sense, i.e. an abstract model not to be found in this pure form. Any approach assuming the creation of social value by market mechanisms, however, should provide a deeper understanding of the social nature of markets themselves. This is a crucial backdrop to defining, creating and measuring social value: it is dependent on this context.

On this basis, in a further step, it is vital to develop an understanding of public policy and the government’s role in markets. Public policy’s character is not limited to basic regulation and market-fixing where market mechanisms left to themselves would produce externalities.

Government policy, moreover, aims at market creation and incentive shaping. Understanding the interplay between companies and governments in markets that themselves are social in nature is therefore fundamentally important to understand social value and to move beyond the narrow organzational focus of Porter and Kramer. On this basis, in addition to the three operational dimensions within firms that Porter and Kramer describe, CSV can be more broadly operationalized using a corporate diplomacy approach and the tools of non-market strategy to provide a more holistic and comprehensive view of the CSV process.

There has been significant criticism undermining the academic credibility
of CSV and the way in which Porter and Kramer present their work. In essence, these criticisms refer to the originality of CSV as well as the concept being superficial about a company’s role in society and naïve about the trade-offs between social and economic goals and business compliance.

There is also a question about shared value itself. It is clear what the economic value part of shared value is: a better bottom line for corporations. But beyond the obvious win-win situations, what is social value and how does one define and measure it?

What are the trade-offs involved? (pdf) more>