The Slow Recovery in NOT due to the Dodd-Frank Law.

It is due to a dangerous doctrine: Shareholder Value Maximization (SVM)

robert-ayresThe goal of shareholder value maximization (SVM) is now widely adopted by corporate boards and taught in business schools. to the exclusion of all other goals.[1] SVM is a new doctrine in economics. It is most often attributed to Milton Friedman, who said in New York Times Magazine back in 1970: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits” (Friedman 1970). He also said that corporations are not “persons”, even though corporations have the legal status as persons, and that shareholders necessarily (being rational utility maximizers, by assumption) want to maximize profits, whence any act of corporate social responsibility to be ‘taxation without representation’. This fits the ‘principal-agent” theory of economics, which assumes that corporate managers are simply agents of the owners (shareholders), whence SVM seems to follow automatically (Jensen and Meckling 1976).

The activists and SVM “believers” (it is a religion, not a rational policy) have taken over most of the corporate board rooms.

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Urban agriculture: Another Win-Win for China?

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Report from China: Robert Ayres

In my last post I explained why (private) investment the automobile industry was a huge win-win for the US in the early years of the 20th century, for reasons that do not apply to 21st century China. In fact, there are strong arguments that the overall impact of still more cars (and highways) in China will be more nearly a lose-lose proposition, the only winners being the foreign auto manufacturers.

However, I think there is another investment opportunity, still in its infancy, that – if pursued intelligently – can be a true “win-win”.

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China’s Lose-Lose Love Affair with the Modern Motor Car

Report from China: Robert Ayres

In December I travelled to the city of Kunming, in Yunnan province, China. The occasion of the trip was to attend a conference on planning and give a talk on economics at that conference. The host was the newly appointed provincial Governor, who is also the Communist Party Chairman for Yunnan. The organizer was the former chief planner for Singapore, and the attendees were academics and civil servants in the urban planning departments from all of the major cities of  organizer was the former chief planner for Singapore, and the Yunnan province. I was invited on short notice (only two weeks) and I was asked to provide a copy of my talk in advance, without much detailed information about the actual situation. What I did know about China was more applicable to Beijing and Shanghai than to Kunming. So, I had to “punt”, as they say.

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Op-Ed: Extreme Inequality not Driven by Merit, but by Rent-Seeking and Luck

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From an article in Evonomics by Didier Jacobs,special advisor to the president at Oxfam America. Full text at http://evonomics.com/extreme-inequality-not-driven-merit-wealth/. Based on an interview by  Sam Pizzigati, veteran labor journalist and Institute for Policy Studies associate fellow

Defenders of our deeply unequal global economic order had to put in a bit of overtime last month. They had to explain away the latest evidence — from the global charity Oxfam — on how concentrated our world’s wealth has become. A challenging task.

Back in 2010, Oxfam’s new stats show, the world’s 62 richest billionaires collectively held $1.1 trillion in wealth, far less than the $2.6 trillion that then belonged to humanity’s least affluent half.

Now the numbers have reversed. The world’s top 62 billionaires last year held $1.76 trillion in wealth, the bottom half of the world only $1.75 trillion.

Jacobs: Put simply, economists define rent as the difference between what people are paid and what they would have to be paid to do the work anyway. In other words, a rent is excess income, income that does not generate any effort.  So if your farmland happens to be more fertile than surrounding farmland, you get more production out of it for the same effort, and that extra income you get is a rent. Rent-seeking entails getting hold of wealth produced by others. Lobbying government to obtain a subsidy is an example.

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