Author Archives: Maria Alejandra Madi

By 2020, the largest pools of pension fund assets are projected to remain concentrated in the US and Europe. In North America, pension fund assets reached $19.3 trillion in 2012 and PwC estimates that by 2020, pension fund assets will rise by 5.7 percent a year to achieve over $30 trillion of the $56.5 trillion in total global assets, more than 50 percent of the global total.

Indeed, according to the PwC report, Asset Management 2020: A Brave New World, demographic changes, accelerating urbanization, technological innovations and shifts in economic power are reshaping the asset management environment where pension funds have been playing and  will play an outstanding role in the global saving and investment process.  Three key factors seems to stimulate the global growth in assets: i) changes in government-incentivized or government-mandated retirement plans that will turn out to increase the use of defined contribution (DC) individual plans; ii) faster growth of high-net-worth-individuals in South America, Asia, Africa and Middle East regions up to 2020; iii) the expansion of new sovereign wealth funds.

However, in spite of the pension funds’ power to centralize huge amount of “savings from workers”, in this scenario of financial globalization, workers do not seem to have strong defense against the impacts of the current global scenario on the savings of workers and the flows of workers’ income.

In a context of uncertainty, the pension funds’ portfolio management is based, as Keynes warned, on precarious conventions.  Pension funds are part of a set of interrelated balance sheets and cash flows between the income-producing system (hedge, speculative and Ponzi firms) and the financial structure that affect the valuation of the stock of capital assets, the evolution of credit and the pace of investment. Current pension funds’ performance ultimately relies on the endogenous nature of financial instability.  Throughout the business cycle, when profits decline, as they inevitably do, credit and external sources of funding generally become restricted and the price of assets also fall. This scenario affects the performance of these institutional investors and reduces the value of the stock of workers’ savings in pension funds.

As a matter of fact, the connection between pension funds and speculative finance is one of the contemporary features of the management of the working savings. Continued low interest rates would impact the future profitability of pension funds, particularly in those portfolios where income-fixed assets predominate.

Among other current challenges to the management of pension funds is the evolution of austerity programs. In many countries, austerity programs have also relied on changes in retirement plans. Soon after the global crisis of 2007-2008, many European countries  announced austerity measures that included  changes in retirement age and pension payments. As a result, loss of retirement rights has turned out to become part of the new set of public policies.

Indeed, many governments, under global investors’ pressure, should meet budgetary targets and pursue further structural reforms- also related to age and amount of pension within retirement plans.  In truth, the current era of financialization and austerity – and its impacts on retirement plans and job creation – is certainly affecting day-to-day life of workers and the future of pensions. In other words, it is affecting the flows of workers’ income and the savings of workers.


Joan Robinson (1903- 1983) studied microeconomic issues, such as pricing, consumer demand, producer supply, competition and monopolistic strategies. Her first major book was The Economics of Imperfect Competition, published in 1933. In the same year, Edward Chamberlin published The Theory of Monopolistic Competition.

Robinson restates the Marshallian contribution to price theory so as to examine the outcomes of imperfect competition. In her understanding, perfect competition is considered to be a very special case where buyers should have the same preferences and each buyer should deal with only one firm at any one time. If these conditions are fulfilled, an increase in the price of one firm would lead to a complete cessation of its sales if the prices of other firms remained the same.

Considering the markets where imperfect competition dominates, Robinson starts the analysis with a single firm in an industry. She clarifies that physical differentiation is not a necessary condition for market imperfection because two commodities may be alike in every respect except the names of the firms producing them. However, the market in which they are sold will be imperfect if different buyers have different scales of preference as between the two firms.

Imperfect competition in the markets affects the slope of the demand curve of an individual firm and of the industry. The first prerequisite of perfect competition is a product clearly demarcated from others, that is to say, the characterization of a perfect market depends on the clear demarcation of the commodity that is sold and bought. In particular, she examines how price discrimination and market segmentations policies influence the slope of the curve of the individual firm and the market equilibrium. Competition will be less perfect the lower is the elasticity of the total demand curve. Indeed, the form of the demand curve represents the degree of competition between the product of this industry and other products.


Besides, in a context of imperfect competition, the firm’s supply curve could express increasing, decreasing, or constant costs. As a result, the equalization of the marginal cost curve and the price as a condition of equilibrium is considered as the main problem in those imperfect markets.  According to Robinson, competition will be less perfect the higher is the ratio of the output of one firm to the output of the industry. If competition is imperfect, an increase in the output of one firm by one unit of its good would change the output of the industry and this may lead to a relevant change in the price of this good.

Robinson addresses that it is empirically true that a high level of normal profits will often be found where competition is imperfect.           The normal level of profits will be different according to the industry and the scales of production in the same industry because  the level of normal profits will depend upon the conditions of supply of the firm. An old-established firm enjoys a “good will” which turns out not only to enable the firm to influence the price of the commodity but also to set increasing costs of entry to new rivals. Powerful firms which use methods of “unfair competition” to strangle rivals are unlikely to sell in perfect markets. In these powerful firms, managerial decisions, including price discrimination and market segmentation, for instance, are practices oriented to increase market share and profits.

Joan Robinson’s microeconomic approach is still relevant to show the failures of a theory of value and distribution based on the assumptions of either perfect competition or perfect monopoly. In truth, her analysis of the monopolistic trends in contemporary capitalism sheds light on how powerful firms fix prices and strengthen  their power in the markets.


Throughout 2016, many countries around the world keep on competing for market share in high-wage, innovation-based industries. Indeed, these countries have turned to “innovation mercantilism” by imposing protectionist policies to expand domestic production and exports of high-tech goods and services.

In this setting, innovation mercantilist policies are being oriented to high-value tech sectors such as life sciences, renewable energy, computers and electronics, and Internet services. There are new “beggar-thy-neighbor” strategies adopted by nation-states, such as forcing companies to transfer the rights to their technology or forcing them to relocate their production, research and development (R&D), or data-storage activities. These strategies aim at   both replacing imports with domestic production or promoting exports.

At this respect, the 2016 Information Technology and Innovation Foundation annual report shows that:

  • China introduced a new cybersecurity law so as to impose local data-storage requirements, and forced intellectual property and source code disclosures.  This country also introduced new cloud-computing restrictions so as to exclude and prevent foreign firms from operating in the Chinese market.
  • Germany introduced forced local data-storage requirements as part of a new telecommunications data law.
  • Indonesia introduced forced local data-storage requirements for Internet-based content providers. The country also introduced a patent law amendment in order to force local production and technology transfers.
  • Russia introduced forced local data-storage requirements and encryption-key disclosure as part of a new telecommunications data law. The country also introduced new government procurement rules in order to ban the purchase of foreign software.
  • Turkey introduced a new data-protection law that, as a matter of fact, forced local data storage.
  • Vietnam introduced forced local data-storage requirements for Internet-based content providers. The country also introduced a new network-security law that forces disclose encryption keys and source codes a condition of market access.

New protectionist trends have also been observed in the United States. As of January 23, 2017, the new American president Donald Trump’s decided to remove the U.S. from the Trans-Pacific Partnership, or T.P.P. This decision signalizes that the United States are not willing to be permanently tied to East Asia, mainly a rising China, by free-trade strategies. Instead, it is believed that American workers would be protected against competition from low-wage countries, such as Vietnam and Malaysia, also parties to the trade deal.

As America looks inward to increase investment in manufacturing, to reduce the dependence on East Asia imports and to stimulate job creation, among other  domestic challenges, the outcomes of the revision of free-trade strategies will certainly carry out relevant geopolitical implications.


Much of the comments on the global financial and economic crisis have focused on the proximate causes and governance issues related to risk management, monetary policy and weak regulation. New political alignments allowed a process of global financial deregulations in the early 1970s. The political ascendancy of financial capital and extensive capital market liberalization, employment goals were abandoned in the economic policy agenda. Indeed,   price stabilization and “fiscal prudence” turned out to be the primary objectives of the economic policy. As a result, prior to the 2008 global crisis, inflation was low and close to official inflation target rates in the advanced economies. However, credit bubbles threaten the macroeconomic stability.

After the Global Crisis, academic economists and policy makers have actively participated in the debate on monetary policy in the United States and European Union. In the face of the outcomes of the crisis, central banks have dealt with a triple challenge

  • how to contain the crisis
  • how to prevent a recessionary downturn
  • how to avoid enhancing financial instability in the form of inflationary pressures or asset  and credit bubbles.

The Federal Reserve (Fed) and the European Central Bank (ECB) have faced major global financial challenges together. However, within their respective zones, they coped with their institutional set-up and governance guidelines.

After the bail-outs, their main concern is whether nominal interest rates really have a lower bound around zero per cent. After the crisis, central banks responded to the large fall in aggregate demand and the under- utilized productive resources by adjusting  the policy interest rates to, or very close to, zero. Indeed, these central banks have focused on lender-of-last-resort program extensions. The main question is: to what extent central banks can deal with huge levels of leverage, structural flaws of financial innovations (securitization, structured finance, and derivatives above all) and  lack of transparency in terms of  risk management?.

Central banks have shown that they can innovate and coordinate with other central banks on short notice when unprecedented situations of financial crisis arise. However, central banks cannot prevent financial crisis.  Considering the menace of deepening the recession, the outcome of the central banks’ management of  nominal interest rates is that  real interest rates may be (and may continue to be) negative.  Despite the evolution of nominal and real interests, big banks have restricted new lending operations because of credit and market risks. Indeed, big banks have enlarged the amount of cash in order to cope with their own losses more easily in the future.

In the 1930s, John Maynard Keynes said the liquidity trap was a period in which cash and bonds became perfect substitutes and, after the nominal interest rate has fallen to a very low level, liquidity-preference may become virtually absolute. In other words, it is difficult for central banks to reduce their policy interest rates much below zero as cash can be held as an alternative to negative interest rate bearing assets. Most people would prefer cash to holding a debt which yields. In this event the monetary authority would have lost effective control over the rate of interest.

The modern Keynesian literature emphasizes that, even if increasing the current money supply has no effect, monetary policy is far from ineffective at zero interest rates. What is important, however, is not the current money supply but managing expectations about the future nominal and real interest rates. Thus, recent research indicates that monetary policy is far from being ineffective at zero bound levels, but it worked mainly through expectations.

Therefore, the question is how very low or negative interest rates translate into improved growth rates (Hannoum, 2015).  It is worth remembering that central banks consider that the monetary stimulus could stimulate short-term growth through five main channels:

  • by boosting credit to the real economy
  • by lifting asset prices
  • by forcing investors towards riskier ones
  • by lowering the exchange rate
  • by attempting to avoid deflationary pressures.

Up to now, the monetary policy of prolonged very low or negative interest rates relies on the uncertain effectiveness of these transmission channels. However, potential serious consequences for central banks could emerge. here is the threaten that  monetary policy could become subordinated to the demands of the financial markets and to the public debt burdens.


Hannoun, H (2015) “Ultra-low or negative interest rates: What they mean for financial stability and growth”, BIS Speech at Eurofi High-Level Seminar, Riga

The  call for papers of the WEA ONLINE CONFERENCE Public Law & Economics: Economic Regulation and Competition Policies is now open.

The main subject to be discussed in this  WEA Conference is the current challenges faced by economic regulation and competition policies 10 years after the beginning of the most recent world’s economic crises.

In the past decade, companies aimed to compete and/or cooperate with each other in a world where technologies are changing rapidly, digital economies have emerged, and markets are global in scope, but free market economy started to face protectionism. Also, they have gradually tried to recover from the impact of the crisis in a economic scenario of high uncertainty and financial turbulence. At the same time, governments, sector regulators, competition authorities, and central banks have been working to minimize the impact of the crisis on the economy, to stabilize the financial system, and to introduce and amend the regulations and institutions necessary to ensure that the crisis does not repeat itself.

Public Law and Economics studies the use of economic principles for the analysis of public law, and can be used to promote choices in policies and regulations that correct market failures, promote competition and increase gains in a given economy. The interaction between economic principles and public law is particularly important in a globalized context where new forms of market organization, the uncertainties of the digital economy, and new scenarios of abuse of economic power have emerged.

The next WEA Conference therefore aims to bring together renowned specialists in economic regulation, regulated sectors and competition law to debate those relevant issues. We believe that the discussions will enable academics and practitioners to: (i) discuss how sector regulators and competition authorities are interacting post-crises and how the economic analysis of law can help countries reach better regulation and competition policies; (ii) contribute with practical and theoretical references on the limits of economic power and forms of state intervention; (iii) deal with the uncertainties and challenges of the digital economy; (iv) gather relevant case studies and; (v) identify new trends in Law and Economics that have arisen post-crises.

Topics of interest include, but are not limited to:

  • New post-crises trends on sector regulations and public policies
  • Financial regulation after crises
  • Legal transplant and legal borrowing
  • Digital economies and sector regulation
  • International, supranational and local changes on competition policies
  • Competition law and innovation
  • Competition law in Digital Markets
  • Economic analysis of cartels
  • Economic Regulation and Competition in developing countries
  • Regulatory assessment

Considering all the above, the next WEA Conference aims to bring together students in Economics and Law, besides specialists in economic regulation, regulated sectors and competition law to debate those relevant issues.

We invite you submit your recent research.  Visit the conference  website

Globalization has been associated to a new financial regime and great transformations in the pattern of economic growth. In the last decades,  financial capital  has exercised control over the structural forms necessary for the continuing cycles of valorisation of productive capital, thanks to the centralized money at  disposal. Indeed, a trend of high expansion of financial assets, while economic growth remains limited and sporadic, has given way to widespread  income and wealth inequality. The same policies that have obliterated social services and kept labour cheap have favoured global enterprises and financial deepening.

In his deep social and cultural analysis of  globalization, the well-known sociologist Zygmunt Bauman (1925-2007) stated at the beginning in the early 2000s:

The downsizing obsession is, as it happens, an undetachable complement of the merger mania…. Merger and downsizing are not at cross-purposes: on the contrary, they condition each other, support and reinforce. This only appears to be a paradox….. It is the blend of merger and downsizing strategies that offers capital and financial power the space to move and move quickly, making the scope of its travel even more global, while at the same time depriving labour of its own bargaining and nuisance-making power, immobilizing it and tying its hands even more firmly.”  (Bauman 2000, p. 122)

Accordingly Bauman, financial power are business models are interrelated. Capital mobility, liquid strategies and behaviours, speculation, mergers and acquisitions have submitted livelihoods to huge losses in terms of unemployment, working conditions, workers´ rights and income distribution have been relevant. The outcomes were not socially acceptable since the restructuring programs have put pressure on social and economic protections for all workers. Therefore, the apprehension of the dynamics of  high finance is decisive to improve the understanding of the social impacts of business strategies in contemporary capitalism. As corporations and investors  privilege short-term results, decisions taken by investors to reorganize the business and markets have turned out to increase social vulnerability.


At the heart of Bauman`s  argument is that the capital accumulation process and the merger mania involve social relations driven by profit and competition.  Consequently, the clear cut between investors and managers favours the redefinition of the labour relations. At this respect, he addressed:


“Flexibility is the slogan of the day, and when applied to the labour market it augurs an end to the “ job as we know it”, announcing instead the advent of work on short-term contracts, rolling contracts or no contracts, positions with no in-built security but the “until further notice” clause. Working life is saturated with uncertainty” (Bauman 2000, p. 147)


What Bauman adds to our understanding about the real-world flexible working conditions is that business liquid strategies shape a social dynamics where  the search for flexibility enhances a kind of rationality that is functional to reinforce short-termism. Indeed, in spite of the euphemisms  rationalization and capital flexibility, capitalist finance regulates the pace of investment and the process of adjustment of the labour force. Workers are fired to improve  short-term profits, and those who remained are responsible for carrying the burden by increasing productivity.  In the context of  labour flexibility, workers cannot deal with all deep changes occurring in their working environments. Therefore, rationalization and flexibility happen to increase uncertainty in working life.

Indeed, Zygmunt Bauman’s  prominent contribution in social and cultural theory enhances  our  understading of the recent historical trends that  have shaped uncertainties, inequalities and inhuman conditions.



Zygmunt Bauman (2000) Liquid Modernity. Blackwell Publishing Ltd.

Business strategies around long-run investment have varied over time. In General Theory (GT), John Maynard Keynes reinforces the analysis of the modifications in the structure of the capitalist class to explain the differences between entrepreneurs and investors in terms of the effects of their behaviour and decisions on capital accumulation. In Chapter 12 (GT), he establishes the difference between the old and the new business models. This historical approach shows that, in the old business model, there was an irrevocable commitment towards investment. Taking into account the new business model, the decisions about what amount and where to invest are no more an irrevocable commitment for investors and managers. Indeed, in the new business model, investors decide the volume of investment, but aggregate investment is not irrevocable since liquidity is the target.  This fact fosters macroeconomic instability in the economic system. As Keynes wrote:

Decisions to invest in private business of the old-fashioned type were, however, decisions largely irrevocable, not only for the community as a whole, but also for the individual. With the separation between ownership and management which prevails today and with the development of organized investment markets, a new factor of great importance has entered in, which sometimes facilitates investment, but sometimes adds greatly to the instability of the system” (Keynes, General Theory, 12, III).

And he added:

If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise. As the organisation of investment markets improves, the risk of the predominance of speculation does, however, increase” (Keynes, General Theory, 12, VI).

The historical changes in business have been related to qualitative transformations in capital accumulation and competition. Mainly after the 1970s, the changing practices in corporate finance fostered the growth of the participation of institutional investors, such as pension funds or private equity firms, in business management as relevant shareholders. The drive to increase the share-holders’ value and the incorporation of the managerial strata through share options has tended to postpone long-term investments. In addition, these practices have favoured mergers and acquisitions and fostered financial speculation.

After the middle 1990s, public policies and private strategies influenced the dimension and composition of balance sheets in different economic sectors. Among the main features:

  • The household sector has got increasingly indebted.
  • Corporations have moved to “surplus units” running financial surpluses that have been diverted towards the acquisition of financial assets instead of financing physical investments.
  • The balance sheets of mutual investment funds are now larger that before the global crisis with respect to the GDP and they have influenced the flows of investment in companies.

Considering the evolution of the business models since the 2000s, the strategies  of corporations and private equity funds have turned out to focus on short-term gains and the distribution of dividends to shareholders, that is to say, to investors. In other words,  the current business model can be apprehended as a form of governance that aims increasing short-term earnings by means of a “clash of rationalization”. In this context, competitiveness and productivity have been put together in the attempt to promote higher business performance.

In fact, the centralization of capital, through waves of mergers and acquisitions, created new challenges to business stability. Accordingly the OCDE, the current investment chain is complex due to cross-investments among institutional investors, increased complexity in equity market structure and trade practices, and an increase in outsourcing of ownership and asset management functions. In this scenario, the economic and social outcomes have involved a trend to ‘downsize and distribute’, that is to say, a trend to restructure, reduce costs and focus on short- term gains. In practice this has meant plants displacement and closures, changing employment and labour conditions, outsourcing jobs, besides the pressure on supply chain producers in the global markets.

As a result of current business strategies, investments that are fixed for society turn out to be liquid for investors. Today, the dominance of a culture based on short-term speculation has major implications that go far beyond the narrow confines of the financial markets.  The costs of this business model fall disproportionately on society because of the commitment to liquidity.  As Keynes warned,

“Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organized with a view to so-called ‘liquidity’. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of ‘liquid’ securities. It forgets that there is no such thing as liquidity of investment for the community as a whole” (Keynes, General Theory, 12, V).

If we WEA economists want to disseminate among our students these relevant changes in business models, then it would be interesting to include some of the following readings  mainly in micro and macroeconomic courses.

Berle, Adolf A., and Gardiner C. Means (1932), The Modern Corporation and Private Property, Macmillan.

Blair, Margaret M. (1995) Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century, Brookings Institution.

Crotty, J. (2002) “The effects of increased product market competition and changes in financial markets on the performance of nonfinancial corporations in the neoliberal era”. Working Paper Series, n. 44.  University of Massachusetts Amherst, Political Economy Research Institute,

Çelik, S. and Isaksson, M. (2013) “Institutional Investors as Owners: Who Are They and What Do They Do?”, OECD Corporate Governance Working Papers, No. 11, France: OECD Publishing. (accessed 10 October 2015)

Fligstein, N. (2001) The architecture of markets, New Jersey: Princeton University Press.

Jacoby, S. (2008)  Finance and Labor: Perspectives on Risk, Inequality and Democracy, Working Paper, Institute for Research on Labor and Employment, USA, California Digital Library.

Keynes, J. M. [1936 (1964)] The General Theory of Employment, Interest, and Money. New York: Harcourt Brace.

Lazonick, W. (2013) “From Innovation to Financialization: How Shareholder Value Ideology is Destroying the US Economy” , in Martin H. Wolfson and Gerald Epstein, eds., The Handbook of PoliticalEconomy of Financial Crises, Oxford University Press.

Lazonick, W. and O´Sullivan, M. (2000) “Maximizing shareholder value: a new ideology for corporate governance”, Economy and Society, 29 (1).

Seccareccia, M.  (2012) “Financialization and the transformation of commercial banking; understanding the recent Canadian experience before and during the international financial crisis”, Journal of Post Keynesian Economics, 35 (2): 277-300.