Showing papers in "Cambridge Journal of Economics in 2017"
TL;DR: Teece et al. as discussed by the authors draw contrasts and complementarities between dynamic capabilities and economic theories of the firm, including transaction cost economics and agency theory, highlighting connections to the Cambridge school, including the duality between Keynes's 'animal spirits' and the dynamic capabilities entrepreneurial owner/manager.
Abstract: Author(s): Teece, DJ | Abstract: Business enterprises lie at the core of ecosystems that drive economic development and growth in market economies; yet, until recently, mainstream economics has mostly treated firms like homogeneous black boxes run by opportunistic managers. The field of strategic management has developed a more nuanced approach to the understanding of how firms are created, organized and grow, how they innovate and compete and how managers manage. One of the leading paradigms in the field is the dynamic capabilities framework. In this paper, contrasts and complementarities are drawn between dynamic capabilities and economic theories of the firm, including transaction cost economics and agency theory. Connections to the Cambridge school are highlighted, including the duality between Keynes's 'animal spirits' and the dynamic capabilities entrepreneurial owner/manager. Leibenstein's x-inefficiency is juxtaposed here with d-ineffectiveness. Knowledge-based theories of the firm consistent with Cambridge conventions emerge. Intellectual exchange between strategic management and economics is encouraged to help improve the intuition behind models of firms and the economy.
162 citations
TL;DR: This paper explored the relationship between financialisation and labour's share of income using a time-series cross-sectional dataset of 13 countries over the time period from 1986 until 2007, and found that there is indeed a relationship between increasing dividend and interest payments of non-financial corporations and the decline of the share of wages in national income.
Abstract: Numerous studies have analysed the decline in the labour share of income, but only few have linked it to the increase in financialisation. The process of financialisation can roughly be described as an increasing importance of the financial sector that had an impact on the distribution between wages and profits, on the one hand, and retained earnings and financial income in the form of dividends and interests, on the other hand. This article seeks to explore the relationship between financialisation and labour’s share of income using a time-series cross-sectional dataset of 13 countries over the time period from 1986 until 2007. The results suggest that there is indeed a relationship between increasing dividend and interest payments of non-financial corporations and the decline of the share of wages in national income. Other factors that can account for the decline relate to globalisation and a decrease in the bargaining power of labour.
98 citations
TL;DR: In this paper, the authors draw on Niklas Luhmann's ground-breaking insight that the complexity-reducing function of social systems leads them to neglect their critical environmental dependencies, thereby compromising their own sustainability.
Abstract: The prevailing theories of the firm acknowledge the importance of trust and loyalty but neglect such behaviour in the substance of their analyses. The present paper unravels this paradox by drawing on Niklas Luhmann’s ground-breaking insight that the complexity-reducing function of social systems leads them to neglect their critical environmental dependencies, thereby compromising their own sustainability. If the firm is conceived as a social system, Luhmann’s theory implies that the neglect of social behaviour by the predominant theories of the firm can be explained as reflecting the neglect of society by actual firms. This argument promises to not only furnish the theory of the firm with a concern for sustainability, but also render it more amenable to unconventional institutions, such as cooperatives and non-profit organisations, that help compensate for the damage inflicted by conventional firms on the social environment.
60 citations
TL;DR: In this paper, the authors define a pseudo-Goodwin cycle as a counter-clockwise movement in output and wage share space which is not generated by the usual Goodwin mechanism.
Abstract: Goodwin cycles result from the dynamic interaction between a profit-led demand regime and a reserve army effect in income distribution. The paper proposes the concept of a pseudo-Goodwin cycle. We define this as a counter-clockwise movement in output and wage share space which is not generated by the usual Goodwin mechanism. In particular, it does not depend on a profit-led demand regime. To illustrate this, a simple Minsky-type model is extended by a reserve army distribution adjustment. In this model the cycle is generated by the interaction of financial fragility and demand. The wage share rises at higher levels of output but this generates no feedback so that, by design, demand does not react to changes in income distribution. But the model does exhibit a pseudo-Goodwin cycle in the output-wage share space. This holds true even if we introduce a wage-led demand regime. This demonstrates that the existence of a counter-clockwise movement of output and the wage share cannot be regarded as proof of the existence of a Goodwin cycle and a profit-led demand regime.
54 citations
TL;DR: In this paper, a broad set of relevant indicators is used to derive composite measures of national technological and social capabilities, and the relationship between these capability measures and economic development, defined in various ways, is analyzed.
Abstract: The capability concept is commonly used in analyses of firms, however, as this paper shows, it may also be used at the level of nations. Factor analysis is used on a broad set of relevant indicators to derive composite measures of national technological and social capabilities. The data covers 114 countries worldwide on different levels of development for the period 1995-2013. The paper then analyzes the relationships between these capability measures and economic development, defined in various ways, and controlling for other relevant factors. The results suggest that improving national technological and social capability is a must for achieving (sustainable) economic development and improving living conditions.
43 citations
TL;DR: In this paper, the authors explore uncertainties of the latter kind, starting with and building on Donald Rumsfeld's famous observations about known unknowns and unknown unknowns, and develop connections with Nassim Taleb's Black Swan, and then with Lawson's Keynes-inspired interpretation of uncertainty.
Abstract: Tony Lawson’s work on probability and uncertainty is both an important contribution to the heterodox canon as well as a notable early strand of his ongoing enquiry into the nature of social reality. In keeping with most mainstream and heterodox discussions of uncertainty in economics, however, Lawson focuses on situations in which the objects of uncertainty are imagined and can be stated in a way that, potentially at least, allows them to be the subject of probability judgments. This focus results in a relative neglect of the kind of uncertainties that flow from the existence of possibilities that do not even enter the imagination and which are therefore ruled out as the subject of probability judgments. This paper explores uncertainties of the latter kind, starting with and building on Donald Rumsfeld’s famous observations about known unknowns and unknown unknowns. Various connections are developed, first with Nassim Taleb’s Black Swan, and then with Lawson’s Keynes-inspired interpretation of uncertainty.
39 citations
TL;DR: In this paper, the authors show how the distribution of wages affects whether an economy is a wage- or profit-led economy and show that an increase in workers' wage share always increases growth and capacity utilization regardless of the economy's character.
Abstract: The wage- versus profit-led distinction is a cornerstone of post-Keynesian growth theory. However, the existing theoretical literature focuses on the functional distribution of income and ignores the distribution of wages. This paper shows how the distribution of wages affects whether an economy is wage- or profit-led. Since the distribution of wages impacts personal income distribution, that explains why income inequality can also impact regime character. Increases in workers’ wage share always increase growth and capacity utilization regardless of the economy’s character. Furthermore, an increase in workers’ wage share can flip an economy from being profit-led to wage-led.
37 citations
TL;DR: This article reviewed the history of US industrial policy, with an emphasis on network-building industrial policy over the past two decades, and drew a lesson for policy communities in other countries and international development organisations such as the World Bank and IMF.
Abstract: The USA presents a paradox. The US state has practised production-focused industrial policy from the early years of the republic, with benefits that by any plausible measure far exceed costs. But since the 1980s, the exchange-focused idea that ‘the free market is what works, and having the state help it is usually a contradiction in terms’ has been at the normative centre of gravity in public policy discourse. With ‘industrial policy’ rendered toxic, the state has disguised its production-focused practice, to the point where even non-ideological academic researchers claim that the USA does industrial policy not at all, or badly. This essay reviews the history of US industrial policy, with an emphasis on ‘network-building industrial policy’ over the past two decades. At the end, it draws a lesson for policy communities in other countries and interstate development organisations such as the World Bank and IMF.
30 citations
TL;DR: In contrast explanation, contrast explanation provides a substitute for controlled experiments and facilitates identifying social mechanisms as discussed by the authors, and it also enables exploration of the manifold presuppositions of our explanatory questions.
Abstract: In this article we place Tony Lawson’s account of contrast explanation in context. Lawson’s development of it is given meaning both by the roots of the approach in his work on social ontology and the state of economics that provides the grounds for the critique contained in that social ontology. This is important because such an approach to explanation is not new. Most notably, van Fraassen and Garfinkel have developed it in particular ways and for particular purposes within the philosophy of science and social theory. Setting out the different ways in which the contrastive approach has been developed is useful for identifying what is different about Lawson’s approach, its potential and limits. Lawson’s proposal is more modest and focusses on causal investigation in a manner that flows from his approach to social ontology. Contrast explanation provides a substitute for controlled experiments and facilitates identifying social mechanisms. It also enables exploration of the manifold presuppositions of our explanatory questions. We argue that this is a useful and important contribution to overcoming some of the many problems economics faces.
30 citations
TL;DR: In this article, a general axiomatic approach is developed which is appropriate to study the concept of exploitation what it is and how it should be captured empirically, and two properties are presented that capture some fundamental Marxian insights.
Abstract: This paper analyses the Marxian theory of exploitation. A general axiomatic approach is developed which is appropriate to study the concept of exploitation what it is and how it should be captured empirically. Two properties are presented that capture some fundamental Marxian insights. It is shown that, contrary to the received view, there exists a nonempty class of definitions of exploitation that preserve the relation between exploitation and profits called ProfitExploitation Correspondence Principle in general economies with heterogeneous agents, complex class structures, and production technologies with heterogeneous labour inputs. However, among the main approaches, only the so-called ‘New Interpretation’ satisfies the ProfitExploitation Correspondence Principle in general. JEL: B51.
30 citations
TL;DR: In this paper, it was shown that time changes in export performance can be explained by levels rather than by changes in unit costs, which is contrary to the Kaldor paradox.
Abstract: A fundamental starting point for post-Keynesian theory concerning growth in open economies is succinctly expressed in the following statement by Kaldor: ‘[T]he main autonomous factor governing both the level and the rate of growth of effective demand of an industrial country…is the external demand for its exports: and the main factor governing the latter is international competitiveness, which in turn depends on the level of its industrial cost relatively to other industrial exporters’ (Kaldor, 1971, p. 7; italics added). Moreover, thanks to increasing returns in manufacturing, export expansion and international competitiveness would interact so as to create vicious or virtuous circles of cumulative causation. A few years later Kaldor, having found a positive correlation between the time changes of the main industrial countries’ relative manufacturing export shares and that of their relative unit costs—a correlation that became known as the ‘Kaldor paradox’—dismissed his original cumulative causation theory and adopted a version close to Harrod’s ‘foreign trade multiplier’. The purpose of this paper is to reaffirm the Kaldorian cumulative causation theory in its original version, by providing a firmer analytical basis and showing that, contrary to the ‘Kaldor paradox’, time changes in export performance must be ‘explained’ by levels rather than by changes in unit costs.
TL;DR: The dominant approach in economics, often referred to as neoclassical economics, gradually acquired its leading status in the years following the publication of Lionel Robbins' (1932) famous essay on the nature and significance of economic science as mentioned in this paper.
Abstract: Introduction The dominant approach in economics, often referred to as neoclassical economics, gradually acquired its leading status in the years following the publication of Lionel Robbins’ (1932) famous essay on the nature and significance of economic science. In this essay Robbins argued that economics should be about the efficient allocation of scarce resources, rather than about resource creation and the creation and distribution of wealth as advocated by classical economists such as Adam Smith, David Ricardo and Karl Marx. As Robbins saw it, a focus on scarcity and efficient allocation would delimit economics more clearly from other social sciences and also render it more amenable to scientific and mathematical investigation, particularly once certain subsidiary assumptions such as rational behaviour by economic agents were made.
TL;DR: In this article, the effects of different public policies (strengthening capability building, favouring firms' learning, protectionism and support of entry of new domestic firms) on the catch-up of a latecomer with respect to an incumbent country in changing and uncertain technological environments are examined with a simulation model.
Abstract: This paper examines the effects of different public policies (strengthening capability building, favouring firms’ learning, protectionism and support of entry of new domestic firms) on the catch-up of a latecomer with respect to an incumbent country in changing and uncertain technological environments. The effects of these policies are analysed with a simulation model first separately and then jointly to assess possible complementarities. We reach several results. First, we confirm that capability building and firms’ learning are important drivers of catch-up. Second, we find that when a large technological discontinuity takes place, entry support favours catch-up while protectionism has the opposite effect. Protectionism favours catch-up only when no technological discontinuity opens up. Third, we find that depending on the technological conditions, different policy complementarities exist; therefore, different policy mixes should be at the base of a country catch-up strategy. These results add to the previous literature on public policy and catching up by developing countries in an industry by distinguishing the different effects of various types of public policy and relating them to the technological conditions that are present in an industry.
TL;DR: The most important of these is the illusion that money, in order to function, must be ‘backed by’ something as mentioned in this paper, which is a common mistake in the institution of money.
Abstract: Money is a status function. This article works out the implications and consequences of that fact. There are ten functions and features of money and a number of common mistakes and deceptions in the institution of money. The most important of deceptions is the illusion that money, in order to function, must be ‘backed by’ something.
TL;DR: This paper reviewed what Nelson and Winter were trying to accomplish when they put forward An Evolutionary Theory of Economic Change (Belknap Press, Harvard, 1982), and then did a fast-forward to controversies and contributions in the recent past, and speculates on where the intellectual enterprise might be headed from here.
Abstract: This essay first reviews what Nelson and Winter were trying to accomplish when they put forward An Evolutionary Theory of Economic Change (Belknap Press, Harvard, 1982). It then does a fast-forward to controversies and contributions in the recent past, and speculates on where the intellectual enterprise might be headed from here. The issues involved in the original motivations are definitely alive and well. Aside from the review of the basic issues behind the NW project, an important theme here is that an evolutionary approach to economics entails a degree of engagement with the realities of business organization and the quest for profit that has no parallel in mainstream economics. Thus it makes sense in retrospect that the evolutionary program has proved more influential in other research fields, including strategic management, technology studies and organization theory, than it is in economics proper. Recent controversies underscore the continuing existence of a challenging research agenda featuring the interactions among the dynamic processes at different levels - individuals, firms and market environments.
TL;DR: This article analyzed the role of home-host country alliances in reducing transaction costs in the internationalisation process of Indian multinational enterprises. But, the extent of that influence depends upon the nature of the alliance.
Abstract: This paper analyses the role of home-host country alliances in reducing transaction costs in the internationalisation process. We test hypotheses about the role of country-level alliances and firm internationalisation with comprehensive longitudinal multi-industry data on 623 acquisitions made by Indian multinational enterprises (MNEs) between 2000 and 2007 on a panel of 65 host countries. The results show that country alliances reduce the transaction costs arising from the distance
between home-host countries, thereby positively influencing the internationalisation of Indian MNEs. However, the extent of that influence depends upon the nature of the alliance. Our findings have significant implications for public policy and theory.
TL;DR: This article examined Lawson's ontological analysis of money with a view to clarifying the compatibility between his ontological position and credit theories of money, especially those which stand in the chartalist tradition.
Abstract: Tony Lawson’s recent foray into social ontology in this Journal takes, as its subject, money. This essay examines Lawson’s ontological analysis of money with a view to clarifying the compatibility between his ontological position and credit theories of money, especially those which stand in the chartalist tradition. It also examines Lawson’s claims about commodity theories of money in light of credit theorists’ pronunciations on commodity theories.
TL;DR: In this article, the authors consider the significance of the status and the effects of the separate legal entity (SLE) in the modern corporation and show how the SLE, as a reified construct is rendered meaningful, real and/or consequential.
Abstract: In an assessment of Lawson’s social ontological analysis of the modern corporation, we consider what is marginalized: the significance of the status and the effects of the separate legal entity (SLE). The SLE is conceived as a specific type of construct that is ascribed particular properties through its stabilization within and between different (legal and economic) discourses. By showing how the SLE, as a reified construct, is rendered meaningful, real and/or consequential, we illustrate how the ‘social ontology’ of the modern corporation is radically contingent and inescapably contested. Given that the social ontology of the corporation defies definitive specification, we regard the prospect of the completeness of its disclosure (e.g. by foregrounding a specific referent) as problematic. Indeed, any account of social ontology that foregrounds a specific referent is seen to obscure a political process in which the stabilization of the SLE rests on the contingent foregrounding of particular priorities. This leads us to reflect on the power-inflected social organization of knowledge generation. Key to the explication of social ontology, and with specific reference to the corporation, is not, as Lawson contends, the concept of ‘community’ but the inescapability of contestation within relations of power that translate ontological openness into specific but precarious forms of ontic closure.
TL;DR: The authors acknowledge funding from the ESRC (Project ES/J012491/1, ‘Law, Development and Finance in Rising Powers’), and acknowledge the role of law, development and finance in rising powers.
Abstract: I ... acknowledge funding from the ESRC (Project ES/J012491/1, ‘Law, Development and Finance in Rising Powers’).
TL;DR: In this article, the authors focus on the intellectual factors involved failing to do justice to what amounts to a multifaceted and complicated phenomenon involving social, economic, political, intellectual, normative and institutional factors.
Abstract: The mathematisation and formalisation of economic science has been one of the most important features of the development of economic science in the latter part of the twentieth century. What were the causes behind this ubiquitous mathematisation of economic science? Recent scholarship places excessive emphasis on the role and prestige of mathematics as a scientific tool. In this paper we argue this is inadequate, not least because it fails to account for the whole classical era when mathematical economists failed to have any impact. Explaining this failure is one of the main aims of this paper. Most accounts focus mostly on the intellectual factors involved failing to do justice to what amounts to a multifaceted and complicated phenomenon involving social, economic, political, intellectual, normative and institutional factors. Partly redressing the balance by bringing to the fore the various factors involved is the other prime aim of this paper.
TL;DR: This article revisited the results of Harvie (2000) and showed how correcting for a reporting mistake in some of the estimated parameter values leads to significantly different conclusions, including realistic parameter values for the Philips curve and estimated equilibrium employment rates exhibiting on average one tenth of the relative error of those obtained in 2000.
Abstract: We revisit the results of Harvie (2000) and show how correcting for a reporting mistake in some of the estimated parameter values leads to significantly different conclusions, including realistic parameter values for the Philips curve and estimated equilibrium employment rates exhibiting on average one tenth of the relative error of those obtained in Harvie (2000).
TL;DR: In this paper, the authors analyzed the ways in which monies can be linked by drawing upon the variety of so-called contemporary community and complementary currencies (CCCs) by considering four basic binary relations between monetary assets: commensurability, convertibility, co-use and coincidence of spheres of uses.
Abstract: Opposing approaches to money competition that state that all monetary forms are substitutes, theories of complementarity state that some can be complementary. This text analyses the ways in which monies can be linked by drawing upon the variety of so-called contemporary community and complementary currencies (CCCs). It considers four basic binary relations between monetary assets: commensurability, convertibility, co-use and coincidence of spheres of uses. Through their combinations, four means of linking monies are identified: substitutability, simultaneity, supplementarity and autonomy. On this basis, unpacked competition and complementarity do not oppose each other but appear to be related. The less forms of money are built on specific social values, the more complementarity may be pervaded by competition. This paper illustrates how this framework can be used with cases of the Argentine trueque (‘barter’) and the French experimental SOL. Both experienced difficulties that show the complexity of the links, possible shifts and their effects on the sustainability of the schemes.
TL;DR: In this paper, the authors examine how trust features in Lawson's discussions and identify three phases of argumentation where trust has some significant prominence in his work and argue that a coherent and compelling account of the nature and significance of trust emerges from these discussions and that it is one that deserves further elaboration and critical attention.
Abstract: When setting out, defending and exploring the implications of his specific position in social ontology, Tony Lawson highlights the importance of trust. Despite the significance he attaches to trust, Lawson does not provide an extended elaboration of the nature of trust but rather considers it in various contexts where his primary focus lies elsewhere. The purpose of the current paper is to examine how trust features in Lawson’s discussions. I identify three phases of argumentation where trust has some significant prominence in his work. Most recently Lawson when outlining his general socio-philosophical ontology describes trust as the essential glue binding society together. In earlier contributions he approaches trust from a developmental perspective and at times sees trust as a condition required for generalised human flourishing. I argue that a coherent and compelling account of the nature and significance of trust emerges from these discussions and that it is one that deserves further elaboration and critical attention. Resources in the form of certain complementary perspectives are identified that may help to flesh out aspects of Lawson’s account of trust.
TL;DR: In this article, the authors examine the interrelationships between social capital and Ubuntu, an African social philosophy necessarily embedding the existence of an individual in that of the society, and show that the strong link existing between Ubuntu and social capital shows the potential value of the former for the socioeconomic development of the sub-Saharan populations.
Abstract: I examine the interrelationships between social capital and Ubuntu, an African social philosophy necessarily embedding the existence of an individual in that of the society. Social capital—the sum of the interpersonal links and civic participation of a person—has been proven to be essential in promoting both social and economic development. The strong link existing between Ubuntu and social capital shows the potential value of the former for the socio-economic development of the sub-Saharan populations. Indeed, the African governments should promote Ubuntu as a valuable instrument to fight poverty and conflicts.
TL;DR: In this paper, a response to some of the criticisms that have been made of G. L. Shackle's analysis of human decision-making because of its reliance on a Cartesian account of the mind is presented.
Abstract: This paper develops a response to some of the criticisms that have been made of G. L. S. Shackle’s analysis of human decision-making because of its reliance on a Cartesian account of the mind. It is argued that the basis for a response can be found in the work on theoretical psychology developed by Shackle’s fellow subjectivist, and one-time PhD supervisor, F. A. Hayek. In particular, the ideas advanced by Hayek in his 1952 book, The Sensory Order can be used to provide an account of the mind that avoids the shortcomings of Shackle’s Cartesianism whilst still doing justice to his emphasis on genuine choice, expectations and the role of creativity and the imagination in human decision-making.
TL;DR: The authors argue that adherence to a particular philosophy of mind can have profound effects on the ontology of the economy, which is implied as a logical consequence of such philosophy, either binding us to a 'clockwork' view of the universe or to a non-deterministic one in which fundamental uncertainty exists.
Abstract: In this essay I seek to introduce the philosophy of mind to economics, and investigate what presuppositions economists make vis-a-vis the philosophy of mind in their theorising with a focus on the model-based theoretical paradigms within economics. I argue that most economists adhere to what John Searle has termed an 'artificial intelligence' view of mental processes, to varying degrees of strength. I also argue that adherence, knowing or unknowing, to a particular philosophy of mind can have profound effects on the ontology of the economy, which is implied as a logical consequence of such philosophy, either binding us to a 'clockwork' view of the universe or to a non-deterministic one in which fundamental uncertainty exists.
TL;DR: The notion of causality has often been emphasized as a formal property having the burden to convey some deep economic meaning as mentioned in this paper, with the purpose to contextualize it within the econometric debate of the Sixties, to enucleate its economic meaning and to show its connections with other fields of the modern classical approach.
Abstract: The formal representation of economic theories normally takes the form of a model, that is, a system of equations which connect the endogenous variables with the values of the parameters which are taken as given. Sometimes, it is possible to identify one or more equations which are able to determine a subset of endogenous variables priorly and independently of the other equations and of the value taken by the remaining variables of the system. The first group of equations and variables are thus said to determine causally the remaining variables. In Pasinetti’s works this notion of causality has often been emphasized as a formal property having the burden to convey some deep economic meaning. In this work, we will go through those Pasinetti’s works where this notion of causality plays a central role, with the purpose to contextualize it within the econometric debate of the Sixties, to enucleate its economic meaning and to show its connections with other fields of the modern classical approach.