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61. Whither US-China Trade War? Impacts on global trade, technology and finance, and strategies to mitigate risks

Author:
Lia Valls Pereira, Tatiana Rosito, and Gabriel de Barros Torres
Publication Date:
06-2019
Content Type:
Special Report
Institution:
Brazilian Center for International Relations (CEBRI)
Abstract:
For its twelthth meeting, CEBRI's China Analysis Group organized discussions on the economic and geopolitical causes and consequences of trade frictions between China and the United States, considering its impact on different actors and on the multilateral trading system at large. Despite the original focus on trade imbalances, participants noted that the bilateral rivalry’s underlying drivers relate to competition for leadership in high-tech sectors and, fundamentally, to the conciliation of practices associated with different development models. Notwithstanding the uncertainty surrounding the next steps in the dispute, there was a consensus among participants that a complete decoupling between both economies is virtually unfeasible in the short-term and not likely in the long-term. The speakers at the event were Marcos Troyjo, Jin Canrong, Kellie Meiman and Niu Haibin and comments were made by Lia Valls and Tatiana Prazeres. The event was coordinated by CEBRI Senior Fellow Tatiana Rosito.
Topic:
Science and Technology, Bilateral Relations, Finance, Trade Wars, Risk, and Trade
Political Geography:
China, Asia, North America, and United States of America

62. Can the US Development Finance Corporation Compete?

Author:
Charles Kenny
Publication Date:
10-2019
Content Type:
Research Paper
Institution:
Center for Global Development (CGD)
Abstract:
The new US International Development Finance Corporation (USDFC) will be considerably larger than its predecessor, and it will also be more focused on low and lower middle income countries. It will have new tools to deliver but face expanded competition. The major challenge to the DFC is not Chinese investment (which largely funds projects ill-suited to support from the DFC), but other development finance institutions, many of which are deploying increasing quantities of subsidized capital to attract project sponsors. It is not clear that there are sufficient suitable deals in the shrinking set of low and lower-middle income countries to absorb DFI development finance, and the USDFC could lose projects to subsidized finance from elsewhere if this turns out to be the case. Given that, it should be a priority for the United States to agree rules with other donors that prevent development finance institutions from competing on the basis of subsidy. The new DFC needs increased capacity to deliver deals: both the tools provided by the BUILD Act which are being constrained by the administration and the staff and budget to actively build a pipeline of projects. A considerably bolstered administrative budget may involve reducing –potentially to zero—the profitability OPIC traditionally enjoyed.
Topic:
Development, Governance, Finance, Institutions, and Private Sector
Political Geography:
North America and United States of America

63. Industrial Structure and Party Competition in an Age of Hunger Games: Donald Trump and the 2016 Presidential Election

Author:
Thomas Ferguson, Paul Jorgensen, and Jie Chen
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The U.S. presidential election of 2016 featured frontal challenges to the political establishments of both parties and perhaps the most shocking election upset in American history. This paper analyzes patterns of industrial structure and party competition in both the major party primaries and the general election. It attempts to identify the genuinely new, historically specific factors that led to the upheavals, especially the steady growth of a “dual economy” that locks more and more Americans out of the middle class and into a life of unsteady, low wage employment and, all too often, steep debts. The paper draws extensively on a newly assembled, more comprehensive database of political contributions to identify the specific political forces that coalesced around each candidate. It considers in detail how different investor blocs related to the Republican Party and the Trump campaign as the campaign progressed and the role small contributors played in the various campaigns, especially that of Vermont Senator Bernie Sanders. It also critically evaluates claims about the final weeks of the election in the light of important overlooked evidence.
Topic:
Economics, Political Economy, Elections, Finance, Donald Trump, Political Parties, and Banking
Political Geography:
North America, Global Focus, and United States of America

64. Too Big to Fail U.S. Banks’ Regulatory Alchemy: Converting an Obscure Agency Footnote into an “At Will” Nullification of Dodd-Frank’s Regulation of the Multi-Trillion Dollar Financial Swaps Market

Author:
Michael Greenberger
Publication Date:
06-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The multi-trillion dollar market for, what was at that time wholly unregulated, over-thecounter derivatives (“swaps”) is widely viewed as a principal cause of the 2008 worldwide financial meltdown. The Dodd-Frank Act, signed into law on July 21, 2010, was expressly considered by Congress as a remedy for the deregulatory problems, in that market, that led to the crash. The legislation required the swaps market, subject to U.S. regulation, to comply with a host of business conduct and anti-competitive protections, including that the swaps market be fully transparent to U.S. financial regulators, collateralized, and capitalized. The statute also expressly provides that it would cover foreign subsidiaries of big U.S. financial institutions if their swaps trading could adversely impact the U.S. economy or represent an attempt to “evade” Dodd-Frank.
Topic:
Regulation, Finance, Banks, Commodities, and Derivatives
Political Geography:
North America and United States of America

65. The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism

Author:
Jang-Sup Shin
Publication Date:
07-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper explains how hedge-fund activists are exerting power over corporate resource allocation far in excess of the actual voting power of their shareholdings. The power of these “minority-shareholding corporate raiders” derives from misguided regulatory “reforms” carried out in the 1980s and 1990s in the name of “shareholder democracy”. Sanctioned and overseen by the Department of Labor (DOL) and the Securities and Exchange Commission (SEC), these reforms include the introduction of compulsory voting by institutional investors and proxyvoting rule changes that greatly facilitated hedge-fund activists’ aggregation of the proxy votes of institutional investors. In addition, the introduction of the 1996 National Securities Markets Improvement Act (NSMIA) that allowed hedge funds to draw funds from institutional investors effectively with no limit also played an important role in the rise of hedge-fund activism. The paper concludes with policy proposals to rebalance value creation and value extraction by rebuilding the engagement and proxy voting system including (1) making it mandatory for shareholders to submit justifications in shareholder proposals on value creation or capital formation of corporations concerned; (2) removing voting as a fiduciary duty of institutional investors; (3) introducing differentiated voting rights that favor long-term shareholders; and (4) making it mandatory for both shareholders and management to reveal to the public what they discussed in engagement sessions.
Topic:
Economics, Regulation, Finance, Investment, Shareholder Democracy, Hedge Funds, and Value Extraction
Political Geography:
North America and United States of America

66. Financing Green Growth

Author:
Gregor Semieniuk and Mariana Mazzucato
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper surveys the current state of financing green growth in the energy sector, based on the insight that there are different qualities of finance. In past transformational changes in other sectors, public monies played a key role across the innovation landscape. Public financing was central also in a number of past national energy transitions, as reviewed here for Iceland (from fossil to geothermal energy), Norway (from mainly non-electricity energy to hydroelectricity), France (from oil to nuclear) and the United States (from conventional to shale gas). In the current transition to low-carbon energy supplies, there is much public activity, most directed and concerted in China, but also reasons to doubt it is enough and applied in the right places to be able to finance the transition to a low carbon sector on time scales consistent with current climate change mitigation targets. A discussion of opportunities and challenges to a more central role for public financing concludes, drawing also on insights from the recent mission-oriented innovation literature.
Topic:
Energy Policy, Finance, Green Technology, and Renewable Energy
Political Geography:
China, Europe, Asia, France, North America, Iceland, and United States of America

67. An Effective American Regime to Counter Illicit Finance

Author:
Joshua Kirschenbaum and David Murray
Publication Date:
12-2018
Content Type:
Policy Brief
Institution:
German Marshall Fund of the United States (GMFUS)
Abstract:
The United States’ anti-money laundering (AML) regime began with the goal of tracking the movement of physical cash to aid law enforcement investigations in the 1970s, has expanded since then to encompass an array of national security threats including transnational terrorism, and to a certain extent has adapted to the predominance of electronic banking. Yet the practice of AML has not caught up to policymakers’ demands that financial institutions track activity as diverse as kleptocracy and corruption, weapons proliferation, or foreign political interference in a contemporary environment of near-frictionless cross-border flows of funds. The U.S. AML regime of 2018, undergirded by the Bank Secrecy Act (BSA), requires banks and other “covered financial institutions” to maintain a risk-based program to detect suspicious activity.These programs involve, among other things, conducting customer due diligence, monitoring transactions, and filing suspicious activity reports. When the regime functions at its best, financial institutions provide information to the government that gives early warning of threats to U.S. national security. When the regime functions poorly, though, the United States and its financial sector are exposed to a wide variety of threats, and malicious behavior is enabled, including hostile acts by foreign states, malicious cyber activity, weapons proliferation, terrorism, and transnational organized crime. The AML regime has evolved significantly from its primordial incarnation, but that evolution is incomplete. For the AML regime to fulfill its promise as a core element of the national defense, it must reorient from a focus on supporting investigations after crimes have occurred toward a focus on identifying threats and facilitating their preemption. “Anti-money laundering” is no longer an apt description of the regime, because it captures only a fraction of the tasks that policymakers have given to it. The system is better thought of as a full-spectrum counter-illicit finance (CIF) regime, with threat recognition and interdiction and support for U.S. sanctions programs among its explicit goals. To fully transition from an AML regime to a full-spectrum CIF regime, the United States should take a holistic approach that prioritizes greater transparency, the exploitation of big data, and rationalization of the regulatory architecture in the interest of greater efficiency. The benefits of reform would be further multiplied should the United States succeed in working with the European Union and other partners to cement these reforms as international standards that are adopted universally. Collective action would both make reform “stickier” (even if the U.S. financial system declines in international importance over the long term) and make less likely the prospect that, motivated by a desire to avoid greater transparency and oversight, large-scale economic activity would shift to comparatively non-transparent, poorly regulated jurisdictions. This brief presents the five areas that represent that greatest potential return on reform.
Topic:
Finance, Financial Crimes, and Money Laundering
Political Geography:
United States of America

68. Dossier 7: The Imperialism of Finance Capital and ‘Trade Wars’

Author:
Tricontinental: Institute for Social Research
Publication Date:
08-2018
Content Type:
Working Paper
Institution:
Tricontinental: Institute for Social Research
Abstract:
One cannot look at Trump and his policies in isolation from the crisis of ‘trade wars’. Trump promised to ‘make America great again’. He wants to resolve the crisis for America caused by neo-liberalism without violating its core characteristic, which is free global mobility of finance. At Tricontinental: Institute for Social Research, we have wondered about the essential nature of these ‘trade wars’ that have broken out between key allies. We turned to Prabhat Patnaik, Professor Emeritus at Jawaharlal Nehru University (JNU) in New Delhi (India), for assistance.
Topic:
Imperialism, Finance, Conflict, and Trade Wars
Political Geography:
North America and United States of America

69. US Pharma’s Financialized Business Model

Author:
William Lozonick, Matt Hopkins, Ken Jacobson, Mustafa Erdem Sakinç, and Öner Tulum
Publication Date:
07-2017
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Price gouging in the US pharmaceutical drug industry goes back more than three decades. In 1985 US Representative Henry Waxman, chair of the House Subcommittee on Health and the Environment, accused the pharmaceutical industry of “gouging the American public” with “outrageous” price increases, driven by “greed on a massive scale.” Even in the wake of the many Congressional inquiries that have taken place since the 1980s, including one inspired by the extortionate prices that Gilead Sciences has placed on its Hepatitis-C drugs Sovaldi since 2013 and Harvoni since 2014, the US government has not seen fit to regulate drug prices. UK Prescription Price Regulation Scheme data for 1996 through 2010 show that, while drug prices in other advanced nations were close to the UK’s regulated prices, those in the United States were between 74 percent and 181 percent higher. Médecins Sans Frontières (MSF) has produced abundant evidence that US drug prices are by far the highest in the world. The US pharmaceutical industry’s invariable response to demands for price regulation has been that it will kill innovation. US drug companies claim that they need higher prices than those that prevail elsewhere so that the extra profits can be used to augment R&D spending. The result, they contend, is more drug innovation that benefits the United States, and indeed the whole world. It is a compelling argument, until one looks at how major US pharmaceutical companies actually use the profits that high drug prices generate. In the name of “maximizing shareholder value” (MSV), pharmaceutical companies allocate the profits generated from high drug prices to massive repurchases, or buybacks, of their own corporate stock for the sole purpose of giving manipulative boosts to their stock prices. Incentivizing these buybacks is stock-based compensation that rewards senior executives for stock-price “performance.” Like no other sector, the pharmaceutical industry puts a spotlight on how the political economy of science is a matter of life and death. In this paper, we invoke “the theory of innovative enterprise” to explain how and why high drug prices restrict access to medicines and undermine medical innovation. An innovative enterprise seeks to develop a high-quality product that it can sell to the largest possible market at the most affordable price. In sharp contrast, the MSV-obsessed companies that dominate the US drug industry have become monopolies that restrict output and raise price. These companies need to be regulated.
Topic:
Finance, Business, Drugs, Innovation, Pharmaceuticals, and Stock Markets
Political Geography:
North America and United States of America

70. Ethics vs. Ethos in US and UK Megabanking

Author:
Edward J. Kane
Publication Date:
05-2017
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Company law in the US and UK fails to acknowledge that authorities’ propensity to rescue giant banks from the consequences of insolvency assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions. The entrenched managerial norm of maximizing stockholder value lends a misplaced legitimacy to efforts by TBTF managers to take on dangerous levels of tail risk because their bank’s deep downside is effectively eliminated by the prospect of unlimited taxpayer support. Conventional tools of prudential regulation constrain but do not de-legitimate this behavior. To accomplish that end, this paper calls for: (1) a formal recognition of the fiduciary duties that TBTF firms owe to taxpayers and (2) criminalizing aggressive pursuit of safety-net subsidies as “theft by safety net.”
Topic:
Finance, Ethics, Banks, Banking, and Ethos
Political Geography:
United Kingdom, Europe, North America, and United States of America