Political Decoupling: Private Implementation of Public Policy

Where policy goals can be achieved through regulation of private firms, private provision of public services allows governments to separate public policies from their political costs by shifting those costs to the private sector. Over the past three decades, financial decoupling has emerged as a regulatory strategy for promoting conservation, especially in the energy sector. Decoupling refers to the separation of a firm’s revenues from the volume of its product consumed, which allows companies to pursue resource efficiency free from financial risk. Similarly, when private firms provide public services, they separate public policies from their political costs. This political decoupling allows governments to pursue controversial policies while avoiding their attendant political risks. Applied to environmental policy, this theory implies that potentially unpopular conservation policies are more likely to be adopted and succeed when implemented through private firms. As an initial test of the theory, we analyze California water utilities and their responses to that state’s drought from 2015–2017. Analysis shows that, compared with those served by local government utilities, private utilities adopted more aggressive conservation measures, were more likely to meet state conservation standards, and conserved more water.     

Explanations of firm survival in renewable energy in the United States: a study of ethanol refineries

ABSTRACT

Firm survival is key in understanding the evolution of industries and the larger economy. Although exit and entry are common occurrences during an industry’s life cycle, it is not always easy to predict who will survive. Literature suggests a range of factors, both internal and external to the firm, and corresponding measures as determinants of survival or exit. However, these measures do not directly explain firm-level strategies such as internal adjustments to external conditions. In this paper, we use the U.S. biofuel industry to examine firm survival. As a resource-based industry focused on process innovation, biofuel production attracted farmer-entrepreneurs and related-industry investors after policies mandates and subsidies generated a dedicated market for the fuel. Despite support, not all firms survived a period of industrial sorting that followed the 2007–2008 recession. This study shows that local connections/embeddedness, knowledge base and knowledge sharing, and entrepreneurial efforts were critical for firm survival in addition to age, capacity, ownership, and location.     

SUBSIDIES,ADDITIONALITY AND FINANCIAL CONSTRAINTS: A COMRIENT ON WREN*

ABSTRACT. This paper comprises a detailed investigation of the properties of the analytical model introduced in Wren (1994) to evaluate the effect of industrial subsidies on firm employment. We deal specifically with the link between additionality and whether the firm is finance constrained, adding a more flexible formulation for the financial constraint than the two given in Wren. We use the model to question Wren's view that additionality will be greatest in financially constrained firms. We argue that financial constraints potentially restrict leverage and therefore in important, relevant circumstances, limit the effectiveness of subsidies.     

Developing cross-industry innovation capability: regional drivers and indicators within firms

ABSTRACT

The role of firms in the process of regional renewal and path development is a somewhat neglected area in the existing literature. With few exceptions, the literature is mainly concerned with aggregated development paths. To cover this gap, the current study turns its attention to cross-industry innovation capability (CIIC) building in firms and discusses how conditions for innovation and learning in a region drive this process. We introduce a new concept of CIIC – that is, the firm’s ability to transform knowledge and ideas from different industries into new products, processes and systems and/or its ability to adapt existing products, processes and systems to new industries – and identify its drivers and indicators. The discussion is supported by empirical studies of firms in three Norwegian case regions that undergo the restructuring process due to the recent severe decrease in oil prices. Our empirical data demonstrate that organizationally thick and diversified regions are more favourable for firms’ abilities to develop CIIC and cross-industry innovation activity. As a result, we emphasize that future regional policies should have a stronger focus on the linkages between internal firm characteristics and regional innovation systems to contribute to the firms’ absorptive capacity for developing cross-industry innovation.     

The Role of Additionality in the EU Cohesion Policies: An Example of Firm-Level Investment Support

Additionality is one of the key principles driving the functioning of the EU cohesion policies (ECP). The present paper studies how additionality affects the impact of firm-level investment support on firm investment behaviour in differently competitive markets. We find that the investment additionality and the level of competition importantly affect the firm investment behaviour. Imposing additionality on the ECP investments in perfectly competitive markets causes distortions in the capital market and leads to lower welfare levels. In contrast, without the enforcement of additionality, the distortions are zero and the investment support fully benefits the firms. In an imperfectly competitive environment, the firm-level investment support may increase investment and may be welfare increasing with and without the enforcement of the investment additionality.     

BUSINESS AND THE NORDIC WELFARE STATES, 1890-1970

Social scientists have, since the 1990s, shown an increasing interest in the role of business actors in welfare state development, and these debates provide many opportunities for historians of the Nordic countries to contribute with their insights and findings. This special issue brings together six historical studies on the role of business in the development of the welfare states in the Nordic countries, including the role of firms as providers of company welfare as well as the activities of firms and of business interest groups to influence policies and public opinion. Two observations stand out. First, the contributions draw a picture of a gradual shift in this period from that of fundamental opposition, which often dominated up to the mid-20th century, to a more pragmatic approach of cooperation. Cooperation in policy-making co-existed with confrontation in public debate, in which business interest groups promoted alternatives to ‘big government’. Second, these studies underline the value of paying attention to what Reinhart Koselleck called ‘horizons of expectations’. These historical studies show how the vocabulary of the actors changed in this period, and how business interest groups not only influenced political decisions but also adapted their expectations to changes in the political context.     

EMBEDDED AND DISEMBEDDED PRACTICE IN THE FIRM–PLACE NEXUS: A STUDY OF TWO WORLD‐LEADING MANUFACTURERS OF SKI EQUIPMENT IN THE LILLEHAMMER SKI CLUSTER

Studies of agglomerations and clusters in economic geography anticipate strong interdependency between firms and places. However, despite the extensive literature, we lack a coherent micro‐theoretical foundation. The relationship between the rationales and practices of firms remains somewhat unspecified. In this article, we analyse the diversity of rationales and practices in a firm–place nexus. Possible rationales for firm practice are outlined, examining the assumptions of three, main theoretical perspectives in economic geography. This microeconomic approach is applied through an analysis of the two key firms in the Lillehammer skiing industry cluster in Norway. The study contributes to a more nuanced understanding of how the agency of firms influence and are influenced by co‐location.     

A THEORETICAL FRAMEWORK FOR SMALL BUSINESS POLICY

A number of public policy issues have been discussed in this article, the most important of which are: 1. Small business would not need special consideration if our economy were basically a competitive one. 2. A large and growing segment of our economy has sufficient market and political power to make our economy basically non-competitive. 3. Small firms tend to provide price competition, to lead in the development of new products and processes, and to generate new innovations and new employment. 4. Government policy tends to create artificial economies of scale, giving an unwarranted advantage to the very large firm. As a first approximation, a policy of government neutrality on firms of varying size is needed. But, because of discriminations which already exist which favor large firms over small firms, special small business programs may be necessary to provide an equitable policy base. Unfortunately, programs designed to benefit all business, like the investment tax credit, tend to primarily benefit larger firms (Berney, 1979). This is the case for two reasons. First, there is a basic difference in production relationships: large firms tend to be more capital intensive and small firms more labor intensive. Second, the more complex a rule or regulation, the more costly it is for small business to use it. Consequently, even the employment tax credit, which should benefit the small firm is not used by them. Instead, it tends more to benefit the larger firm. Neutrality, as a governmental policy, would appear to demand different treatment for firms of varying size. As an example, the “regulatory flexibility” concept applies different standards to different sized firms so that the burden of regulation is more equitably distributed. The concept of encouraging or requiring financial institutions and other lenders to establish “dual prime rates” is a further example. Since small firms appear to have much higher debt to equity ratios and rely more heavily on shorter-term bank credit, they are more heavily burdened by a tight money policy which forces increases of interest rates. Thus, dual prime rates help to spread the burden of rising interest costs more equally. As many people prefer to work for themselves, equalizing the burden of government policy could only serve to increase the basic growth rate for small business, thus providing an easier start for entrepreneurs and would encourage a more rapid rate of economic growth. None of these discussions, however, argues that small business should be protected from failure. The more efficient firms will succeed and prosper, and the least efficient will not. Many currently successful entrepreneurs learn how to improve their production processes or managerial skills from their failures. What is being recommended as a first step is that government should concentrate on equalizing burdens and benefits in order to achieve true neutrality. If private economies of scale do indeed exist, new firms must grow to survive; what the government should not create are artificial economies of scale with public policy. A strong argument for further action can also be made: it appears that significant external benefits are produced by an economic system with a dynamic small business sector. Since these benefits go to society as a whole rather than entrepreneurs alone in the form of increased profits, a freely operating market without government assistance does not generate as many new small businesses as would be optimal for our society. To internalize the benefits that come from small business, governmental programs need to be devised to increase the rate of return on new, innovative small businesses. Should this happen, we could then anticipate increased rapid rates of innovation and technological change, more rapid rates of employment growth, expanded price competition in all sectors of the economy, and improved export capabilities, in short, true flexibility in our capitalistic system.     

沉没成本、制度环境与企业出口地理动态

本文使用2002-2011年中国海关出口数据,探究成本视角下企业出口地理动态和作用机制。实证结果表明企业出口活动和邻近企业溢出均对企业在出口市场上的进入和退出存在显著双面性影响：企业出口活动不利于企业进入新市场,但利于企业继续留在国外已有市场中;邻近企业溢出为企业进入新市场创造了有利条件,但加快了企业从已有市场退出。本文还发现在市场化程度较低和政府干预程度较高的地区,企业出口活动和邻近企业溢出发挥的“双面性”影响明显。这意味地方制度环境能影响中国企业出口地理动态,塑造了企业出口的动机和策略。     

The Urban Emergence of a New Information Industry: Sydney's Multimedia Firms

This paper analyses the multimedia industry in Sydney. It seeks to understand whether the emergence of the industry has involved dense horizontal and vertical inter‐firm linkages characteristic of an industrial cluster, or whether the industry has grown because of general urbanisation economies related to such factors as skilled labour supply and market demand. The industry is highly concentrated in and around central Sydney. This provides the best access to firms’ main clients, notably advertising companies and other multimedia firms. It also reflects the centralised location of skilled labour such as web designers. While there is evidence of an emerging inner Sydney multimedia cluster which includes graphic design and advertising and related media, the main driver of the industry's development appears to have been general demand from advertising and related media companies, in association with the pool of computer graphics talent generated by these companies.     

Beyond the local: places,people, and brands in New England beer marketing

Despite decades of domination by a few large companies, the American beer market has seen a dramatic resurgence of microbreweries. Contrary to conventional oligopolistic market theories, small firms have consistently gained market share from their entrenched competitors. Researchers have attributed this success to “neolocalism.” Through their marketing, microbreweries appeal to consumers’ desire for connections to real people and distinctive products from local places. However, no study has verified whether this pattern is most characteristic of microbreweries. With newer firms threatening their market share, larger firms might adopt neolocal claims, but little empirical attention has been directed at large brewers, and mid-sized, regional firms have been largely ignored by researchers. This paper uses content analysis of beer packaging to investigate the nature of the appeals made to consumers. I find that while microbreweries do make neolocal claims, regional breweries are more likely to associate their products with places on a local scale. Large breweries make few such claims, but instead rely on “reflexive branding”: marketing that refers back to the brand itself rather than borrowing existing symbolism from people or places. These findings partly support the neolocal perspective, but also challenge our expectations of which firms use neolocal appeals the most.     

Localized mobility clusters: impacts of labour market externalities on firm performance

This article analyses the impact of labour market-induced externalitieson firm performance by using a unique database that connectsattributes of individuals to workplaces for the entire Swedisheconomy. Based on the analysis of 256,985 workplaces, our resultsshow that firms belonging to networks of local job mobility(i.e. ‘localized mobility clusters’) significantlyoutperform other similar firms within the local labour market.The results also indicate that concentrations of similar andrelated firms do not explain any considerable part of the variationsin firm competitiveness. Labour market externalities derivedvia local job mobility produce significantly more powerful effectsfor the involved firms as compared to the degree of co-location,diversity and scale.     

An Innovation-based industrial strategy for the new German Lander

This paper argues that firms in the new German Lander must rapidly adopt an industrial innovation strategy if they are to complete in the Single European Market and regain lost markets in Central and Eastern Europe. The new Lander have experienced a major de-industrialization and relatively slow new firm formation. As most existing firms lack innovative potential, progress calls for public support. This paper outlines the necessary elements of a development strategy aimed at boosting innovation in former East Germany.     

Picking 'winners' in space: Impact of spatial targeting on firm performance in China

This paper examines the spatial patterns of China's industrial encouragement policy and its distributional impact on firm productivity. To this end, I develop separate proxies to measure three popular policy instruments (subsidies, tax holidays, and preferential access to loans). I first show that China's industrial support policies tend to exhibit a prominent spatial feature of targeting firms located in lagging cities with lower density. Taking into account potential endogeneity of industrial policy, unobserved heterogeneity and firm dynamics, quantile regression techniques show that more intense industrial support leads to: (a) a reduction in the productivity of lower-performing firms, especially in denser cities; and (b) a small productivity gain for better performing firms but only in denser cities. Counterfactual analysis further reveals that pursuing an alternative, space-neutral industrial encouragement policy would increase average productivity by 14–16%, in aggregate, but also contribute to significantly higher regional inequality.     

Agglomeration,foreign firms and firm exit in regions under transition: the increasing importance of related variety in Hungary

ABSTRACT

Related variety of economic activities is widely recognized to induce regional development; however, it is not clear how this mechanism takes place in regions that go through major structural and institutional transformation. Furthermore, foreign direct investment (FDI) is typically a major source of structural change in these areas; and we still need a better understanding on how foreign-owned (foreign) firms affect the dynamics of domestic-owned (domestic) companies. For these reasons we analyse firm-level exit in Hungarian city regions between 1996 and 2011, over the late post-socialist transition in manufacturing industries, focusing on the difference between foreign and domestic firms. Introducing ownership into the related variety calculation, we estimate the probability of firm exit with the region-level related variety calculated separately for foreign and domestic firms. Our results suggest that related variety of foreign firms decreases the probability of domestic firm exit earlier during the economic transition compared to the related variety of domestic firms. This finding supports the idea that FDI plays a formative role in regions under transition, and shows that domestic firms benefit from being in agglomerations where foreign firms are technologically related to each other.     

上海陆家嘴金融集聚动因的实证研究

本文利用陆家嘴金融创新问卷调查和面对面访谈等实地调研资料,对上海陆家嘴的金融集聚动因进行了较为深入的探讨。研究发现,邻近金融中心市场、共享知名品牌、金融友善型政府、良好的政策法规是促进其金融集聚的主要动因;而我国金融政策环境开放度不高、金融产业水平较低、市场规模不大、中介服务机构不足则正成为影响陆家嘴金融集聚的主要不利因素。     

‘Milking The Elephant’: Financial Markets as Real Markets in Kenya

Financial liberalization policies in the 1990s were intended to raise formal sector interest rates, enhance competition and expand access for users. This article investigates patterns of provision and use in a local financial market in Karatina, Kenya, at the end of the 1990s after a period of financial and economic liberalization. It takes a holistic approach, examining both formal and informal financial arrangements and microfinance interventions. This is because the role of the informal financial sector is particularly important for poor people and has received relatively little attention in the discussion of the consequences of reform. The author does this using a ‘real’ markets approach that sees markets as socially regulated and structured. Significant provision by the mutual sector (formal and informal), and poor lending performance by the banking sector is explained through an examination of the characteristics of the services on offer and their embeddedness in social relations, culture and politics.     

Digital gravity? Firm birth and relocation patterns of young digital firms in Germany

This paper analyses the spatial patterns of young (<10 years) digital firms in Germany between 2008 and 2017 on county level. Determinants of firm birth locations as well as relocations are considered jointly to understand differences in location choices within firms' life cycles. I match commercial register data of 107,321 firms with county-level administrative data to capture local characteristics. Using an OLS model with fixed effects, I find that the local knowledge base—that is, universities, research institutes, and colocated incumbents—are significant key determinants of digital firm birth when controlling for a host of local characteristics. My results indicate that for five firms per 1000 inhabitants, there is around one firm birth. Second, using a fixed effects gravity model for the analysis of relocations, I find that the most dominant explanatory factor for firm relocation across specifications is distance, that is, relocation costs. Relocation flows are more than twice as high to neighboring counties relative to other locations which shows that digital firms are not as footloose as their business model may suggest. Jointly, my results reflect economic activity's regional persistence, particularly for new firms. My paper provides evidence for policies targeting homogenous digital clusters based on strong colocation and that digital economic activity is not shifted over long distances, but the regional entrepreneurship capital is crucial for local growth.     

Foreign-owned Firms' Campaign Contributions in the United States: An Exploratory Study

This study extends previous empirical work on corporate political activity by examining which foreign-owned firms provide campaign contributions to United States legislators. While numerous studies have examined which domestic firms make campaign contributions, little is known about the propensity of foreign-owned firms to make contributions. Using logit and Tobit analyses, the findings suggest that firm size, legislative issues, foreign ownership, and cultural characteristics are important determinants of a foreign-owned firm's political strategy. The findings also suggest that there are strong parallels between the political strategies of foreign-owned firms and domestic firms.     

Who needs a review of the financial system in Australia? the case of the Wallis inquiry

The Howard government reoriented the then existing institutionally based financial regulation towards a functionally based regime with new prudential and disclosure regulators in 1998. This paper uses the governmental agenda-setting framework of John Kingdon to explain this financial regulatory change undertaken in Australia following the Wallis Inquiry of 1996. It also examines the role of the Inquiry in the policy process. It shows that the financial regulatory change was on the bureaucratic agenda of the Treasury Department. A window of opportunity opened for the Treasury following the 1996 election, with the new Howard government keen to achieve financial regulatory reforms to address future regulatory challenges proactively while the new Treasurer Peter Costello wanted to consolidate his power within markets and politics. Costello coupled the Treasury's solutions to problems and to political processes. The Wallis Committee was ‘packed’ by the government in accordance with its regulatory policy preferences. Its role was to legitimise the government's policy preferences publicly, and to transfer the ‘governmental agenda’ into the ‘public agenda’. However, this was not a case of the government pressuring for its policy preferences over the financial services industry. In fact, the Inquiry was used as a venue to generate industry and public support for the regulatory changes, and was used to build a network of alliances within and outside the parliament.