Monday, November 29, 2004

Dutch study confirms Anglo-Saxon model is best for economy

A study by the Dutch Bureau for Economic Policy Analysis ("CPB") indicates that Optimal Growth of the Dutch Economy (GDP) is best achieved with Global Cooperation and an Anglo-Saxon markets-led economic system. The study presents four scenarios with plausible developments for the Dutch economy at the macro and the sectoral level until 2040:
  1. Regional Communities: low market-orientation, no reforms in Europe: GDP +0,7%/yr
  2. Strong Europe: low market-orientation, reforms in Europe: GDP +1,6%/yr
  3. Transatlantic Market: Anglo-Saxon model, poor European integraton: GDP +1,9%/yr
  4. Global Economy: Anglo-Saxon model, European integraton: GDP +2,6%/yr

However, the scenarios with high GDP growth are also characterised by more income inequality and less concern for the environment. Furthermore, ageing has a negative effect on labour supply and employment growth and on the ratio of the active to the non-active population in all scenarios. An increase in participation, especially of women and older workers, may counterbalance these effects. See for more information (only partly in English)

Wednesday, November 24, 2004

Restoring investors confidence and Value Based Management

Arthur Levitt Jr. (former chairman of the U.S. SEC) states in the Wall Street Journal of November 23st, 2004 that "The single greatest impediment to the restoration of confidence in corporate America is continuing instances of extravagant non-performance-based compensation. These huge paydays bolster a system in which executives have incentives to manage the numbers for short-term gain and personal payout, and not manage their business for long-term growth and shareholder value". (...) "The boardroom culture is fraternal, rather than skeptical. Therein lies the crux of the problem".

Levitt's statement reminds me of something President Bush said 2 years ago: "At this moment, America's highest economic need is higher ethical standards - standards enforced by strict laws and upheld by responsible business leaders" (Corporate Responsibility speech, July 9th, 2002).

I agree with Levitt that the crux is rather that some CEO's in the past have been allowed to get away with managing for short-term incentives (by over-cozy boards and over-greedy shareholders) than an ethical problem per sé.

Some business ethics education surely doesn't hurt for those who need it, but indeed the core of the strategy for corporate America to restore investors confidence must be implementing Value Based Management: managing corporations for long-term shareholder value. Boardroom culture, executive compensation, corporate laws and accounting methodologies should all be in concert with this paradigm.