Domestic Outsourcing, Rent Seeking, and Increasing Inequality

An increasing share of the economy is organized around financial capitalism, where, in contrast to the past, capital market actors actively assert and manage their claims on wealth creation and distribution. These new actors challenge prior assumptions of managerial capitalism about the goals and governance of firms. The focus on shareholder value is credited with increasing firm efficiency and shareholder returns. This lecture analyzes the changes in organizational behavior and value extraction under financial capitalism

What's Behind the Increase in Inequality?

The focus of this paper is the increase in earnings inequality over the last 30-plus years. Economists have well-developed theories that explain differences in wage levels among different categories of workers. Differences in educational attainment and skills are a major source of these differences; large organizations typically employ workers with a wide range of skills and responsibilities and pay them accordingly. As a result, the level of wage inequality within organizations is quite large. This paper does not challenge these results. It argues, however, that these theories are not adequate to explain a relatively recent phenomenon: the increase in recent decades in wage inequality among workers with similar levels of education and similar demographic characteristics who are employed in similar occupations but in different firms or establishments. These differences in wages are how most people experience inequality. Yet much of the analysis by economists has focused on developments that have enabled leading firms in the U.S. to increase their ability to extract monopoly rents.This paper reviews a wide-ranging literature that examines the increased ability of leading firms to extract monopoly rents. It also reviews the more recent and still thin literature on the increase in inequality among workers with similar characteristics but different employers. The contribution of this paper is the identification of a mechanism that reconciles these two strains of economic research and explains how the increase in rent extraction is linked to the increasingly unequal pay of U.S. workers with similar characteristics. I draw on joint work with Rosemary Batt (2014) to identify new opportunities for rent seeking behavior, and on joint work with Annette Bernhardt, Rosemary Batt and Susan Houseman (2016, 2017) on domestic outsourcing, inter-firm contracting and the growing importance of production networks to establish a mechanism that connects the increase in rents with this new type of increase in wage inequality

Outsourcing And Public Sector Efficiency: How Effective Is Outsourcing In Dealing With Impure Public Goods?

The debate on new public management, together with the shortage of public funds, has had a considerable impact on public administration. Accordingly, many governments have searched positive impacts on the efficiency, equity and quality provision of public services through increasing competition and active participation of the private sector, considering outsourcing as the appropriate instrument to attain such endeavor. However, private involvement in public services provision is controversial. While, on the one hand it is touted as a way to increase efficiency and accountability by turning over choices to individuals in the market place, on the other hand, some argue that it has the potential to produce considerable fraud and corruption if managerial control by the public sector is weak. So, given this context, we aim to assess the private involvement in public services in efficiency terms, putting aside ideological considerations. So, after the introduction, we present a definition of public goods and we characterize their different types, with particular emphasis on “impure” public goods. Section 3, focuses on market failures together with equity considerations as the main reasons that configure the role of the public sector in providing impure public goods, as well as on the possibility of government failures. Section 4 deals with the benefits and costs of outsourcing in the public sector. Section 5 describes the most frequent forms of private sector involvement in the provision of impure public goods, as well as the advantages and disadvantages of the different options. Section 6 carries out some comments on the need for regulation. Finally, section 7 concludes.Contracting out, impure public goods, market/government failures, private sector involvement, public sector

The impact of business process outsourcing on firm performance and the influence of governance : a long term study in the German banking industry

Does BPO pay off at the firm-level? Although there are several studies which analyze the potential benefits of BPO, there is a virtual absence of research papers on BPO outcomes. Based on an analysis of 137 Business process outsourcing (BPO) ventures at 254 German banks in a period between 1994 and 2005, we found that the outsourcer's financial performance in terms of profitability and cost efficiency was increased significantly compared to industry peers without BPO. The increase stems not from workforce reductions but rather from increased employee productivity. Further, we show how BPO governance ensures BPO success: individually negotiated outsourcing contracts help to improve cost efficiency and profitability measures. Relational governance based on trust has only positive effects on profitability. Keywords: Business Process Outsourcing, firm performance, firm characteristics, banking, German banks, governance JEL Classifications: G21, L14, L21, L2

The Distorting Arm's Length Principle

To prevent profit shifting by manipulation of transfer prices, tax authorities typically apply the arm's length principle in corporate taxation and use comparable market prices to 'correctly' assess the value of intracompany trade and royalty income of multinationals. We develop a model of heterogeneous firms subject to financing frictions and offshoring of intermediate inputs. We find that arm's length prices systematically differ from independent party prices. Application of the principle thus distorts multinational activity by reducing debt capacity and investment of foreign affiliates, and by distorting organizational choice between direct investment and outsourcing. Although it raises tax revenue and welfare in the headquarter country, welfare losses are larger in the subsidiary location, leading to a first order loss in world welfare.Corporate tax, transfer prices, arm's length principle, outsourcing, foreign direct investment, corporate finance

Municipal services: organisations, companies and alternatives

A review of the impact of international institutions and multinational companies on municipal services worldwide, and of campaigns for alternatives

RECENT AUSTRALIAN EXPERIENCE WITH THE PRIVATISATION OF GOVERNMENT SERVICES

In the 1990s, the privatisation of government service provision has become increasingly common in Australia. The approach taken by Australian policy-makers to the privatisation of government services has been dominated by the ‘pure market’ model of competitive tendering, with little recognition that this model may be inappropriate under circumstances, such as severe performance specification and measurement difficulties, which are quite commonplace in the public sector. Competitive tendering for the delivery of outcomes rather than outputs enjoys some favour in this context. A case study of government service privatisation based upon contracting for outcomes is considered. This case study (of employment assistance) helps to clarify some of the problems of outcome-based contracting. Please note that this paper was prepared and presented in August 1998, and that the employment assistance case study represented a preliminary review of issues arising from a scheme which was at that stage very new. Since that time, the Government has made major changes to the system, in part along the lines suggested by the analysis in the paper. For example, a ‘floor’ or minimum bid price has been introduced, so as to prevent the lodging of unsustainably cheap bids. However, it is also the case that considerable further data on the performance of the new system has become available, and it should be noted that no attempt has been made here to analyse that data.

Private Sector Participation in the Water and Wastewater Services Industry

Countries introduce private sector participation into the water and wastewater utilities sector for a number of reasons. The introduction of a profit motive may increase efficiency as compared to public management of the water system, and private firms have been noted for customer service improvements. Financial considerations, including revenues from the sale of assets and reductions in the direct cost of providing water services, may also motivate governments to introduce private sector participation in this industry. However, because water is a basic human necessity, the introduction of private participation in this industry sector may raise social, economic, and national security concerns. Private participation in the global water and wastewater industry can take a number of forms including privatization, greenfield projects, concessions, leases, operation and management contracts, and outsourcing and most countries employ a mix of methods. A handful of European firms dominate trade and investment in the global water and wastewater utilities market.water, wastewater, environmental services, private sector participation, Public Economics,