A new business model?

The paper delivers an analysis of the “New Economy” focussing on the roles of new business models, the capital market and venture capital. The capital market created a double standard in the 1990s: A high return on capital was required from old economy firms whereas money was thrown at new economy firms which had a business idea that stimulated the fantasies of financial investors but no earnings. Through the gradual burst of the tech stock bubble since spring 2000 it has come to the eyes of the public that many new economy start ups were unable to recover their costs. This paper shows that business models related to the internet can only work under certain conditions. The sectoral distribution of power, for example, determines the prospects of the single firms to realise e-commerce in a profitable way. Digital technologies do not necessarily enhance profitability. On the contrary, they can increase competition and lead to lower profit rates. The limitation of competition appears to be a central condition of successful cost recovery. The venture capital cycle has been an important driving force of the new economy boom, but it can also be momentum of a longer crisis. Enormous amounts of money have been channeled to new economy start ups hoping that successful IPOs will one day give venture capitalists a high return. But the burst of the bubble has brought down the IPO activity and interrupted the valorisation cycle of venture capital. Financial investors have reacted to the crisis by shifting their capital to even riskier investments, as the come-back of hedge funds indicates. --

Private equity and the concept of brittle trust

This paper focuses on private equity in the UK and is set in the context of debates about transformations in the City of London and the financial services sector specifically. The article focuses on a particular concept of trust as expressed by senior members of the private equity sector. The argument developed is based on interviews with five senior founding partners of private equity firms who talked to us about their background and education, their understanding of how private equity worked and the basis for successful money making and their relationships with those inside and outside the organisation. All interviewees strongly asserted the need for absolute trust between senior partners as an essential condition for the successful operation of their business. At the same time, their description of trust in this context was that while it is deep, it is also easily broken, and that once broken, the breach cannot be forgiven. We call this ‘brittle trust:’ asserted to be simultaneously strong while extremely fragile. The paper argues, drawing on Diego Gambetta’s work on the Sicilian Mafia, that this concept of ‘trust’ reflects a particular understanding of the practice of private equity as a high risk, tough and unforgiving business that nevertheless requires high standards of personal integrity. The study allows us to understand something more about the social ideals that were built into this financial sector by its founders, which we argue formed a crucial part of the transformation of the financial sector.Peer reviewe

Manchester’s transformation over the past 25 years: why we need a reset of city region policy

Since the abolition of Manchester’s city region government by Margaret Thatcher in the 1980s, councillors and officers have been sponsoring the transformation of the city by private property developers. Peter Folkman, Julie Froud, Sukhdev Johal, John Tomaney and Karel Williams explain the unrecognised and unintended consequences of this transformation

A new business model?

"The paper delivers an analysis of the 'New Economy' focussing on the roles of new business models, the capital market and venture capital. The capital market created a double standard in the 1990s: A high return on capital was required from old economy firms whereas money was thrown at new economy firms which had a business idea that stimulated the fantasies of financial investors but no earnings. Through the gradual burst of the tech stock bubble since spring 2000 it has come to the eyes of the public that many new economy start ups were unable to recover their costs. This paper shows that business models related to the internet can only work under certain conditions. The sectoral distribution of power, for example, determines the prospects of the single firms to realise e-commerce in a profitable way. Digital technologies do not necessarily enhance profitability. On the contrary, they can increase competition and lead to lower profit rates. The limitation of competition appears to be a central condition of successful cost recovery. The venture capital cycle has been an important driving force of the new economy boom, but it can also be momentum of a longer crisis. Enormous amounts of money have been channeled to new economy start ups hoping that successful IPOs will one day give venture capitalists a high return. But the burst of the bubble has brought down the IPO activity and interrupted the valorisation cycle of venture capital. Financial investors have reacted to the crisis by shifting their capital to even riskier investments, as the come-back of hedge funds indicates." (author's abstract)"Die Autoren liefern einen Beitrag zum Verständnis der 'New Economy', indem sie die Bedeutung neuer Geschäftsmodelle, nämlich des Kapitalmarkts und des Risikokapitals, herausarbeiten. Der Kapitalmarkt operierte in den 1990er Jahren mit zweierlei Maß: Von Unternehmen der 'Old Economy' wurden hohe Kapitalrenditen gefordert, während Unternehmen der 'New Economy' es leicht hatten, Geld zu bekommen, sofern sie nur eine Geschäftsidee hatten, die die Phantasie der Finanzinvestoren stimulierte. Durch den Kursverfall der 'Technologieaktien' seit dem Frühjahr 2000 wurde deutlich, daß viele 'Start-up'-Unternehmen der New Economy unfähig waren, ihre Kosten zu decken. Die Autoren zeigen, daß Geschäftsmodelle, die sich auf das Internet beziehen, nur unter bestimmten Bedingungen profitabel sind. Die sektorale Machtverteilung entscheidet beispielsweise über die Chancen von Unternehmen, den E-Commerce in profitabler Weise zu nutzen. Digitale Technologien können auch die Konkurrenz verschärfen und zu sinkenden Profitraten führen. Die Begrenzung der Konkurrenz ist eine zentrale Voraussetzung erfolgreicher Kostendeckung. Der Zyklus der Risikokapitalinvestitionen war eine wichtige Triebkraft des New- Economy-Booms, aber er könnte sich ebenso als Moment einer länger andauernden Krise erweisen. Enorme Beträge wurden in der Hoffnung in die 'Start-ups' der New Economy gelenkt, daß erfolgreiche Börsengänge den Risikokapitalisten eines Tages hohe Gewinne bescheren würden. Seitdem die spekulative Blase an den Aktienmärkten geplatzt ist, gibt es kaum noch Börsengänge, so daß der Verwertungszyklus des Risikokapitals unterbrochen ist. Finanzinvestoren haben auf die Krise reagiert, indem sie ihr Kapital auf noch riskantere Investments verlagert haben, wie das Comeback der Hedgefonds zeigt." (Autorenreferat

Trade sustainability impact assessment (SIA) on the comprehensive economic and trade agreement (CETA) between the EU and Canada: Final report

Commissioned by the European Commission, the Final Report for the EU-Canada Sustainability Impact Assessment (SIA) on the EU-Canada Comprehensive Economic and Trade Agreement (CETA) provides a comprehensive assessment of the potential impacts of trade liberalisation under CETA. The analysis assesses the economic, social and environmental impacts in Canada and the European Union in three main sectors, sixteen sub-sectors and across seven cross-cutting issues. It predicts a number of macro-economic and sector-specific impacts. The macro analysis suggests the EU may see increases in real GDP of 0.02-0.03% in the long-term from CETA, whereas Canada may see increases of 0.18-0.36%. The Investment section of the report suggests these numbers could be higher when factoring in investment increases. At the sectoral level, the study predicts the greatest gains in output and trade to be stimulated by services liberalisation and by the removal of tariffs applied on sensitive agricultural products. It also suggests CETA could have a positive social impact if it includes provisions on the ILO’s Core Labour Standards and Decent Work Agenda. The study also details a variety of impacts in various “cross-cutting” components of CETA. It finds CETA would stimulate investment in Canada, and to a lesser extent in the EU; and finds costs outweigh the benefits of including controversial NAFTA-style investor-state dispute settlement (ISDS) provisions in CETA. It predicts potentially imbalanced benefits from a government procurement (GP) chapter. The study assumes CETA will lead to an upward harmonisation in intellectual property rights (IPR) regulations, particularly in Canada, which will have a number of effects. It predicts some notable impacts in terms of competition policy, as well as trade facilitation, free circulation of goods and labour mobility.EU-Canada Sustainability Impact Assessment; SIA; EU-Canada Comprehensive Economic and Trade Agreement; Comprehensive Economic and Trade Agreement; CETA; government procurement; investor-state provisions; ISDS; competition policy; Dan Prud'homme; trade impact assessment

Foundational economy and foundational politics

Non

Recurrent dust formation by WR 48a on a 30-year timescale

We present infrared photometry of the WC8 Wolf-Rayet system WR 48a observed with telescopes at ESO, the SAAO and the AAT between 1982 and 2011 which show a slow decline in dust emission from the previously reported outburst in 1978--79 until about 1997, when significant dust emission was still evident. This was followed by a slow rise, accelerating to reach and overtake the first (1978) photometry, demonstrating that the outburst observed in 1978--79 was not an isolated event, but that they recur at intervals of 32+ years. This suggests that WR 48a is a long-period dust maker and colliding-wind binary (CWB). The locus of WR 48a in the (H-L), K colour-magnitude diagram implies that the rate of dust formation fell between 1979 and about 1997 and then increased steadily until 2011. Superimposed on the long-term variation are secondary (`mini') eruptions in (at least) 1990, 1994, 1997, 1999 and 2004, characteristic of relatively brief episodes of additional dust formation. Spectra show evidence for an Oe or Be companion to the WC8 star, supporting the suggestion that WR 48a is a binary system and indicating a system luminosity consistent with the association of WR 48a and the young star clusters Danks 1 and Danks 2. The range of dust formation suggests that these stars are in an elliptical orbit having e ~ 0.6. The size of the orbit implied by the minimum period, together with the WC wind velocity and likely mass-loss rate, implies that the post-shock WC wind is adiabatic throughout the orbit -- at odds with the observed dust formation. A similar conflict is observed in the `pinwheel' dust-maker WR 112.Comment: 15 pages, 8 figures, accepted for publication in MNRA