The economics of austerity

The 2007/8 financial crisis has reignited the debate about austerity economics and revealed that it is a highly contested yet poorly understood idea. This article locates the debate in its historical context, tracing it from the early 18th and 19th century Classical debates, which focused mainly on the means by which fiscal deficits should be financed. As capitalism evolved, so did ideas and theories about the economics of austerity. Following World War One, concerns about high levels of government debt produced the 1920s ‘Treasury view’ – that government deficits are economically damaging and austerity is required to rein them in. During the 1930s Great Depression, when unemployment was the main concern, this perspective was challenged by the ‘Keynesian view’ – that government deficits could be economically beneficial during the slump, when the private sector was unable to generate sufficient effective demand to pull the economy out of depression. From this perspective, austerity was the policy prescription for the top of the business cycle, to prevent the economy from overheating and igniting inflation. The ‘stagflationary’ crises of the 1970s challenged this view; and during the decades preceding the 2007/8 crisis, austerity was considered to be a policy for the bottom of the business cycle, when the excesses of a bubble-inflated boom had been revealed by its collapse. In the aftermath of the 2007/8 financial crisis, however, austerity no longer has the economic objective of macroeconomic stabilization. Instead, it has become the objective itself – demanded by actors in the international financial markets as evidence that governments are serious about managing their deficits and paying back their debts, thereby protecting the financial interests of investors in sovereign debt. However, if austerity undermines economic growth – as it is doing at present – markets are unlikely to remain loyal to those countries suffering the effect. It is therefore important that policy-makers and political leaders learn the lessons of the 2007/8 financial crisis with regard to the economics of austerity – before it is too late

Institutional transplant and American corporate governance: the case of Ferodyn

This paper examines the relationship between employment relations and American corporate governance using the case of Ferodyn*. In response to difficult industry conditions and sagging performance, American-owned Landis* Steel Corporation and Japanese-owned Daiichi* Steel Corporation jointly financed and built Ferodyn, a state-of-the-art high quality steel finishing facility. Although the joint venture was extremely successful in terms of quality, productivity and industrial relations, it came under severe stress from both external and internal pressures. Ferodyn’s success was moderated by the market in that it was never able to extract a price premium for the quality of steel it produced. At the same time, pressures in the form of corporate governance and the parent / subsidiary relationship were substantial. Institutional investor demands for improvements in short run shareholder value ultimately resulted in the sale of Landis to Maxi-metal*, a global steel conglomerate, committed to a strategy of minimising costs. In this case, the organ transplant provides a useful metaphor: Ferodyn was like a strong and healthy ‘organ transplant’ in a weak and ailing corporate ‘body.’ So long as there were buffers in place to protect it from rejection by its host, Ferodyn could prosper, giving rise to exceptionally high labour standards and quality of life for its employees. In effect, the American system of corporate governance and the nature of power relations in the corporation created antigens that weakened both Landis’s ability to support the joint venture and Ferodyn’s ability to survive in an alien and hostile corporate, industry and macro-economic environment. * Ferodyn, Landis, Daiichi and Maxi-metal are fictitious names

The fragility of functional work systems in steel

The I/N case offers insight into the interrelationship between work systems, living standards and performance. It demonstrates that a high road approach and functional work systems positively impact stakeholders’ lives, improve production efficiency and benefit the local and macro-level economies and societies in which they are embedded. It also shows that such work systems can be implemented in contexts with a history of adversarial labor-management relations. However, broader external forces can conspire to make it very difficult for firms to sustain functional work systems despite initial successes in specific contexts. Financial markets in particular make long term commitment to stakeholder groups other than shareholders (i.e. employees, suppliers and communities) conditional on profit maximization and share price appreciation. Yet the logic of profit maximization for the benefit of shareholders leads to short termist decisions that undermine the very commitments that were so necessary for creating a new work system: security is threatened, training is put on the back burner; trust is irreparably undermined. Indeed, because of the inherent contradiction between strategic approaches to maximizing stock market and long term product market success, these high road systems are fragile in national frameworks that subject them to low road pressures without a forum for resolving the difficulties that arise from opposing market pressures and responses

Learning from Enron

This essay argues that the Enron affair has been misunderstood as a failure of monitoring, with adverse consequences for the drafting of the Sarbanes-Oxley Act and the Higgs report. Where Enron’s board failed was in underestimating the risks that were inherent in the company’s business plan and failing to implement an effective system of internal control. Enron demonstrates the limits of the monitoring board and points the way to a stewardship model in which the board takes responsibility for ensuring the sustainability of the company’s assets over time

The political economics of austerity

The 2007/8 financial crisis has reignited the debate about economic austerity. With the aim of understanding why a government would pursue such a policy in the current context of persistent economic recession, this article traces the social, political and economic developments that have together shaped the evolution of ideas about austerity, from the earliest theorizing by the Classical political economists some three hundred years ago. Throughout the historical narrative, important analytical themes revolve around the arguments used to justify austerity – notably appeals to ethics and morality (reinforced by misleading analogies drawn between government budgets and the accounts of firms and households). These include: concerns about inflation and the observed relationship between inflation and unemployment; ‘Ricardian equivalence’ and ‘non-Keynesian’ effects of austerity; and the correlation between public debt levels and economic growth. The class analytics of austerity – who bears the burden of austerity and who benefits – and the process by which alternative ideas penetrate the mainstream and reconstitute the conventional wisdom are also important analytical themes

Corporate governance and employment relations

Using the 2004 United Kingdom Workplace Employment Relations Survey (WERS 2004), this paper examines the impact of corporate governance on HRM practices and employment relations outcomes within organizations in the UK. The analysis suggests that when a remote external stake-holder is assigned dominance, particularly in the case where their liability is limited and the organization is large, the conditioning of managerial commitments on the requirements of the dominant stake-holder has the potential to undermine the effectiveness of the HRM system in achieving its objectives

Work intensification and employment insecurity in professional work

Professional work is a category of employment that has traditionally been associated with high levels of worker autonomy, economic and social status. During the past decade, changes in customer expectations, government policy and technology have generated pressures resulting in enhancement of the quality and efficiency of service provision, expansion in task requirements and a need for higher levels of discretion. In this sense, professional work has been upgraded. However, the changes have also led to a deterioration in the economic and social status of professional work, adversely impacting on the social and psychological well-being of professional workers. This paper examines these developments in five professions including two established professions (lawyers and pharmacists), one aspiring profession (midwives) and two emerging professions (counselling psychologists and human resource managers). The empirical findings are based on a survey of 1270 professional workers conducted in 2000 and 2001

Partnership in practice

This paper examines human resource management practices adopted in a group of eight case study firms and their tendencies towards versus away from partnership. The analysis is based on data collected during interviews with 124 employees (75 in organisations tending towards partnership and 49 in organisations tending away from partnership) and senior managers, conducted in 1997-1998 for the Job Insecurity and Work Intensification Survey (JIWIS). Drawing on the perspectives of senior managers and employees, we examine the tendency of firms towards and away from partnership in employment relations; and in keeping with the JIWIS methodology (Burchell et.al., 2001) we combine quantitative and qualitative evidence in our analysis. Specifically, we are interested in what partnership looks like in these different contexts, the reasons it is pursued (or not), the degree to which companies have been successful in achieving their partnership objectives (from the perspective of both management and employees), and the conditions that have either facilitated or impeded partnership in relationships with employees