Netflix shares hit new all-time high on results – MarketWatch.
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A Nobel No One Can Deny
Berkeley Economist Oliver Williamson and Indiana University Political Scientist Elinor Ostrom shared the Nobel Prize this week.
My long time favorite for the prize has been Benoit Mandelbrot. Mandelbrot’s work on the behavior of prices in markets should have helped us avoid the recent financial collapse, but until very recently his work has been give far less attention than it deserves.
The book The Black Swan by Nassim Taleb is built off of the theoretical work of Mandelbrot.
Mandelbrot makes the point that the rational actor approach to the markets ignores the “wild” nature of actual pricing in financial markets. So-called “efficient markets” advocates mistakenly apply concepts borrowed from physics to markets, ignoring the absence of phenomenon like inertia in those markets. He argues that there is a fractal structure to pricing of financial assets that could be far more powerful in explaining the apparently inexplicable nature of financial markets.
Perhaps next year as the drama of the recent collapse of our financial markets has sunk in, Dr. Mandelbrot will finally gain the recognition he deserves.
Nonetheless, I am particularly pleased to have heard of Dr. Williamson’s award. I was trained in law school in his tradition, what is known broadly as the “new institutionalism” or “new institutional economics.” Most of my research today looks broadly at the importance of institutions as opposed to simple images of arms length markets in understanding how the world works.
Some news on the academic front
I don’t talk too much here about my academic work but I do get asked about it from time to time so I thought I would update King Harvest readers. My general interest is in the impact of globalization on political and financial institutions. I am generally of the view that globalization is a very much more problematic process than is widely believed. I am also working closely with Jennifer Kuan at Stanford’s Institute of Economic Policy Research on institutional structures in our financial markets
First off, I have just put the finishing touches on a book, From Che to China: Labor and Authoritarianism in the New Global Economy. It will be issued by Vandeplas Publishing, an independent legal publisher, in the next month or so. It argues that the decline in industrial relations institutions such as collective bargaining in the advanced economies emerges just as globalization is posing critical questions of industrial relations in many new parts of the world such as Asia and eastern Europe. Unfortunately, authoritarian forms of labor organization are now being seen increasingly rather than support for the traditional democratic trade union. The book examines the question from several different angles and includes case studies as well as theoretical analysis. And I also attempt to point to alternative approaches for labor organizations. As soon as its up on Amazon I will let people know. Meanwhile you can read the chapter on Che Guevara here.
My work with Jennifer Kuan is progressing very nicely. We argue that the privatization of the NYSE through its 2006 IPO was actually damaging to the capital markets. The Old NYSE was actually a kind of socialistic entity – a mutual benefit corporation owned and governed by its members. That actually led to good things (for capitalism of course) and was quite stable. We made a preliminary argument in a law journal article we published in the Spring 2007 issue of the Duquesne Business Law Journal. You can find a working paper version here.
Now we have actual data and have been presenting it at various conferences, including the ISNIE meetings at UC Berkeley and a conference sponsored by the Sloan Foundation in Chicago. We presented a revised version again at IOFest at Berkeley a few days ago. We should have it in working paper shape soon and will post it to SSRN. My SSRN page is here.
I have just recently finished another paper called Beyond Berle and Means: Private Equity and the New Capitalist Order which will appear as a book chapter in a collection called The Embedded Firm edited by Peer Zumbansen of York’s Osgoode Hall and Cynthia Williams of the University of Illinois (who just finished a two year visit at Osgoode). A major British academic press is thought to be our publisher if all goes well. The book grew out of one of the best conferences I have attended recently organized by Osgoode in February of 2008 (maybe it was great because I found out while I was up there that my wife was pregnant with our first child!). I also presented the paper this summer in Paris at the SASE meetings (that’s Society for the Advancement of Socio-Economics). That was also a great event and our panel was very lively. An early version of the paper can be found here. A shorter and livelier version was published by Dissent magazine as well for whom I write occasionally. That piece led to some interesting reactions from European labor folks, some liked it while others were upset at my concern about what I called the “populist” nature of their attack on private equity.
Another project is a book on the Equal Rights Amendment just in the final stages and to be issued by an independent press called the Center for Socialist History in Berkeley. I co-authored that with the late Hal Draper – an earlier version was finished but never published. In light of the very wide gulf today between arguments about gender and class today I think it will make a very useful contribution to the debate.
That’s it for now. Feel free to visit my law school home page for occasional updates and of course I will report on significant items here from time to time.
Chicago Man Donates Kidney to A Stranger
I don’t cry easily but the tears were flowing when I watched this story this morning. It may have been because Tom LeClair is my cousin – we grew up together in Chicago.
Tom is probably the most selfless person I’ve ever met although he pointed out that he did this in part in memory of our other cousin, Tom Fielding, who gave a kidney to his sister, Jeri, some years back. Tom Fielding passed away a few years later at age 51. I wish I had half the courage of either one of these guys.
I spoke to Tom this afternoon and both he and the kidney recipient are doing well. Maybe Chicago has something to celebrate after all.
Hugo Chavez Romances Oliver Stone
Oliver Stone accompanied Venezuelan strong man Hugo Chavez down the red carpet this week at the Venice film festival for the premier of Stone’s newest propaganda film on the wave of “left” authoritarianism sweeping across Latin America.
Just keep in mind that the film is likely as accurate about current Latin American politics as was Stone’s explanation of the Kennedy assassination.
When will the American stalinoid left learn that the enemy of my enemy is not necessarily my friend? The race to embrace figures like Chavez (or even worse, Ahmadenijad or Hussein) by certain segments of the “left” is a mirror image of the policies of the US government for so many decades in Latin America and other parts of the developing world. There the US frequently chooses to back hardline violent and authoritarian forces like the Nicaraguan contras or the recent coup against the Honduran president or the failed coup attempt against Chavez himself a few years ago. This senseless policy only creates the political conditions that fuel the rise to power of pseudo-left authoritarian groups like the Sandinistas or Chavez.
In memoriam: Virginia Leary, stalwart supporter of international labor rights
Intlawgrrls has posted a much deserved tribute to my friend and colleague, Virginia Leary, who died this week in Geneva, Switzerland, of a heart attack at the age of 82. Professor Leary had battled cancer recently and her passing comes as sad news to those of us who have engaged in scholarship and political support of international labor rights. Virginia contributed a paper to the collection I published with Lance Compa and was always a valuable friend in the law school world. She taught at SUNY Buffalo for many years, as part of the admirable intellectual culture at the school, and then later at Hastings College of Law in San Francisco. She was also, of course, part of the Geneva international labor culture which is where she had retired.
Geithner and reality: keeping the deregulatory “counter-revolution” alive
For anyone who is interested here is a link to the testimony today of Treasury Secretary Geithner, who survived calls for his head this week with a little boost from the markets. Geithner is very busy these days making sure people think he is up to big things.
Don’t be fooled.
This package is aimed at defusing far more radical calls for restructuring the financial system in order to allow business lobbyists to carve up the reforms into tiny bite size pieces that can be easily digested.
If Geithner were serious about reform – well if he were serious he would not hold his job for long – but let’s assume we had the opportunity for serious reform, what would one have to confront?
The basic problem is that over the last several decades a conscious sophisticated effort begun by the United States Supreme Court under the leadership of Justice Louis Powell has slowly but effectively unraveled the regulatory framework put in place in the 1930s in the wake of the first global collapse of modern capitalism. The New Deal revolution, sealed after the war by a global labor-management consensus or social contract, was gradually undone on multiple levels.
Calling this counter-revolution “de-regulation” hardly does it justice. It was, in fact, the creation of an entirely new political economy, global in scope and massive in its complexity. It is, overwhelmingly, outside of the control of government much less the democratic polity.
Let’s take a single example: at the core of regulatory principles of the financial markets put in place in the 30s is the simple idea that if you sell a security such as stocks or bonds you must register that sale with the SEC including detailed information that must be provided to purchasers of the security prior to their decision to close the sale. The counter-revolution started by Justice Powell, however, made it acceptable to redefine the term “security” so that a wide range of new types of financial instruments were exempted from the registration requirements.
That, in turn, led to all sorts of investors being sold securities that they often did not understand. Examples abound: the collapse of Orange County, the Enron frauds, the crash of WorldCom and now the implosion of major investment banks, commercial banks, insurance companies and even government sponsored enterprises like Fannie and Freddie.
Thus, a simple proposal: if you want to begin the process of rebuilding a constructive and reliable means to channel our savings into productive investments that are socially useful, re-impose the basic requirements of our federal securities laws and require that sellers of these securities provide purchasers with the information they need to make an informed investment decision.
But as I said the de-regulation counter-revolution built an entirely new political economy. That political economy has been deeply damaged. But it has not sunk and so its beneficiaries will defend it. Geithner, of course, is their man in the Administration and once again today the market sent up a strong signal of support as they did on Monday when they realized that he was in trouble. They fear a turn to the left that might make their life a little too complicated.
So watch Geithner with interest – his role on the world stage right now is to defuse the possibility of genuine reform while maintaining the illusion of significant change. That produces a fascinating form of political theater.
DVD sales plunge, is the Biz in for a shake up?
A sobering reminder of the precarious nature of business models in the entertainment comes today from Bloomberg.
They report a 32% drop in DVD shipments in the 4th quarter. While the Studios multi-billion dollar gravy train is not disappearing, its form is shifting rapidly and it is less clear how the Hollywood-based companies can capture a share of the revenues being generated in other parts of the distribution chain.
For example, the rental market for DVDs remains strong as Netflix revenue surged 19% in the same 4th quarter.
But that means Netflix is doing well it does not mean the studios prosper. What’s good for Netflix is good for Netflix.
There are fears that the overall value of a film project will have to be heavily discounted now to reflect a disappearance of after market distribution.
As the article reports:
Films are valued based on projected sales over 10 to 15 years, from theatrical release through DVD sales, cable television and TV broadcasts outside the U.S., said David A. Davis, managing partner of Arpeggio Partners LLC, a Santa Monica, California-based consultant to movie studios. Studio estimates of these cash flows may prove optimistic if DVD sales continue to deteriorate, according to [Sanford Bernstein analysy Michael] Nathanson.
While the onslaught of new media has struck fear in the hearts of many in the industry, that sector will clearly loom as more and more important in the coming decade.
The Way We’ll Watch
An interesting look at the impact of new technologies on the film business.
Is UAW Violating Rights Owed to Retirees?
The UAW continues its descent into obsolescence today with an announcement that it will offer more concessions to help the Big Three bosses secure a safe and happy retirement.
At the heart of the latest offer, however, appears to be a violation of the fiduciary obligations owed to retired auto workers.
Last year, the UAW allowed the Big Three to shift retiree health care off its balance sheets into a new entity called a Voluntary Employee Beneficiary Association, or VEBA. The companies were obligated to fund the VEBA’s with billions in cash, securities and other obligations. Some of the money made it in before the current crisis.
But now the New York Times is reporting that the UAW, without any right to do so, is offering to allow the Big Three to delay the much needed future financial flows to the VEBA’s. These are the same VEBA’s that were sold as “secure for 80 years” by the UAW when it wanted rank and file ratification of the most recent collective bargaining agreements.
In theory, the VEBA’s are independent trusts, controlled by a board of trustees that owes a fiduciary duty to the beneficiaries of the trust, current and future UAW retirees.
The fiduciary obligations of a trustee are the strongest known in American law. In the landmark case of Meinhard v. Salmon in 1928, then Judge Cardozo described this solemn obligation thus:
“Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate.”
There is no evidence that the trustees of the Big Three VEBA’s have met this long established obligation in the unilateral decision by UAW President Gettelfinger to announce delays of funding to the VEBA’s. Current and future retirees should be outraged.
If this is the way in which the private sector deals with retiree health care at our most important corporations, what chance is there for a genuine national solution to the health care crisis?
Auto Union Says It Would Consider Reopening Contract – NYTimes.com