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What happens if short sellers of stock are unable to cover because no one has any shares to sell? That’s one of the many interesting issues in the new book, Harriman vs. Hill: Wall Street’s Great Railroad War, by Larry Haeg (University of Minnesota Press 2013). Haeg details the fight between Edward Henry Harriman, supported by Jacob Schiff of the Kuhn, Loeb firm, and James J. Hill, supported by J.P. Morgan (no biographical detail needed), for control of the Northern Pacific railroad. Harriman controlled the Union Pacific railroad and Hill controlled the Great Northern and Northern Pacific railroads. When Hill and Harriman both became interested in the Burlington Northern system and Burlington Northern refused to deal with Harriman, Harriman raised the stakes a level by pursuing control of Hill’s own Northern Pacific.

I’m embarrassed to admit that I wasn’t aware of either the Northern Pacific affair or the stock market panic it caused. I had heard of the Northern Securities antitrust case that grew out of the affair; I undoubtedly encountered it in my antitrust class in law school. (Everything the late, great antitrust scholar Phil Areeda said in that class is still burned into my brain.)

I’m happy…

Today, I am highlighting the CLEAF Junior Faculty Workshop, which took place at George Washington earlier this month.  Applicants submitted unpublished papers in the fall, and if accepted were invited to attend the workshop in February.  Each paper was assigned 2 readers who specialize in the subject matter of the paper. The experts ranged from senior legal scholars, to interdisciplinary scholars, to lawyers in the field.  The 2-day workshop dedicated an hour to each paper, soliciting the formal comments of the assigned readers and a discussion from the larger group.

If time is money, the 2 days at the workshop were a great investment.  I had the opportunity to connect, personally and professionally with both junior and senior scholars in the field in a way that felt more comfortable and more productive than in other foras.   For me, it also provided tailored feedback on my project (which I am now furiously incorporating), and it also forced me to spend 2 days thinking about scholarship in terms of publication goals, audience goals, forms of proof, preference of presentation and other aspects of writing that never seem to get the attention they deserve when I am puzzling through how…

Yesterday, I attended the Annual Meeting of the Society of Socio-Economists.  Unfortunately, I was only able to participate in the second half of the program due to flight delays, but the discussions I did participate in were fantastic and I hope to publish a number of posts passing on some key points.  Today, I’d like to start by highlighting the book “The Citizen’s Share: Putting Ownership Back into Democracy” by Joseph R. Blasi, Richard B. Freeman, and Douglas L. Kruse (I understand Joseph Blasi was one of the presenters at the meeting–though I was chairing a concurrent plenary session at the time).  Here is a description from the Yale University Press:

The idea of workers owning the businesses where they work is not new.  In America’s early years, Washington, Adams, Jefferson, and Madison believed that the best economic plan for the Republic was for citizens to have some ownership stake in the land, which was the main form of productive capital. This book traces the development of that share idea in American history and brings its message to today’s economy, where business capital has replaced land as the source of wealth creation.   Based on…

If you have an interest in entrepreneurship and innovation, or if you just want to know more about the company whose boxes are currently appearing on porches across the nation, read Brad Stone’s new book, The Everything Store: Jeff Bezos and the Age of Amazon.

Stone is not a corporate shill; his portrait of Bezos is not always flattering. But the book is well written and entertaining, and a good study of what made Amazon successful. Budding entrepreneurs could derive a number of important lessons from Jeff Bezos.

The Goal of a Business is to Serve Customers

Entrepreneurs often chase the wrong rabbit. The goal of a business is not to create the fanciest technology. The goal of a business is not to get ready to make a public offering. The goal of a business, and the way it makes money, is to serve customers—to fulfill some customer need more effectively than any other company.

It’s clear that customers have been Bezos’ top priority from the beginning, and that’s what has made Amazon successful. The most obvious example of that philosophy? Putting both positive and negative customer reviews on the Amazon web site. We take that for granted now—many…

  • If you are looking for some books to help you better understand our economic history, try: Timothy Shenk on “The Long Shadow of Mont Pèlerin” – reviewing Angus Burgin’s The Great Persuasion (“[U]ncovering a history where the supposed founders of the American chapter of neoliberalism at the University of Chicago reprimand Hayek’s The Road to Serfdom for overdoing its indictment of the state while Keynes reports himself “in a deeply moved agreement” with the very same text.”).
  • For the blogroll: Jennifer Taub’s “perpetual crisis” blog (“a blog on banking, corporate governance, and financial market reform”).
  • Finally, you might be interested in Michael Pettis on “When Are Markets ‘Rational’?” (“To me, much of the argument about whether or not markets are efficient misses the point. There

…

I was reading the introduction to the 35th anniversary edition of Atlas Shrugged the other day, and a number of quotes taken from Ayn Rand’s related journal entries struck me (bold highlights are mine):

  • I must show in what concrete, specific way the world is moved by the creators.  Exactly how do the second-handers live on the creators. Both in spiritual matters—and (most particularly) in concrete, physical events. (Concentrate on the concrete, physical events—but don’t forget to keep in mind at all times how the physical proceeds from the spiritual.)
  • [I]t is proper for a creator to be optimistic, in the deepest, most basic sense, since the creator believes in a benevolent universe and functions on that premise. But it is an error to extend that optimism to other specific men. First, it’s not necessary, the creator’s life and the nature of the universe do not require it, his life does not depend on others. Second, man is a being with free will; therefore, each man is potentially good or evil, and it’s up to him and only to him (through his reasoning mind) to decide which he wants to be. The decision will affect only him;

…

Martin Gelter & Geneviève Helleringer posted “Constituency
Directors and Corporate Fiduciary Duties” on SSRN a few weeks ago, and I’m
finally getting around to passing on the abstract:

In this chapter, we identify a fundamental contradiction in
the law of fiduciary duty of corporate directors across jurisdictions, namely
the tension between the uniformity of directors’ duties and the heterogeneity
of directors themselves. Directors are often formally or informally selected by
specific shareholders (such as a venture capitalist or an important
shareholder) or other stakeholders of the corporation (such as creditors or
employees), or they are elected to represent specific types of shareholders
(e.g. minority investors). In many jurisdictions, the law thus requires or
facilitates the nomination of what has been called “constituency” directors.
Legal rules tend nevertheless to treat directors as a homogeneous group that is
expected to pursue a uniform goal. We explore this tension and suggest that it
almost seems to rise to the level of hypocrisy: Why do some jurisdictions
require employee representatives that are then seemingly not allowed to
strongly advocate employee interests? Looking at US, UK, German and French law,
our chapter explores this tension from the perspective of economic and
behavioral theory.

The Economist has an interesting piece on how “[a] mutation in the way companies are financed and managed will change the distribution of the wealth they create.”  You can read the entire article here.  A brief excerpt follows.

The new popularity of the [Master Limited Partnership] is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works…. Collectively, distorporations such as the MLPs have a valuation on American markets in excess of $1 trillion. They represent 9% of the number of listed companies and in 2012 they paid out 10% of the dividends; but they took in 28% of the equity raised…. [The] beneficiaries, though, are a select class. Quirks in various investment and tax laws block or limit investing in pass-through structures by ordinary mutual funds, including the benchmark broad index funds, and by many institutions. The result is confusion and the exclusion of a large swathe of Americans from owning the companies hungriest for the capital the markets can provide, and thus from getting the best returns on offer….

Another booming pass-through structure is that of the “business development company” (BDC). These firms raise public equity and…

Jennifer Taub has published a new book, “Other People’s
Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made
Home Mortgages a Thrilling Business.” 
Here is an excerpt from the Yale University Press description:

Focusing new light on the similarities between the savings
and loan debacle of the 1980s and the financial crisis in 2008, Taub reveals
that in both cases the same reckless banks, operating under different names,
received government bailouts, while the same lax regulators overlooked fraud
and abuse. Furthermore, in 2013 the situation is essentially unchanged. The
author asserts that the 2008 crisis was not just similar to the S&L
scandal, it was a severe relapse of the same underlying disease. And despite modest
regulatory reforms, the disease remains uncured: top banks remain too big to
manage, too big to regulate, and too big to fail.

UPDATE: The book will be in bookstores in May, but can be
pre-ordered now.

1. Russell
G. Pearce & Brendan M. Wilson on Business Ethics

 

This Essay
makes three contributions to the field of business ethics …. First, the Essay
identifies the dominant approaches to business ethics as profit maximization,
social duty, and ordinary ethics, and summarizes the claims made by proponents
of each perspective. We intend this categorization as a way to refine the
distinctions between and among various views of business ethics and to address
the conundrum that John Paul Rollert has described as the “academic anarchy
that is business ethics…. Second, the Essay explores the strengths and
weaknesses of these three approaches. It suggests that their emphasis on
viewing business persons and organizations as existing autonomously, rather
than within webs of relationships, helps explain why the field of business
ethics has had minimal influence on business conduct, as does the false
dichotomy between economic and ethical conduct that proponents of these
approaches often embrace…. Third, the Essay proposes an alternative approach
that would locate business ethics at the center of business conduct. This approach
embraces the relational character of business behavior. It offers a conception
of self-interest that recognizes the relational dimension of self-interest and
identifies mutual benefit as the…