Reforming the International Financial System by Regulation or Collaborative Arrangements?

Speech at the Transatlantic Consortium Colloquium ”Repositioning Europe and America for Growth”

Jönköping, May 29, 2009

Summary

¤ Generally speaking, the main impediments to well-working regulations and collaborative agreements come from human behavior (psychology). The current global financial and economic crisis can to a great extent be attributed to phenomena like greed, abuse of incentives, performance pressure (“angst”), overconfidence, neglect of historical experience, etc. Without improved research / interest for behavioral finance and understanding of this exciting scientific orientation, financial regulations will be continually limited in their efficiency. The “homo oeconomicus” has disappeared from global financial markets.

¤ Another important step forward is the recognition that regulations should be completely designed for giving the right incentives to players on financial markets. “Perverse incentive structures” – as Rajan calls one of the main characteristics of the current crisis – should not exist anymore in the future regulatory framework.

¤ Collaborative agreements make sense in certain cases, for example, on an international basis between public institutions. History of financial markets, however, has demonstrated many times that collaborative agreements between banks and public institutions – according to their design – many times cannot work as a powerful instrument for a long time.

¤ Instead, it would make sense to raise the status of collaborative agreements. This could be achieved by including certain agreements as conditions for “good corporate governance”. Such a change could be made efficient by demanding comments from banks on certain collaborative rules they should follow carefully on a regularly basis in their quarterly or annual reports. In other words: Much more pressure should be put on banks’ performance in corporate governance. And the press should write more about it.

¤ Whatever regulatory or collaborative changes we are talking about, one extremely important precondition for – hopefully – (somewhat) declining future financial risks should be mentioned particularly: increased transparency, demanded by regulators and central banks. This need cannot be stressed sufficiently. Innovations in the past such as Structured Investment Vehicles (SIVs) and conduits must be made much more transparent than has been the case in recent years – but the quality of credits must also be made more transparent. Supervision should become much more active in this respect. By the way China should join the path to increased financial transparency as well – as it underwrote this spring in the communiqué of the London G20-summit.

I would finally like to quote Axel Leijonhufvud who recently said: “If we could eliminate the next crisis, we would not discuss these things so much.”

He may be right. But isn’t it worthwhile to try to postpone the next crisis or to make it milder than the current financial earthquake?

Read the full speech (PDF)

Read more about the conference

Hubert Fromlet’s blog

Ok, let me start from my background.
I come from a city called Hangzhou, which locates on south east of China, 80 min to Shanghai by train. Like Jönköping, there is also a lake in Hangzhou called Westlake, which is so beautiful that it boosts Hangzhou a fame of heaven! Pick any Chinese, I’m sure they know Westlake and Hangzhou.

I’m now working at State Street, which is the world’s leading provider of financial services to institutional investors with the headcounter in Boston. It is one of the nine financial services that got support from Bush government last year. It’s an international company and has offices worldwide. Unfortunately none in Sweden.

Thanks to its globalization, I have got the chance to visit U.S.A and Hongkong during the three years and built relationship with people from various countries. It’s a great experience working at a big company, but I find that I don’t fit the serious atmosphere of the financial field. I’m a Pisces. I’m too romantic for finance. Entertainment fields would fit me more. When I searched schools, I found JIBS. I like your internationalism and the major Economics and Management of Arts is absolutely right.

I submitted residence permit last week and hope I get it soon. So I can plan a vacation to Slovenia before studying at JIBS. Since the health insurance doesn’t cover dental, I’ll be having four wisdom tooth extractions, one every two weeks. So it would totally take 8 weeks. It’s the most special preparation before the journey I have had. Hope I can remain wise without the wisdom teeth.

Jie

Hello everybody! My name is Plamen Penchev and I am from Bulgaria. I will join JIBS this fall, Master in Innovation and Business Creation.

I have graduated an English Language High School in my home city Ruse, situated on the Danube river in Northern Bulgaria. Later on I was admitted in the University of Applied Sciences Stralsund, Germany, the degree course Bachelor in Business Administration, conducted in English language. During my studies I also had the chance to spend one academic year in the USA, Michigan, as an exchange student, Ferris State University. This was an excellent possibility for me not only to maximize my English language skills, but also to experience the North American higher education system, culture and lifestyle, to see many things from another perspective.

My practical experience consists mainly of my work as a Hotel Manager of the river-cruising passenger ship “Elegant Lady”, sailing throughout the European waterways – from the Danube Delta on Black Sea to the canals in the Netherlands. In short, I was in charge of the hotel department – making sure that the work was going smoothly and the desired results were achieved – a first-class tourist product.

However, at a certain point of time I reached my career maximum on the ship and realized that in order to enjoy a really challenging and rewarding international career, I must undertake the next academic step. I am determined to pursue further progress and development in my personal and professional life and probably the most important part of this is a world-class Master Degree from a truly reputable institution – that is why I have applied exactly for the Master in Innovation and Business Creation at JIBS.

I am sure that the Master in Innovation and Business Creation at JIBS will not only significantly deepen my knowledge in all the aspects related to innovation management and  entrepreneurship, but will also expand my social competences and the ability to see the “big picture”. Moreover, I have no doubt that this premium Master program will serve as a solid base and priceless preparation for the real business world, an experience for life.

Right now, probably as all my future co-students , I am in a process of preparation for leaving to JIBS. Trying to find the best answers to questions such as “how actually to travel? , what abbout the luggage? – flying and sending it there, or taking everything with me and catching a bus or train? , health insurance? , banking/financial issues? , accomodation? – even though we know that luckily for us it is guaranteed, I bet everyone is curious what exactly will it be

At the end my friends I would like to say that I am really looking forward to comming to JIBS and having a wonderful and unforgettable experience. And of course, meeting with many other incredible people there, from all over the world. I have no doubt that it will be extremely beneficial for us in any aspect. And you, prospective students as me, don’t hesitate to make the right choice And also, join the blog at JIBS and tell us more about you.

Hi,

My name is Corina Budianschi and I am from Moldova. This Spring I received the wonderful news that I was accepted at JIBS for the Bachelor Programme in International management. I am looking forward to begin my studies at JIBS.

In Moldova I am student as well, this summer I will complete my first year in International Economic Relations. Having lived in Moldova all my life, I decided that I wanted a change and I always liked the Scandinavian countries, so I thought that Sweden would be a very interesting place. One of the reasons why I chose JIBS is because it is the most international business school in Sweden and it will be interesting to interact with people from all over the world. Also I spoke to a student at JIBS who is also from Moldova and he gave me a really good feedback, so I can’t wait to get started in Jonkoping.

Right now I’m preparing all the documents for the visa. It is a very long and painstaking process especially because we don’t have a Swedish Embassy in Moldova, and to apply for the visa I have to go to Romania, but for that I need another visa, so it’s a little bit complicated.

For everyone who doesn’t know much about Moldova, I encourage you to visit this country, because it’s a small but nice place with its peculiarities and its specific customs.

That’s it for now,

Best regards, Corina

In a ranking of publications of entrepreneurship research 1995-2006, Jönköping International Business School (JIBS) ranks ninth globally and third in Europe. In a ranking of publications of family business research 2001-2007, JIBS ranks fourth globally and first in Europe.

Professor Clas Wahlbin has written a summary of the research achievements during the last decade. Read his article recently published in the Jönköping University journal here (pdf).

Hello everyone,

My name is Frida Wallin, a first year IM (International Management) student at JIBS. The 15th of may I participated in a talent hunt for entrepreneurs in Gothenburg called Entreprenörsjakten. It’s a dream for the entrepreneurs who want to get a good network.

Here is what I did!

We were 50 students from different parts of Sweden, all competing for an unknown price. In teams of five we were running around in Gothenburg, solving different tasks within entrepreneurship.

The first assignment for my team, sponsored my Business Region Göteborg, was to answer five different questions for a jury. We had to do presentations individually for three different judges. What we didn’t know before was that the jury were supposed to be mean and cut us by the legs with complains, just to see our reactions. I don’t like when people  criticize me, so I was shocked over the things they said.  One unexpected comment was ” Are you nervous, because it looks like you are”. I must say that I was quite surprised to hear that though I feel very comfortable doing presentations.

The second mission was an interview at Arkaden with Svenskt Näringsliv. On the show we were successful entrepreneurs with a fast growing company. Even this task was individually.  The most excitement about this task was that the interview made was being recorded by a video camera. Cool I thought when I sat down in front of the camera, looking at the interviewers with a confident grin on my face.  The hostesses asked questions regarding Swedish politics and the regulations. OHH crap I thought in the beginning, but I know I’m pretty good convincing people that I am right, and that I know best.  Team 2 felt happy and satisfied with the individual presentation, and we went happy to the next case…  (What we heard afterwards, this station wasn’t included in the competition, and therefore didn’t give us any points)

The Swedish Tax Agency

And don’t we all sole traders looooove the tax agency? Haha… I let that be unspoken… Anyway, we met a few people from the staff, who gave us the instructions of the case.  We were supposed to help the tax agency with a homepage to make it easier for the Swedes to find what they’re looking for, kind of..

We came up with a good idea to have a virtual fair, as well as speed dating on the website (Don’t get me wrong when I say dating. I mean that company’s can chat with each other). After we held our presentation for the jury at this station it was time for lunch where the press were waiting, as well as a few well recognized faces from JIBS. Awesome, I’m kind of famous now

After the lunch break we had a sales competition at the head quarter in Arkaden. Our mission was to sell 5 items, and try to get as much money as possible, in 25 minutes. We had 1 pair of shoes (Value ca. 200), 1 bracelet (value ca. 2 kr), 1 banana shell and at last 2 unknown packages. All the money we got was given to Queen Silvia’s child hospital. I had the responsibility to sell the bracelet, and I was the second one out. Marthin was the first one out in our team, and he sold one of the unknown packages for 500 sek. I sold the bracelet for 140 sek, while our third person sold the shoes for 120 sek. After that the time was out. I think this was the most fun during the whole day. =)

At two o’clock we went out on the streets in Gothenburg again, making our way to the forth mission. This stop was in Gothia Towers, at Västsvenska Industri- and Handelskammaren, were we stood before some hard decisions regarding personal strategy. We got disturbed all the times by actors, and we had to handle all the situations in one way or another.

The final stop, our last station was at a marketing office, Star Communication. We had to come up with a marketing strategy for the nonprofit organization “Hjälpande Händer” (Helping Hands), and the aim was to make “Hjälpande hander” the first choice for the inhabitants in Gothenburg when they want to help someone else. I must say that we messed up completely at this station, and I was so disappointed afterwards. But it is pointless to feel bad for a long time, because it’s already too late to change what you did.

We went back to the hotel and made us ready for the dinner, which was held at a beautiful place. When we came there, they had a photographer and a red carpet. I felt like a moviestar which was pretty awesome. We listened to live music, voted for Fröken Sverige (Miss Sweden), enjoyed good food and company. The price and the winners was also announced, and I was quite disappointed that we didn’t won, but I had a great time anyway. And I got a lot of new friends and contacts in the business world.

Now I’m waiting for my next adventure, Emax Nordic, an entrepreneurial week for young entrepreneurs from Sweden, Norway, Denmark and Finland. But before that, it’s time to dive into my books again and write good results on the exams.

If you want to read more about Entreprenörsjakten you should visit www.entreprenorsjakten.se (in Swedish). And if you want to talk to me about entreprenörsjakten or about my visions and goals, you’re more than welcome to contact me.

And I almost forgot… The price was a one week trip to San Francisco, doing a lot of entrepreneurial visits, as well as a visit at Google’s office… Too bad that I didn’t won!

Best Regards

Frida Wallin

Im08wafr@ihh.hj.se

On 13 May the JIBS winners of the 2008 Professor Eric Rhenman Award were presented by Bengt Stymne, Professor Emeritus from Stockholm School of Economics.

Eric Rhenman, a well known person in the academic world and within the business community both in Scandinavia and elsewhere, wrote numerous books and articles within the areas of business economics and business management. He was a professor at the Stockholm School of Economics and at the University of Lund as well as a visiting professor at the Harvard Business School. In 1966, Eric Rhenman, together with some colleagues from the Stockholm School of Economics, established the research organisation SIAR.

The award is given to the top three theses in four selected schools around the Baltic Rim, for theses bridging the gap between management theory and practice, a topic to which Eric Rhenman devoted much of his time.

In additon to JIBS the following schools are participating: The State University of St Petersburg (Dept. of Economics & Sociology, School of Business); Tallinn University of Technology (School of Economics and Business Management); Åbo Academy University (Department of Industrial Management).

The winning thesis from each school will be invited to participate in a contest at the SIAR-seminar on “Clinical Research in Business Administration in Scandinavia” to be held in Finland this autumn.

JIBS winners

At JIBS, the winners of the award were Cajsa-Malin Skärström, Linus Wennerström and Erik Wallstedt with their thesis Entrepreneurial Learning -Entrepreneurial response to firm failure.

Senida Smajovic, Johanna Holkko Lafourcade and Malin Eliasson won the second price with E-commerce – A study of women’s online purchasing behavior.

The third price was conquered by Micaela Tärnhamn, Elina Sargezi and Nanci Kasto who had written Can commitment save companies from negative publicity? – The tempering effect of commitment and corporate response on negative publicity.

The ranking of the theses from JIBS was decided by a jury composed of Niclas Adler (Professor, Dean and Managing Director of JIBS), Mike Danilovic (Professor, JIBS), Björn Frösevi (CEO, Truepoint Europe) and Bengt Stymne (the SIAR Foundation and Professor Emeritus, Stockholm School of Economics).

The prizes for the competition were provided by The Professor Eric Rhenman Memorial Fund and the SIAR Foundation.

Professor Friederike Welter, associate dean of research at JIBS, has been appointed chair of a new expert group by the German government.

The task of the group will encompass evaluation of proposals for a specific new policy programme, called ValITT (short for Validierung für den Innovativen Technologietransfer).

The group shall also advise the implementation agency on procedures, contents of the programme, etc. The content of the programme is facilitating the transfer of scientific innovative ideas into marketable products and services.

The appointment was made by the Federal Ministry of Education and Research in Germany.

Summary in English:

So far, we have not got a broader debate on what economic theory and research already had to offer before the bursting financial bubble in 2007. I would argue: quite a lot for the observant and flexible representatives in economic academia – but almost nothing for dogmatic “pure” macroeconomists rejecting the value of interdisciplinary research.

However, a number of crucial shortcomings in economic research have been revealed anyway during the ongoing global financial and economic crisis. More research efforts should be particularly put on the modelization of psychology (behavioral finance), on financial macroeconomics (liquidity included), and on institutional economics. We need urgently what Acemoglu calls a “theory of market transactions that is more in tune with their institutional and regulatory institutions”.

Read the full text at Hubert Fromlet’s blog (in Swedish)

In the middle of the 90s quite a few northwestern communities in Skåne were afraid of being left in the shadow of the city of Malmö when the bridge between Malmö/Skåne and Copenhagen/Denmark was  built. They turned to Åke E. Andersson, professor in Economics at Jönköping International Business School, and asked him to look for risks and opportunities.

- I came to the solution that the whole western part of Skåne could grow into a common labour market under certain circumstances. The building of attractive homes had to be accelerated. Another important factor was the expansion in educational activities, says professor Andersson.

And the communities followed the advice. The amount of people commuting to their homes on the west coast of Skåne is increasing all the time, as are the students at Campus Helsingborg. Helsingborg has developed quite a few attractive homes and living areas and has become a popular place for people to live, whether they are studying or working in Helsingborg or elsewhere.

Landskrona on the other hand still is in the shadows of the close by cities, such as for example Helsingborg, who took almost all initiatives stated in the investigation report of the 90s.

Landskrona didn’t use the big advantage of building new home areas despite its excellent position on the shores of Öresund in between Malmö and Helsingborg.

Another big difference on behalf of Landskrona was the quick reduction of industrial power when the ship yard industry disappeared and unemployment rates hit the ceiling, says Åke E. Andersson, who last year was asked to start a development plan for Landskrona.

The plan will include the building of 1.500 new homes close to the shores with a sea view and restoration of old apartment houses in the city centre,

It will also affect business life; what and how it should be developed from now and up to 2020.

There is also an urgent need for a structural change when it comes to taxation, dependence on subsidies but also attitudes and values not least among the younger generations.

Similar development plans have been done at the department of economics before for cities like Jönköping, Södertälje and Linköping/Norrköping.

The report will be ready and presented to the authorities in November 2009.

Source: Helsingborgs Dagblad

By Magnus Arvidsson, translated by Kristina Hugander.