| Editorial |
| This year marks the tenth anniversary of the institution of the Rybczynski Prize, which was established in memory of Tadeusz Rybczynski, an eminent economist and former Chairman of the Society of Business Economists. The Prize is awarded each year for the best essay in business economics and your Editor has good reason to be grateful for it. Over that ten years there have been a stream of interesting, cogent – and indeed some truly outstanding – entries from which we have been able to fill the pages of our Journal with good writing. That so much good work is done owes much to the support of KPMG, who, from its inception, have sponsored the prize. This year again their generosity has been rewarded by a large number of interesting essays. It was not easy to pick out from so many a short list of five and no easier for Council to choose the winner, but they settled on ‘The Unbearable Lightness of Balance Sheets’ by three Italian economists, Marco Annunziata, Loredana Federico and Davide Stroppa, and their essay opens this issue of our Journal. |
| Like all the articles in this issue, it is a piece for our times. Their thesis is simple: that reinvigorating business investment is crucial to any sustainable recovery, and that in turn will depend on the financial position of non-financial corporations, which in the wake of the recession is every bit as precarious as that of the banks. Their demonstration of that thesis is more thorough-going, proceeding from a careful examination of the evolution of corporate finances in the euro area to an econometric analysis of their relationship to levels of business investment. They conclude that it will be of the utmost importance that financing costs remain low if investment is to contribute to recovery, and that therefore the need to reduce the debt burden cannot be ignored. |
| John Llewellyn paints on a broader canvas. His ‘Lessons from the Financial Crisis’ presents notes he prepared for a discussion with government economists but it surely deserves a wider audience. He looks across the imbalances in the world economy, and especially in the US, that paved the way to crisis before examining some of the particular developments in financial markets and their regulation that precipitated it. He suggests that the wide-ranging policy responses to recession are at best only likely to mitigate it, and observes that the macroeconomic imbalances remain largely unaddressed. He concludes by outlining ten proposals for policy that he thinks might have reduced the dangers of the crisis past – but is honest enough to be agnostic as to their relevance to a future crisis. |
| In his article Llewellyn asks at one point why did so few people realise what was happening. Sunil Krishnan’s report of the ESRC’s conference for its World Economy and Finance Research Programme suggests one possible answer: the reliance of economists of all persuasions on one type of model which may have its critical blind spots. Krishnan goes on to report a range of academic work with relevance to the issues that the financial crisis has laid bare but notes that some conceptual building blocks for policy design are still missing, such as an operational definition of ‘financial stability’. |
| The ESRC Conference also reported on work on the legal issues in financial regulation, and James Lambert, in his analysis of the impact of competition law on the banking industry, makes clear the tensions that have emerged between the requirements of a competitive market and those of financial stability. He believes that once the crisis is past the UK banking industry is likely to face further investigation by the competition authorities. |
| Important though their subjects are, the reports in Speakers’ Corner of Martin Jacques’s perceptive discussion of China’s rise to world power and of Professor Lord Layard’s advocacy of ‘happiness’ as the best criterion for public policy – surely a poke-nose’s charter – seem curiously remote in the febrile atmosphere of the post-crisis economy. Our Book Reviews include a review of Roger Bootle’s new book challenging many of the nostrums of the financial establishment, but others look beyond the crisis, with notices of books on the teaching and development of economics, on global trade and regulation, on the relief of poverty and the danger for us all of impoverishment from too many people and too few resources (Malthus, you should be alive today!), and on the political economy of piracy. |
Jim Hirst
Editor |
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