China s remarkable economic growth?

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1 Aspire Issue 11, Spring/Summer 2012 News and views from the University of Glasgow Adam Smith Business School China s remarkable economic growth? Adam Smith Business School hosts top theorists The Big Society, values and co-operatives Diversification Why did Greece go bankrupt? Diffusion of advanced techniques in Management Accounting

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3 Aspire Issue 11. Spring/Summer 2012 Welcome to Aspire Executive Editor: Professor Robert MacIntosh Editorial Board: Peter Aitchison Dr Mario Cerrato Errolinda Ward Editor: Emily Stewart Photography: Photography Unit, University of Glasgow; Canstock Photo; Shutterstock The University of Glasgow Business School Executive Board Head of School: Professor Farhad Noorbakhsh Head of Accounting & Finance: Professor Jo Danbolt Head of Economics: Dr Alexander Kovalenkov Head of Management: Professor Iain Docherty Director of Graduate Studies: Professor Robert Paton Director of Postgraduate Research: Dr Joe Byrne Director of Research: Professor Denis Fischbacher- Smith Director of Undergraduate Studies: Dr Moira Fischbacher-Smith Head of School Administration: Helen Young Welcome to the 11th issue of Aspire, the magazine of the University of Glasgow Business School. I am delighted to announce that this is the first issue of the newly named University of Glasgow Adam Smith Business School. As of 1 June 2012, the School has been formally renamed to honour the legacy of the University s most celebrated alumnus and staff member marks the end of one chapter for the School, and the beginning of another. The 2011/12 academic year was one of unprecedented growth and achievement for the school. We have increased student numbers and are now the largest business school in Scotland and second largest in the UK for full time postgraduate students. We have also hired a number of new Lecturers and Chairs, and will continue to recruit in /13 will see the School working to enhance its reputation in the UK and abroad, and developing further links with partners overseas. We will also further develop internationally recognised research that will inform policy and practice, and help us to promote the tradition of Scottish enlightenment and enterprise. The School will be hosting top theorists and influencers throughout the year, with events like the High Potential Concepts, Phenomena and Theories in International Entrepreneurship Research Conference (page 8) and the Strategic Management Society Conference as well as the gala launch event for the Adam Smith Business School in the autumn. Colleagues will continue to strive to make an impact on research and practice, like Professor Ronald MacDonald, who is now in the top 1% of Economics researchers, Professor Vivien Beattie who received the Distinguished Academic award by the British Accounting and Finance Association (BAFA) (page 4), and Professor Richard Harris who was named Lead Expert on government Future of Manufacturing Project (page 6). I hope you will join us as we move forward with the new School, and see was developments and growth the coming year has to offer. Professor Farhad Noorbakhsh Head of School

4 02 Contents 04 Business brief A round-up of news and events in the Adam Smith Business School 05 The Business School renamed to honour Adam Smith s legacy From 1 June 2012, the Business School has officially been renamed 07 Recent and upcoming publications 08 The Adam Smith Business School hosts top theorists Top theorists visited the Adam Smith Business School for a conference on High Potential Concepts, Phenomena and Theories in International Entrepreneurship Research 10 China s remarkable economic growth Sai Ding, Lecturer in Economics at the Business School, reflects on the challenges faced by China s developing economy 12 The Big Society, values and co-operatives Fiona Wilson and Donald MacLean have initiated a research programme which revisits the co-operative format in the current climate 14 Understanding diversification Chris Veld looks current issues in banking and politics to explain the nuances of diversification. Contributors Sai Ding Sai joined Economics at Glasgow in January She obtained her PhD in Economics from the University of Birmingham in Sai previously held a postdoctoral research fellowship at the University of Oxford and was also a visiting lecturer at Brunel University, and a tutor at St. Catherine's College at Oxford University. Donald MacLean Donald received his PhD in optoelectronics from the University of Cambridge and spent ten years working in the optoelectronics industry, during which time he gained an MBA from Kingston University and held management positions in both the commercial and technical dimensions of the business. In 1991 he left industry for academia, first at Leeds Business School and then at the University of Glasgow where he is now a senior research fellow. His time is split between research at Glasgow and private work with a variety of clients on matters of strategy, leadership and business development. Evangelos Vagenas-Nanos Evangelos joined the Business School in 2010 as a lecturer in Finance. Previously, he was a teaching assistant in Finance at Durham Business School. Evangelos gained a BA in Economics from Aristotle University (Greece) while at Durham University he obtained an MSc in Finance and Investment as well as a PhD in Finance (2011). He also holds the Postgraduate Certificate (PGCert) in Teaching and Learning in higher Education qualification. His main research areas of interest lie in Corporate Finance, especially within the sub-field of Mergers and Acquisitions and Capital Structure as well as Behavioural Finance. Chris Veld Chris obtained his PhD from Tilburg University (Netherlands).

5 03 16 Why did Greece go bankrupt? Evangelos Vagenas-Nanos looks at the reasons behind the Greek crises 18 Diffusion of advanced techniques Hassan Yazdifar discusses a new area for research on the diffusion of management accounting innovations 20 My business: Quantitative Analysis John Crosby, Managing Director at Grizzly Bear Capital, on becoming a Quant 22 New Head of Subject for Management Iain Docherty shares his plans for the Management subject group 24 Peak Time: an International Business Student Competition The Adam Smith Business School and the College of Social Sciences sent three students to Riga for the Peak Time finals 26 Olympic bid Adam Smith Business School alumni win contract for producing Olympic merchandise 27 Bright stars Two Business and Management students participated in the Marketing Society s Student Star Programme 28 Making connections Adam Smith Business School staff reaching out to their wider network He worked at Tilburg in different capacities until He also held a part-time Chair in Personal Financial Planning sponsored by Rabobank. He joined the University of Glasgow in Chris has published in journals such as The Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Journal of Banking and Finance, Journal of Corporate Finance, and European Financial Management. Fiona Wilson Fiona came into academic life as a research assistant to the Director of Manchester Business School, Professor Tom Lupton in the late 1970s. The research was Action Research, designed to help companies solve their problems. Her first permanent job as a lecturer in Organizational Behaviour was at the University of St Andrews in She was promoted to Senior Lecturer in 1998 and was offered the job of Professor of Organizational Behaviour at the University of Glasgow in Hassan Yazdifar Prior to joining Glasgow University in 2011, Hassan held an academic position at Sheffield University and has taught at several other universities in the UK and overseas. Hassan gained a BA in accounting at the University of Shahid Beheshti (Iran), an MA in accounting at the university of Tehran (Iran), an MA in Social Research Methods at the University of Manchester (UK) and a PhD in Management Accounting from the university of Manchester (UK). He acts as an academic referee for a number of journals, publishers, and professional bodies.

6 04 Business brief A round-up of news and events in the Adam Smith Business School Adam Smith Business School professor in the top 1% in the world Professor Ronald MacDonald, Adam Smith Chair of Political Economy at the University of Glasgow Adam Smith Business School, has achieved an average rank score in the top 1% of researchers in Economics in the world according to IDEAS. The rankings on RePEc are compiled by IDEAS, a service hosted by the Economic Research Division of the Federal Reserve Bank of St Louis. RePEc (Research Papers in Economics) is a collaborative effort of hundreds of volunteers in 75 countries to enhance the dissemination of research in Economics and related sciences. The information in the database is used to rank over 30,000 registered economists. Ronald MacDonald has a wide range of interests in the general areas of macroeconomics and international finance, has published over 130 articles in peer-reviewed journals and has authored or edited 12 books. His work on exchange rate modelling has been influential in the academic literature and also for practitioners and policy makers. He has acted as a consultant to many organisations including the European Commission, the IMF, to governments, a wide range of central banks and a number of private sector financial institutions. SAMS Doctoral and Early Career Researchers Workshop In association with the High Potential Concepts, Phenomena and Theories in International Entrepreneurship Research conference, CIER with support and sponsorship from the Society for the Advancement of Management Studies (SAMS) ran a doctoral and early career researchers event. Twenty doctoral and early stage researchers attended the conference sessions to witness how theoretical and empirical advances are made in a new, hybrid field of study and had the opportunity to network with speakers and discussants. To help participants make the most of this opportunity, Professor Richard Thorpe, Leeds University Business School, chaired a session at the end of the day to enable participants to consolidate what they had learned, reflect on the various debates and discuss lessons relevant to their own research and publication.dr Margaret Fletcher (CIER) the workshop organiser said Professor Thorpe is well known for his interested in doctoral education and research, and we are delighted to welcome him as an honoured guest to the conference and workshop. For further details contact margaret.fletcher@glasgow.ac.uk Association for Social Economics World Congress The University of Glasgow will host the 14th World Congress of the Association for Social Economics (ASE) from June 2012, with the Adam Smith Business School supporting one of the plenary addresses. The theme of the conference is: Towards an Ethical Economy and Economics. The keynote speakers are: Prof Tony Atkinson (University of Oxford) who will lecture on Inequality and Economic Crises, and Prof Ben Fine (School of Oriental and African Studies, SOAS, University of London) who will deliver the Cairncross Lecture (supported by the Business School) on Economics: Unfit for Purpose.For more information, contact Robert McMaster on robert.mcmaster@glasgow.ac.uk. Adam Smith Business School Professor receives prestigious Distinguished Academic award Professor Vivien Beattie was awarded the Distinguished Academic award by the British Accounting and Finance Association (BAFA). At the national conference of the British Accounting and Finance Association (BAFA) in April, Professor Vivien Beattie, Professor of Accounting within the Adam Smith Business School, was awarded the prestigious Distinguished Academic Award (DAA) for The award is made annually to an individual who has made a substantial and direct contribution to UK academic accounting and finance life, through research, teaching and public service. Previous recipients include leading UK academics such as Geoff Whittington (Cambridge), Anthony Hopwood (Said Business School, Oxford) and Michael Bromwich (LSE). The chief responsibility of the awardholder is to present a plenary paper at the BAFA Annual Conference subsequent to the Annual Conference at which the award is given. Subject to appropriate editing, it is expected that the paper presented will appear, as an invited paper, in the British Accounting Review in the March issue of the calendar year following presentation.

7 05 03 The Business School renamed to honour Adam Smith s legacy From 1 June 2012, the Business School has officially been renamed the School will now be known as the University of Glasgow Adam Smith Business School. The new name reflects the University of Glasgow s long association with the moral philosopher and political economist, Adam Smith, and the School s aim to celebrate his legacy. The name of Adam Smith is recognised worldwide as one of the most influential figures to emerge from the Scottish Enlightenment and the field of Economics. His name has immense recognition worldwide. Naming the Business School in his honour commemorates his close ties to the University and will enhance the University s international reputation. Adam Smith (1723?-1790) enrolled at the University of Glasgow in He went to Balliol College, Oxford as a Snell Exhibitioner in 1740, returning to Scotland in He was appointed Professor of Logic at the University in 1751 and became Professor of Moral Philosophy the following year and held the chair until Smith served as Dean of Faculties and as the library s Quaestor (an official in charge of accounts), and he was elected to serve as Rector from 1787 to He established his reputation as a teacher and writer at the University of Glasgow; Theory of Moral Sentiments was published in 1759, based on his lectures on Ethics. He left Scotland in 1764 and returned three years later to live in Kirkcaldy, where he worked on his classic study An Inquiry into the Nature and Causes of the Wealth of Nations, published in In 1787, he remembered his years as a professor at the University as by far the happiest and most honourable in his life. The Adam Smith Business School is committed to honouring and developing the academic tradition of Adam Smith at Glasgow and to sustaining and enhancing the School s traditionally Scottish, broad, and multi-disciplinary approach to education. The School s ambition is to develop enlightened, enterprising and engaged graduates and to produce internationally recognised research that has an impact on society. By engaging in multi-disciplinary and research led teaching we engender in our students an appetite for critical enquiry and learning. We also encourage, informed by an employability and engagement agenda, the development of 21st century graduate attributes and skills. Internationally recognised research that informs academia, policy and practice will drive the Adam Smith Business School forward; its dissemination will inform teaching, shape our culture and deliver impact, whilst promoting the tradition of Scottish enlightenment and enterprise. Farhad Noorbakhsh, Head of School, commented: The University of Glasgow Business School is developing rapidly in its mission to be internationally known and highly regarded for both teaching excellence and high quality research. Our link to such a distinguished scholar differentiates the University and the Business School and demonstrates our interdisciplinary approach to business disciplines. The official launch of the Adam Smith Business School will be celebrated with a gala event in September, followed by a series of events in Scotland and abroad throughout the 2012/13 academic year. There will also be a special issue of Aspire magazine. Further information about the schedule of events will be made available on business.

8 06 Business brief Richard Harris named Lead Expert on government Future of Manufacturing Project The two-year project will call on industry and academic expertise from the UK and abroad to look at the long-term picture for the manufacturing sector, investigating global trends and drivers of change. It will explore how the UK can maximise these opportunities and provide an evidence base to help policy-makers navigate a challenging and uncertain future. It is being led by the Foresight team in the Government Office for Science under the direction of the Government s Chief Scientific Adviser, Professor Sir John Beddington, and is sponsored by the Department for Business, Innovation and Skills. The findings will inform Government policy throughout the duration of the project and beyond. Speaking at the Financial Times Future of UK Manufacturing Conference, Business Secretary Vince Cable said: Manufacturing has a key role to play in economic growth, in particular driving exports and productivity. But as industries and technologies evolve, we need to make sure we re staying ahead of the game. The Government is working with business to support and strengthen the UK s manufacturing capability. I look forward to this report from the respected Foresight team. It will make a powerful contribution to our work supporting British industry and to making sure that we retain our position as a world-class manufacturing nation at the cutting edge of new products and processes. Richard Harris, commenting on his appointment, stated I am delighted that the Government has decided to run this project. I have been an advocate of the importance of manufacturing throughout my academic career, and this has been a feature of many of my journal publications. Engaging with the Business Community In April the Adam Smith Business School took part in B2B Scotland This event, now in its second year, brought together key figures from the public and private sector to build a cross-industry community of forwardthinking organisations currently working across Scotland s core sectors. In line with the Scottish Government s ongoing commitment to supporting Scottish businesses and helping them to flourish, B2B Scotland showcased the crème de la crème of Scotland s vibrant businesses and was supported by both Scottish Enterprise and Business Gateway. Just under 800 delegates from both public and private sectors came along for a series of workshops and seminars. Professors Robert MacIntosh and Donald MacLean gave a keynote address based on their research into strategy development and leadership. One of the school s alumni, Bill McBride of Westcrowns, also spoke at the event alongside Crawford Gillies, Chairman of Scottish Enterprise, Nick Price, Founder & CEO of Bright Purple and Monica Langa of the Institute of Directors. Speaking after the event, Professor MacLean said it s great to see the school reaching out to the business community and building mutually productive relationships in key development sectors. Glasgow to host International Business Taxation Conference The University of Glasgow will be hosting the an International Business Taxation Conference on the theme of Tax Competition, Common Consolidation Tax Base and Fiscal Autonomy. The conference, which is organised jointly between Celine Azemar from the University of Glasgow Adam Smith Business School, Rodolphe Desbordes from the University of Strathclyde and Ron Davies from University College Dublin, is a Scottish Institute for Research in Economics (SIRE) event. The programme will consist of the presentation of academic papers with half a day devoted to discussion with policy makers and practitioners. Confirmed participants include Eckhard Janeba (Mannheim), Michael Devereux (Oxford), Ben Ferret (Loughborough), Nadine Riedel (Hohenheim), Simon Loretz (Bayreuth), Ian Wooton (Strathclyde), and Helen Miller (Institute for Fiscal Studies). The conference will take place 9-10 July The Art and Craft of Discussion Leadership The University of Glasgow Adam Smith Business School hosted a Case Method Teaching Seminar with Harvard Business Publishing. Dorothy A Leonard, the William J Abernathy Professor of Business Administration, Emerita, at Harvard Business School, facilited a discussion of fine-tune participant-centred learning and the case method. The event was attended by academics from Heriot Watt University, Lancaster University, RSM BV Erasmus University, University College Dublin, University of Strathclyde, the University of Turku and the University of Glasgow.

9 Scottish Centre for Economic Methodology On 26th March the University of Glasgow s Business School hosted, for the first time, a Scottish Centre for Economic Methodology (SCEME) seminar. The seminar was held to commemorate and celebrate the works and contribution of Mark Blaug, who passed away last November. Speakers included: Profs Vivienne Brown (Open University); Sheila Dow (Stirling); Richard Lipsey (Simon Fraser University, Canada) and Brian Loasby (Stirling). The Business School hosts the SCEME website, where information on future events will be available: research/researchcentresandgroups/ sceme/. The seminar was supported by the Scottish Institute for Research in Economics (SIRE). For more information about SCEME, contact Robert McMaster on robert. mcmaster@glasgow.ac.uk. Recent and upcoming publications Celine Azemar s paper, Market Familiarity and the Location of South and North MNEs will be published in Economics and Politics. Vivien Beattie has two forthcoming articles in Accounting and Business Research: Evaluating disclosure theory using the views of UK finance directors in the intellectual capital context and Publication Records of Faculty promoted to Professor: Evidence from the UK Accounting and Finance Academic Accounting Community. A paper by Jo Danbolt and Gillian Maciver on Cross-Border versus Domestic Acquisitions and the Impact on Shareholder Wealth has been accepted for publication by the Journal of Business Finance & Accounting. Sai Ding s Investment and Financing Constraints in China: Does Working Capital Management Make a Difference? will be published in the Journal of Banking and Finance. Iain Docherty has three recent publications: Scotland s fiscal options a response to Midwinter in Public Money and Management, Transport in a Sustainable Urban Future, in the The Future of Sustainable Cities: Critical Reflections (J Flint and M Raco) and The Governance of Transport Policy in Automobility in transition? A socio-technical analysis of sustainable transport (F Geels, R Kemp, G Dudley and G Lyons). Margret Fletcher recently had her article, Knowledge Acquisition for the Internationalization of the Smaller Firm: Content and Sources, published in International Business Review. A paper that she wrote with Shameen Prashantham has recently been chosen as a Highly Commended Award Winner at the Emerald Literati Network Awards for Excellence The paper Knowledge Assimilation Processes of Rapidly Internationalising Firms: Longitudinal case studies of Scottish SMEs, was published in the Journal of Small Business and Enterprise Development in Richard Harris has a forthcoming article in the Journal of Regional Science - Is productivity higher in British cities? Alexandros Kontonikas has a paper, The EMU sovereign-debt crisis: Fundamentals, expectations and contagion, which has been accepted for publication and is forthcoming at the Journal of International Financial Markets, Institutions and Money. Robert MacIntosh has a new book on change coming out in June 2012: Managing Change: Enquiry and Action. Alumni reception in Shanghai Chris Coles hosted an alumni reception in Shanghai. The dinner was attended by over 70 former and prospective students, and was arranged by Sarah Armour from Alumni Services. Other speakers were Jane Ducketts (Confucius Institute) and Annie McLoughlin (RIO). Coles met many former students in Shanghai, which is rapidly becoming one of the world s foremost financial services centres. Graeme Martin is writing an invited piece for the CIPD expert series on Talent management and innovation. Based in part on work with a colleague from the Southern Federal University of Russia Greg Stoner has co-written Introductory Accounting with Matrices at the Southern Federal University, Russia which will be pulished in Issues in Accounting Education, an official journal of the American Accounting Association. Chris Veld has articles forthcoming in Applied Economics Letters - The optimal call policy for convertible bonds: Is there a market memory effect?, Financial Management - What drives security issuance decisions? Market timing, pecking order, or both, and Journal of Banking and Finance - Why are convertible bond announcements associated with increasingly negative abnormal stock returns? An arbitrage-based explanation.

10 08 The Adam Smith Business School hosts top theorists Top theorists in international entrepreneurship research visited the University of Glasgow Adam Smith Business School for a conference on High Potential Concepts, Phenomena and Theories in International Entrepreneurship Research. The Centre for Business Education and Research (CIBER) - University of Colorado and the journal Entrepreneurship Theory and Practice have collaborated with the University of Glasgow Adam Smith Business School to host and sponsor this invitation-only conference. Professor Ray Bagby, editor of the journal Entrepreneurship Theory and Practice sponsored a celebratory dinner after the event in the prestigious Turnbull Room in the university. The aim of the conference was to advance research and theory in international entrepreneurship through the cross fertilisation of ideas and conceptual mapping of methods and theories from major established domains in management research, emphasising always the international context. The conference, which attracted theorists from around the world, took place on 14th and 15th June in the Adam Smith Business School. The generous sponsorship allowed the organisers to bring to the University some of the world s top scholars in international business entrepreneurship and management. The invited authors are known for their advances in theory development in the strategic management area and have outstanding publication records in world class journals. Most also hold positions of influence in leading scholarly organisations, at top-ranked business schools and are on the editorial boards of leading journals. The conference was co-hosted by Professors Marian V Jones, University of Glasgow, Patricia McDougall-Covin, Indiana University; Manuel Serapio, Center for International Business Education and Research (CIBER), University of Colorado Denver; and Professor Ray Bagby, Hankamer School of Business, Baylor University and Editor of Entrepreneurship Theory and Practice. Those giving invited papers or acting as invited discussants included from North America: Professors Sharon Alvarez and J.B. Barney, Ohio State University; Jeffrey Covin, Indiana University; Stephanie Fernhaber, Butler University; Rebecca Reuber, University of Toronto; Rod McNaughton, University of Waterloo; Saras D Sarasvathy, University of Virginia and Shaker Zahra, University of Minnesota. From Europe and beyond presenters and discussants included Dr Lucrezia Casulli, University of Newcastle; and Professors Jean- François Hennart, Tilburg University; Galina Shirokova, University of St Petersburg; Roger Strange, University of Sussex; Ivo Zander, University of Uppsala; and Antonella Zucchella, University of Pavia as well as Professors Pavlos Dimitratos and Marian Jones from the Adam Smith Business School. International entrepreneurship studies are concerned with how individuals and firms identify and exploit opportunities from the international environment and create new value.

11 09 International Entrepreneurship deals with complex phenomena. It involves understanding the antecedents and processes of opportunity discovery and creation and exploitation across national borders and their outcomes, involving a complex interplay of economic, institutional and behavioural factors. Thus various theoretical domains have informed international entrepreneurship research, ranging from resource based perspectives, social capital and network perspectives and a dynamic capabilities focus to learning, cognition and effectuation logic and economic geography. The area brings together researchers from a wide range of social science backgrounds and approaches and, while this interdisciplinary focus and interest is stimulating, forging the links to move theory and research practice forward in a coherent way is challenging. The invited papers have addressed the concepts, phenomena and theories from each theoretical domain to provide direction, insight and facilitate mapping with existing concepts in international entrepreneurship. We look forward to a significant step forward in international entrepreneurship research as a result. Professor Marian V Jones, Director of the Community for Internationalisation and Enterprise Research (CIER) in the Adam Smith Business School said: We are delighted to have been co organisers of this conference. The invitation and sponsorship from the Universities of Colorado and Indiana and the top-rated journal Entrepreneurship Theory and Practice to host this elite conference is recognition of the growing international status of this group of researchers within the Adam Smith Business School. CIER staff now have over thirty years of pioneering experience in the research and the development of this interdisciplinary field and our work is part of the interdisciplinary research emphasis of the University of Glasgow Business School as a whole. CIER is one of the world s largest and best recognised groups of researchers on internationalisation and CIER now comprises 12 members of academic research staff, 4 visiting professors, 9 honorary research fellows and 11 doctoral students. Over 100 students have graduated during the past 4 years of our masters programmes and 8 PhDs have been completed. Research has been widely published in leading academic journals with over 120 outputs since This conference will further enhance CIER s position. CIER has hosted numerous previous international conferences and workshops, but this June event is the most exciting so far. Subject, of course, to review, conference papers will be published in Entrepreneurship Theory and Practice (a 4* leading scholarly journal in the field of entrepreneurship studies) and we look forward to the outcomes of the excellent networking and idea dissemination opportunity that the conference has offered.

12 10 China s remarkable economic growth? Sai Ding, Lecturer in Economics at the Adam Smith Business School, reflects on the challenges faced by China s developing economy. How has the Chinese economy managed to grow at such a remarkable rate - no less than ten per cent per annumfor over three decades? This is one of the most important questions facing contemporary economists. The policies pursued by the Chinese Communist Party since the late 1970s qualify China as a developmental state, in which the overriding policy priority is economic growth. China became a developmental state when the leadership under Deng Xiaoping introduced economic reform in order to restore and maintain political legitimacy. The drive to create a market economy succeeded because one reform led to another in a cumulative process. New institutions provided the right incentive structures, a prime example being that appointments at many levels rewarded success in promoting economic growth. A policy of fiscal decentralisation gave growth incentives to all tiers of government. Entrepreneurs gained confidence from these policies, leading to a remarkably high level of both investment and saving by international standards. This combination of factors produced a virtuous circle of high confidence, high investment, high growth, and so on.

13 11 In our research, we examined the causal processes at work in the evolution of China s institutions and policies. We estimated cross-country and cross-province growth regressions to shed light on the proximate, and some of the underlying, determinants of the growth rate. For instance, China s outstanding performance relative to other countries is mainly due to the accumulation of physical capital, conditional convergence, and improvements in factor productivity through labour transfer out of agriculture. The level of human capital and slower population growth also contribute to the growth difference between China and other developing countries. Investment that matters The use of provincial level data permits investigating this issue further. For instance, finding capital accumulation to be important, we looked at what types of investment matter for China s growth. The impact of fixed investment is found to be especially powerful in the case of expenditure classified as investment in innovation, suggesting that physical investment is more productive when it is bound up with technological progress. For similar reasons, foreign direct investment makes a greater unit contribution than domestic investment. China s transition also involves rapid structural transformation: from domestic to export production, from the state to the non-state sector, and from agriculture to industry. In each case resources are reallocated from a less to a more productive activity. We measured the growth effect of these structural changes. The increase in the GDP share of both exports and imports raises the growth rate, consistent with the gains from trade derived from China s comparative advantage. Privatization of the economy also has a positive impact, consistent with improved incentives. The relative growth of non-agricultural employment has a similar effect, consistent with the higher product of labour in industry and possible externalities. In these three ways, by bringing it closer to the production frontier, the efficiency of the economy, and its growth rate, are improved substantially. The consequences of rapid growth Our research explored important consequences of China s rapid growth, posing a series of key questions, such as: is the economy running out of unskilled labour; why and how has inequality risen; has economic growth raised happiness; what are the social costs of the overriding priority accorded to growth objectives? Looking forward: can China continue to grow rapidly, or will the maturing economy, or the macroeconomic imbalances, or financial crisis, or social instability, bring it to an end? The growth success has brought with it new and different problems, which may threaten the current virtuous circle. Income inequality initially too low to provide the incentives needed in a market economy has risen to become the highest in Asia. China s environmental problems have escalated, and corruption is a source of concern for the leadership. China s system of governance provides little voice for its people and little political accountability. There is also the risk of an adverse shock, such as a financial crash associated with China s macroeconomic imbalances or social unrest. Because of these rising tensions the Chinese government has recently introduced policies to promote a Harmonious Society. Wealth vs. happiness The recent wealth of Chinese people does not equate with personal happiness. The unhappiest group in Chinese society are the rural-born workers who have migrated to the cities and towns. People still living in rural areas are found to have the highest happiness scores. Despite their much higher incomes, urban-born people are less happy than rural people. This is due to the loss of their iron rice bowls the security that the state-owned enterprises had provided before they were reformed or privatised - and their aspirations to keep up with the Zhous in the new market economy. The rural-urban migrants - there are now 150 million of them - have commonly raised their incomes by migrating but their aspirations have risen even faster as they become part of urban society. Future growth The Chinese economy is unlikely to continue to grow at its current rate. There is less scope for the rapid structural change that has fuelled growth up to now. The one-child family policy of the reform period means that the labour force is beginning to decline, and the hitherto abundant supply of migrants from the countryside is drying up. This will require a change in development strategy away from the currently successful one of producing labour intensive exports. As a matter of fact, according to the recent World Bank data, China s growth rate turns out to be 8.1% per annum for the first quarter of 2012, which is the lowest pace in the past three years and lower than most analysts had predicted. What can other developing economies learn from China? The Chinese economy is too different to permit simple copying. The most important lesson that it offers other countries lies in the answer they can find to the question: Can they create a developmental state while avoiding the disadvantages that have accompanied it in the Chinese case? China s Remarkable Economic Growth by John Knight (Emeritus Professor of Economics at Oxford University) and Sai Ding (Lecturer in Economics at the University of Glasgow) is published on Oxford University Press.

14 12 The Big Society, values and co-operatives In a context of government promotion of co-operatives, a growth in the co-operative economy, and in times when use of the term co-operative appears to have broadened to include any form of employee ownership, Fiona Wilson and Donald MacLean have initiated a research programme which revisits the co-operative format in the current climate. There appears to be a renewed interest and enthusiasm for co-operatives, The United Nations proclaimed 2012 the International Year of Co-operatives declaring, Co-operatives build a better world. The UK s coalition government has pledged to support the creation and expansion of cooperatives as part of The Big Society 1. The Big Society has been defined as A society in which power and responsibility have shifted: one in which, at every level in our national life, individuals and communities have more aspiration, power and capacity to take decisions and solve problems themselves, and where all of us take greater responsibility for ourselves, our communities and one another 2. In the initial stages of our work we explore issues such as What does co-operative working mean to those who work in co-ops, and, Is there clear evidence of co-operative values to be found in co-operatives? These questions are posed at a time The Big Society is not without its critics. For example critics have accused the government of hijacking the co-operative movement pointing out that its definition of the Big Society is remarkably similar to the definition of the cooperative movement whose espoused values include self help and self responsibility. Growth in the co-operative economy There has been a period of growth in co-operative economy. In 2010, while the UK economy as a whole contracted by 4.9%, the co-operative economy grew by 15.8% to 33.5billion. There has also been growth in turnover, profit, net assets, members and numbers of registered cooperatives. In the UK there are now 4,820 jointly owned and democratically controlled businesses owned by 11.3 million people (1 in 5 of the population) sustaining more than 205,800 jobs. In addition, recent research reveals that employee-owned businesses, employing 75 staff or less, generate 1 See pdf 2 substantially better profits before tax than non employee owned businesses of a similar size. They have created jobs more quickly during the recession and are more resilient than conventionally structured companies, outperforming the market during the downturn and demonstrating a lower risk of business failure. More than two thirds of quantitative academic studies have found a favourable relationship between employee ownership and employee attitudes and behaviour. Motivation and commitment can be enhanced. Cooperatives are four times more likely to be described as fair and honest compared to Public Limited Companies (PLCs); PLCs are seven times more likely to be described as greedy by consumers. It is not surprising then that the economy would be seen to benefit with the generation of more co-operatives. Defining the co-operative For most of us the, idea of a co-op conjures a picture very similar to the official definitions such as that of the International Co-operative Alliance (ICA): A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democraticallycontrolled enterprise 3. Underpinning this definition is an assumed subscription to values such as self-help, democracy and equality and an ethical stance aligned with principles and practices of openness, participation and social responsibility. We wanted to gauge the extent to which these values and principles evidenced in practice of cooperatives. It was within this context of a renewed interest in, and controversy about, employee owned business and cooperatives we began researching co-operatives in Scotland. In Scotland, economic development policy recognises significant scope to generate sustainable economic growth thorough promoting business models based on 3 See

15 13 collaboration. Co-operating with others is seen to reduce risk and enable economic, environmental and community benefits to be realised. These benefits are of particular relevance in rural and island Scotland where socio-economic fragility and risk of decline are seen to be high, and sustainability of communities is a key ongoing concern. Cooperatives in Scotland make a significant contribution to the economy employing 28,600 and produce just over 4billion in turnover. Safeguarding independence Perhaps surprisingly, initial findings led us to question whether the participants in these producer co-operatives see themselves as working in a co-operative at all. Those who participate in the co-operatives are typically independent farmers, fishers and artisans keen to promote their individual businesses and protect their independent livelihoods. They are motivated primarily by individualism and survival rather than shared or co-operative values. Paradoxically, this indicates co-operation as a specific means to an end continued independence. The relationship between cooperation and autonomy is thus more intertwined than one might glean from many contemporary accounts; they do not exist as separate and distinct set of interests or behaviours. Members are independent and individual first and then secondly are prepared to co-operate to safeguard that independence. Somewhat ironically, most co-op members the researchers encountered might be said to have a strong collective or shared belief in the primacy of independence. Far from being managerially distinctive, our questioning found a number of further interesting issues. First, while the co-operatives had been set up to help the members buy at lower costs and sell with reduced risk at higher returns, and give them access to markets otherwise beyond their reach, the members were not necessarily co-operating in the sense of active participation with one another on a daily basis, but were having the co-operative managers do it for them. It could be argued that the act of co-operating had been delegated to professional managers. They would use a shop or a manager to manage the work of the co-operative. This is the opposite of what the Big Society is about and how member control and participation might be expected to work in a co-operative. While government policy and cooperative principles are formulated to encourage people to run organisations such as co-operatives themselves, they actually may not have the expertise, experience or motivation to run the co-op themselves, but are content to have managers do it for them. Secondly, one might expect that the co-operatives would have been set up by people who believed in the principles of co-operation and that the members would share that enthusiasm and belief in co-operation. However, in each case, the initiative for setting up the co-operative had come from out-with the co-op and those it would benefit. In one case, the Chair of the co-op s brother persuaded them to form a co-operative. It was thought that a co-operative would make the participants more equal than an association. Another a fishing co-op was begun by two teachers and the majority of founding members were not fishermen but included coal merchants, tailors and a baker. This was a group whose main aim was to help the fishing industry which they saw as key to the island s traditions and future, and, so in turn, to the sustainability of their own businesses and community. While the co-operative was set up under cooperative rules, the model rules might be said to be firmly in the background, where the emphasis is on the practices of a typical, professionally run business. Co-operative principles The research also discovered that the founding principles and values of co-operatives were not very visible or easy for current members to articulate. It would have been difficult, if not impossible, for any co-op member to discuss the principles or values of co-operatives. While a minority of co-op members may have been active participants in setting policies and making decisions in the co-operative, one suspected that the majority were not. Also the word co-operative did not appear in their name, so the projected identity of the organisation was not clearly co-operative. One of our interviewees said that he thought a lot of co-ops have tried not to look like co-ops as the co-operative identity is seen as old fashioned. So the preliminary evidence raises questions about the evolution and current status of the values, principles and practices of co-ops and indeed the variety of expressions of co-operative formats. This may be good news for those involved in promoting the Big Society where there is a need for self-help and self-responsibility as well as for people to work co-operatively. Or it may be that we need to rethink the reality of co-operative as a panacea remedy to issues of sustainability and self-help. In the view of our research, some important work is still to be done starting with a more systematic appraisal of what is meant by different stakeholders and groupings when they use terms such as co-operation, collaboration and participation, what forms these ideas take in terms of structure and practice in co-operatives, and how this varies, for example, on a geographical basis. When this work has been done, we might be better placed to say whether the coalition government can expect to see greater cooperation in the Big Society.

16 14 Understanding diversification Diversification is a far-reaching concept that translates into some of the hotly debated topics in the press. Chris Veld looks at the payment of bank managers in shares of their own bank and the discussion on the Scottish independence, to explain the nuances of diversification. Do not put all your eggs in one basket An important concept in investments is diversification. The basic idea is very simple: if you invest all your money in shares of common stock of the same company, e.g. Microsoft, you run a larger risk than if you spread your investment over different shares. The reason is that by investing in only one company, you run company-specific risk, also referred to as non-systematic risk.

17 15 Microsoft could end up in an expensive lawsuit, the CEO of Microsoft could suddenly decide to step down, or Microsoft Outlook could be hit by a malicious virus. By spreading your investment you decrease the importance of this firmspecific risk. Moreover, since it is easy and virtually costless to bring down the firm-specific risk component, investors are not compensated for carrying this type of risk. Based on this reasoning, many investors choose to invest in different shares of common stock or, if they don t have enough money to diversify themselves, they choose to invest in investment funds, where managers do the diversification for them. Even though the concept of diversification is wellunderstood, there are still some hotly debated topics in the popular press where the concept is relevant, but where it is not always picked-up. Bank managers bonuses A topic that frequently makes headlines (and fairly so) is bank managers bonuses. Each announcement or even speculation about upcoming bonuses is greeted with an amount of criticism about the size of the bonuses that the banks are planning to hand out. The size of the bonus that is reported is invariably the sum of the cash amount (if any) and the value of shares and stock options that are awarded. However, the shares that are awarded typically have to be held for three years. The fact that managers are forced to heavily invest in shares of the company for which they already work, strongly limits their potential to diversify their wealth. For that reason the value of the stocks for the managers is less than the value of the stocks on the market. Using the methodology of Meulbroek (2001), we have done some research on what would be a reasonable discount for managers that would have to hold stocks of a large Dutch company (CMG), where managers are forced to hold half of a large Dutch company (CMG), where managers are forced to hold half of their annual salary in shares of CMG (see Veld and Veld-Merkoulova, 2002). The discount depends on the percentage of CMG shares in the portfolio of the manager. We find that if the percentage of shares of CMG in the total portfolio is 25% that the applicable discount is 3% if the holding period is 1 year. This percentage runs up to 41% if the holding period is 20 years. Similarly, if the percentage of the total portfolio is 75%, the applicable discount is 6% for one year and even 74% for 20 years. Of course, the bonuses of the bank managers can be substantial (sometimes several millions), but it is fair to acknowledge that the lack of diversification possibilities limits the true value of the bonus. An independent Scotland Another contemporary topic, and one making even more headlines is that of the question whether Scotland should become independent. Of course, independence is about much more than financial matters, but one aspect that has not received a lot of attention is that of the relatively poor diversification of the Scottish economy. In oil revenues accounted for 18% of the GDP of Scotland. That is a very large amount. A problem with oil, and with virtually every other commodity, is that its price is influenced by non-systematic risk components. If a revolution breaks out, or to the contrary gets resolved, in one of the countries in the middle-east, the oil prices will be affected. It is an important question whether the residents of a country would so strongly want to rely on the price of one commodity. If Scotland would, on the other hand, remain part of the UK, its reliance on oil revenues would be much smaller. In oil revenues only accounted for 1.8% of the British GDP. As The Economist (2012) puts it succinctly: Scotland would be far more vulnerable to shocks as a nation of 5m people than as part of a diversified economy of 62m. Are there solutions? The development of markets for derivative securities can offer potential solutions for problems of poor diversification. In theory, a manager who holds a large amount of restricted stock could take a position in derivative securities and solve the diversification problem. She could e.g. buy put options on the company s stock. These put options would entitle her to sell the stock for a fixed price. However, it is not likely that regulators and shareholders would approve of managers betting against their own stock. The case for hedging oil risk for the Scottish government is easier. Nowadays an entire array of different oil derivatives is available to hedge oil risk. The government of an independent Scotland could use e.g. oil futures or oil forwards to hedge the risk. In that case the government would receive money from the counterparty in the derivatives transaction if the oil price would go down and they would pay them if oil prices went up. The only problem they would have is explaining to the voters why they have made losses on derivative securities in times of rising oil prices. References: Meulbroek, Lisa: The efficiency of equity-linked compensation: understanding the full cost of awarding executive stock options, Financial Management, Summer 2001, page The Economist: The Scottish play, April 14, 2012, page Veld, Chris and Veld-Merkoulova, Yulia: Zichzelf verarmende topmanagers (transl. Top managers who make themselves poorer), Economisch Statistische Berichten, 2002, page