Author Archives: bbatiz

About bbatiz

I have edited NEP-HIS since 1999 and its blog in 2010. My background is economics and business history. I am currently at Bangor Business School (Wales) and my research interests are broadly in applications of computer technology, retail banking and the cashless society.

Governance structures and market performance

Contractual Freedom and Corporate Governance in Britain in the Late Nineteenth and Early Twentieth Centuries

by Timothy W. Guinnane (Yale), Ron Harris (Tel-Aviv University), and Naomi R. Lamoreaux (Yale)

Abstract: British general incorporation law granted companies an extraordinary degree of contractual freedom. It provided companies with a default set of articles of association, but incorporators were free to reject any or all of the provisions and write their own rules instead. We study the uses to which incorporators put this flexibility by examining the articles of association filed by three random samples of companies from the late nineteenth and early twentieth centuries, as well as by a sample of companies whose securities traded publicly. Contrary to the literature, we find that most companies, regardless of size or whether their securities traded on the market, wrote articles that shifted power from shareholders to directors. We find, moreover, that there was little pressure from the government, shareholders, or the market to adopt more shareholder-friendly governance rules.

Business History Review, Volume 91 (2 – Summer 2017): 227-277.

DOI: https://doi.org/10.1017/S0007680517000733

Review by John Turner (Centre for Economic History, Queen’s University Belfast)

Tim Guinnane, Ron Harris and Naomi Lamoreaux are three scholars that every young (and old) economic historian should seek to emulate. This paper showcases once again their prodigious talent – there is careful analysis of the institutional and legal setting, a lot of archival evidence, rigorous economic analysis, and an attempt to understand how contemporaries viewed the issue at hand.

In this paper, Guinnane, Harris and Lamoreaux (GHL) examine the corporate governance of UK companies in the late nineteenth and early twentieth centuries. The UK liberalised its incorporation laws in the 1850s and introduced its first Companies Act in 1862. From a modern-day perspective, this Act enshrined very little in the way of protection for shareholders. However, the Appendix to the 1862 Companies Act contained a default set of articles of association, which was the company’s constitution. This Appendix, known as Table A, provided a high level of protection for shareholders by modern-day standards (Acheson et al., 2016). However, the majority of companies did not adopt Table A; instead they devised their own articles of association.

The aim of GHL’s paper is to analyse articles of associations in 1892, 1912 and 1927 to see the extent to which they shifted power from shareholders to directors. To do this, GHL collected three random samples of circa 50 articles of association for 1892, 1912 and 1927. Because most (if not all) of these companies did not have their securities traded on stock markets, they also collected sample of 49 commercial and industrial companies from Burdett’s Official Intelligence for 1892 that had been formed after 1888. However, only 23 of these companies had their shares listed on one of the UK’s stock exchanges.

GHL then take their samples of articles to see the extent to which they deviated from the clauses in Table A. Their main finding is that companies tended to adopt governance structures in their articles which empowered directors and practically disenfranchised shareholders. This was the case no matter if the company was small or large or public or private. They also find that this entrenchment and disenfranchisement becomes more prominent over time. However, GHL unearth a puzzle – they find shareholders and the market appeared to have been perfectly okay with poor corporate governance practices.

How do we resolve this puzzle? One possibility is that shareholders (and the market) at this time only really cared about dividends. High dividend pay-out ratios in this era kept managers on a short leash and reduced the agency costs associated with free cash flow (Campbell and Turner, 2011). Interestingly, GHL suggest that this may have made it more difficult for firms to finance productivity-enhancing investments. In addition, they suggest that the high-dividend-entrenchment trade-off may have locked in managerial practices which inhibited the ability of British firms to respond to future competitive pressures and may ultimately have ushered in Britain’s industrial decline.

Another solution to the puzzle, and one that GHL do not fully explore, is that the ownership structure of the company shaped its articles of association. The presence of a dominant owner or founding family ownership would potentially lessen the agency problem faced by small shareholders. In addition, founders may not wish to give too much power away to shareholders in return for their capital. On the other hand, firms which need to raise capital from lots of small investors on public markets may adopt more shareholder-friendly articles. The vast majority of companies in GHL’s sample do not fall into this category, which might go some way to explaining their findings.

A final potential solution is that the vast majority of firms which GHL examine may have raised capital in a totally different way than public companies, and this shaped their articles of association. These firms probably relied on family, religious and social networks for capital, and the shareholders trusted the directors because they personally knew them or were connected to them through a network. Indeed, we know precious little about how and where the multitude of private companies in the UK obtained their capital. Like all great papers, GHL have opened up a new avenue for future scholars. The interesting thing for me is what happens when private firms went public and raised capital. Did they keep their articles which entrenched directors and disenfranchised shareholders?

Unlike the focus of GHL on mainly private companies, a current Queen’s University Centre for Economic History working paper examines the protection offered to shareholders by circa 500 public companies in the four decades after the 1862 Companies Act (Acheson et al., 2016). Unlike GHL, it takes a leximetric approach to analysing articles of association. Acheson et al. (2016) have two main findings. First, the shareholder protection offered by firms in the nineteenth century was high compared to modern-day standards. Second, firms which had more diffuse ownership offered shareholders higher protection.

How do we reconcile GHL and Acheson et al. (2016)? The first thing to note is that most of Acheson et al’s sample is before 1892. The second thing to note is that in a companion paper, Acheson et al. (2015) identify a major shift in corporate governance and ownership which started in the 1890s – companies formed in that decade had greater capital and voting concentration than those formed in earlier decades. In addition, unlike companies formed prior to the 1890s, the insiders in these companies were able to maintain their voting rights and entrench themselves. This corporate governance turn in the 1890s is where future scholars should focus their attention.

References

Acheson, Graeme G., Gareth Campbell, John D. Turner and Nadia Vanteeva. 2015. Corporate Ownership and Control in Victorian Britain. Economic History Review 68: 911-36.

Acheson, Graeme G., Gareth Campbell John D. Turner. 2016. Common Law and the Origin of Shareholder Protection. QUCEH Working Paper no. 2016-04.

Campbell, Gareth and John D. Turner. 2011. Substitutes for Legal Protection: Corporate Governance and Dividends in Victorian Britain. Economic History Review 64:571-97.

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Linking the Growth of Globalisation with the Evolution of Transport Technology

The Rise of American Ingenuity: Innovation and Inventors of the Golden Age
By Ufuk Akcigit (University of Chicago), John Grigsby (University of Chicago) and Tom Nicholas (Harvard Business School)

Abstract: We examine the golden age of U.S. innovation by undertaking a major data collection exercise linking historical U.S. patents to state and county-level aggregates and matching inventors to Federal Censuses between 1880 and 1940. We identify a causal relationship between patented inventions and long-run economic growth and outline a basic framework for analyzing key macro and micro-level determinants. We find a positive relationship between innovation and drivers of regional performance including population density, financial development and geographic connectedness. We also explore the impact of social structure measured by slavery and religion. We then profile the characteristics of inventors and their life cycle finding that inventors were highly educated, positively selected through exit early in their careers, made time allocation decisions such as delayed marriage, and tended to migrate to places that were conducive to innovation. Father’s income was positively correlated with becoming an inventor, though not when controlling for the child’s education. We show there were strong financial returns to technological development. Finally, we document an inverted-U shaped relationship between inequality and innovation but also show that innovative places tended to be more socially mobile. Our new data help to address important questions related to innovation and long-run growth dynamics.

URL: http://EconPapers.repec.org/RePEc:nbr:nberwo:23047

Circulated by NEP-HIS on: 2017-01-29

Review by Tom Spain (Bangor University)

In this paper Akcigit, Grisby, and Nicholas highlight the advancement of transportation technology in the United States between 1880 and 1940, while better transport responded to the need to link the more developed and innovative regions of the country. Akcigit, Grisby and Nicholas find that the American transport links were much stronger and of better quality between more developed regions in terms of finance and innovation, which, in turn, Hart and Milstein (2003) point to as key aspects for a successful capitalist society.

BrooklynBridge

Brooklyn Bridge, took 14 years to be constructed (1869-1883). Source: Museum of the City of New York/Getty Images, found in The Guardian, “Brooklyn Bridge under construction – picture of the day,Brooklyn Bridge under construction – picture of the day,” May 24, 2013. 

Research by Akcigit, Grisby and Nicholas is in line with others such as Harris (2015), who highlights that there is a direct link between advancements in technology and the growth of globalisation. The findings by Akcigit, Grisby and Nicholas, therefore, can be seen as the starting point for the globalisation of the American model of capitalism.

Akcigit, Grisby and Nicholas state that during the 1880s emerged a belief that “geographic connectivity” should increase for there to be a rise in innovation: this increase would open up new markets for businesses to sell to. Here Akcigit, Grisby and Nicholas rehearse a well-recognised argument that improvements in geographic connectivity lead to an increase in globalisation, and, therefore, advancements in transport technology are also an important factor for globalisation (Rodriguez 1999).

Another aspect discussed by Akcigit, Grisby and Nicholas is the link between the amount of investment of American states on transport infrastructure and the amount of innovation emerging from said states. Here it is shown that the more a state invested on transport infrastructure the more innovations came from that state. For instance, the authors mention that in the golden era of innovation the Midwest played a big part in US innovation via manufacturing. However, due to the constant value-seeking attitude towards capitalistic globalisation the contemporary Midwest is not as prosperous as it once was (Castle 1995). However, the question as to whether these states developed in terms of overall population is unanswered. As Banister and Berechman (2001) argue, the geographic connectivity aspects of globalisation may see areas lose resources, skills and, in turn, become poorer.

In terms of what could be improved in the paper by Akcigit, Grisby and Nicholas, the first thing to note is that it only highlights the level of innovation in terms of the amount of granted patents. This is unlike works conducted by the likes of Feldman and Florida (1994) who not only seek to see the level of innovation in each state but also what particular sector the innovations were in. The paper by Feldman and Florida (1994) also provides more detail of how many of the innovations were successful in terms of whether they were the technological underpinnings for future developments in a specific sector.

Akcigit, Grisby and Nicholas suggest that all of the American states where transport and innovation increased also saw a reduction in inequality. In fact, in many cases inequality amongst the most innovative of states rose. This concurs with other research which suggests that inequality is a by-product of globalisation (Piketty and Saez, 2003).

A possible venue of research along the lines suggested by the paper is the importance of the advancement in transport technology and the role that it played in being able to create geographic connectivity. This link can be seen in the work of Usselman (2002).

References

Banister, D. and Berechman, Y., (2001). “Transport Investment and the Promotion of Economic Growth.” Journal of Transport Geography 9(3), pp.209-218.

Castle, E.N., (1995). The Changing American Countryside: Rural People and Places. Lawrence, KS: University Press of Kansas.

Feldman, M.P. and Florida, R., (1994). “The Geographic Sources of Innovation: Technological Infrastructure and Product Innovation in the United States.” Annals of the Association of American Geographers 84(2), pp.210-229.

Harris, J., (2015). “Globalization, Technology and the Transnational Capitalist Class.” Foresight 17(2), pp.194 – 207.

Hart, S.L. and Milstein, M.B., (2003). “Creating Sustainable Value.” The Academy of Management Executive 17(2), pp.56-67.

Piketty, T. and Saez, E., (2003). “Income Inequality in the United States, 1913–1998.” The Quarterly Journal of Economics 118(1), pp.1-41.

Rodriguez, J.P. (1999). “Globalization and the Synchronization of Transport Terminals.” Journal of Transport Geography 7(4), pp.255-261.

Usselman, S.W. (2002). Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840-1920. Cambridge: Cambridge University Press.

Contingencies of Company Law: On the Corporate Form and English Company Law, 1500-1900

The Development of English Company Law before 1900

By: John D. Turner (Queen’s University Belfast)

Abstract: This article outlines the development of English company law in the four centuries before 1900. The main focus is on the evolution of the corporate form and the five key legal characteristics of the corporation – separate legal personality, limited liability, transferable joint stock, delegated management, and investor ownership. The article outlines how these features developed in guilds, regulated companies, and the great mercantilist and moneyed companies. I then move on to examine the State’s control of incorporation and the attempts by the founders and lawyers of unincorporated business enterprises to craft the legal characteristics of the corporation. Finally, the article analyses the forces behind the liberalisation of incorporation law in the middle of the nineteenth century.

URL: http://econpapers.repec.org/paper/zbwqucehw/201701.htm

Ditributed by NEP-HIS on: 2017-02-19

Review by Jeroen Veldman (Cass Business School, City University)

 

The article provides an overview of the development of English company law in the four centuries leading up the 20th century, showing how five key legal characteristics, i.e. separate legal personality, limited liability, transferable joint stock, delegated management, and investor ownership developed.

What may be most striking about Turner’s account is the way in which it shows the contingency of the development of these distinct concepts and the configurations in which they appear. As Woodward (1985a: 12), quoted by Turner, says it is “shocking how non-laissez-faire are the roots of the corporation – a quintessentially laissez-faire institution”. Turner shows how James I needed the money from corporate charters, as they provided an attractive source of revenue for the Crown that allowed to bypass Parliament. (Turner, 2017: 5), making the grant of such corporate charters the object of an ongoing war between Crown and Parliament in the 16th and 17th Century. Subsequently, he shows how the Bubble Act in the 18th Century was not so much a means to keep companies from forming, but rather  a means “… to limit alternative investment opportunities so that capital would be diverted towards shares in the South Sea Company.” (Turner, 2017: 8).

eastindia

Arms of the East India Company (New York Public Library. Digital ID: 414409). Retrieved from http://www.victorianweb.org/history/empire/india/eastindia.html.

The contingent development of company law is also apparent in the use of corporations as an important instrument for colonial administrative organization overseas and the use of trading monopolies as a key instrument in foreign policy (Turner, 2017: 5). Furthermore, the establishment of specific Companies, such as the Bank of England in 1694 was pivotal for the lending of money to the State, and the raising and administration of the public debt (Turner, 2017: 9). The conceptual development of the modern corporation was thus connected to and contingent upon the simultaneous development of ideas about sovereignty, the state, and the representation of group rights and obligations (Kantorowicz, 1997; Maitland, 2003).

Turner then shows how the further development of the corporation in the 19th century is driven largely by the growing power of an emerging enriched middle class looking for outlets and protection for its investment. The development of the five key legal characteristics provided an architecture for the public corporation that functioned as an excellent vehicle to accommodate the wealth accruing to this new class, as it allowed to drop managerial obligations and to focus on a liquid share market instead (Ireland, 1996 and 1999; Veldman and Willmott, 2017).

Turner concludes by saying that “…the common law judiciary in the 18th and 19th centuries was extremely conservative and did not respond in a dynamic fashion to the new business environment which had arisen” (Turner, 2017: 22). His account therefore shows how, contrary what is commonly believed in the law and economics debate, common law did not develop as a highly dynamic and pragmatic practice-following type of law. What Turner convincingly shows, then, is that the development of English Company Law started to change from the 19th century, that this development led to development and acceptance of the five key legal characteristics and that the specific configuration of these elements that come together in the modern corporation. He also shows how the changes in English Company Law that allowed for these elements and their configuration were related to the institutionalization of particular political and economic interests.

In relation to the contingent development of the elements and configuration that make up the core characteristics of the modern corporation that Turner describes we may ask a number of questions of the specific model of the modern corporation that was developed during the 19th century and which still provides a template that is very much followed worldwide.

The first question is whether we can imagine a coherent alternative, in which the elements and their configuration had developed differently. Can we imagine limited liability, perpetuity, transferable joint stock with fully paid up shares and a secondary share market, the removal of ultra vires, separate legal personality, the development of delegated and professional management, rentier investment by shareholders with a shielded position largely external to the architecture of the modern corporation and, later, the development of holding companies and transnational operations as the outcome of the institutionalization of legal privileges for specific groups? And can we still imagine the institutionalization of these privileges as contingent and conditional?

The second question is whether we can rethink the presumed optimality of the current configuration of the corporation. It may be argued that the arrangements developed for the modern public corporations were developed in a specific political and economic context that provided a strong background for the development of ideas about minority shareholder protection at the time (Freeman et al., 2011; Johnson, 2010), for instance. The question is, how the specifics of that configuration relates to more recent changes in the corporate governance environment, such as the phenomenal rise of institutional and activist investors, increases in foreign ownership and high frequency trading, and the development of transnational group structures.

More specifically, we may consider that the development of the elements and configurations of the core characteristics of the modern corporation have had large effects on subsequent macro-economic developments (Chandler, 2003; Hannah, 2010), and continue to impact on the distribution of social wealth (Ireland, 2005). Turner observes that “The evolution of corporate law after 1900 … was chiefly concerned with resolving the agency problems which arose out of conflicts created by the coming together of these characteristics, i.e., shareholders vs. managers, shareholders vs. shareholders, and shareholders vs. other constituents (e.g., creditors and employees).” (Turner, 2017: 3). Considering that the present configuration that defines the modern corporation is based on the interests of an emerging class of rentier investors in the mid-19th century we may need to consider whether those agency problems have been sufficiently resolved and whether the specific configuration that developed during the 19th century still delivers an optimal configuration for all parties involved in corporate governance arrangements and outcomes (Veldman et al., 2016).

In the light of the description of the contingent nature of the development of company law and corporate governance theory, it is interesting to note that Turner chooses to describe the development of ‘the corporate form’ and its five key characteristics as an almost teleological process in which “the evolution of company law in England up to 1900 was all about the struggle to enable business enterprises to have all five of the core structural characteristics outlined above” and that this evolution was hampered by “the efforts of the legal system and the political elite to stifle the development of particular characteristics during most of this era.” (Turner, 2017: 3). Such a teleological approach to the development of company law has been criticized more broadly as naturalizing the development of existing corporate governance configurations into a necessary or optimal end point, and ignoring the development of company law as the institutionalization of particular interests (Ireland, 2005; Johnson, 2010).

Turner’s account provides all the necessary ingredients to engage with the development of the five key legal characteristics and their configurations as the result of the capacity for countervailing powers to engage in the corporate governance debate. In this light, the continuous absence of particular characteristics and configurations in the debate pre-19th century can be viewed, not as the ‘stifling’ of a necessary or optimal ‘evolution’, but rather as the result of a different configuration of interests. Such a view of the development of the elements and configuration that make up the modern corporation as a contingent and interest-inflected development makes an interesting contribution to the current debate on corporate governance, and allows to relate the debate on the historical institutionalization of these choices to current debates on the broad opportunities and risks that are associated with choices about the institutionalization of privileges, rights and obligations for specific groups in a theory of corporate governance (Veldman and Willmott, 2016).

 

References

Chandler, A. D. (2002). The Visible Hand: The Managerial Revolution in American Business. Cambridge, USA: Harvard University Press.

Freeman, M., Pearson, R., & Taylor, J. (2011). Shareholder democracies?: Corporate Governance in Britain and Ireland before 1850. Chicago: University of Chicago Press.

Hannah, L. (2010). The Rise of the Corporate Economy. Oxon, UK: Routledge.

Ireland, P. (1996). Capitalism without the Capitalist: the Joint Stock Company Share and the Emergence of the Modern Doctrine of Separate Corporate Personality. The Journal of Legal History, 17(1), 41–73.

Ireland, P. (2005). Shareholder Primacy and the Distribution of Wealth. Modern Law Review, 68(1), 49–81. http://doi.org/10.1111/j.1468-2230.2005.00528.x

Ireland, P. (1999). Company Law and the Myth of Shareholder Ownership. Modern Law Review, 62(1), 32–57. http://doi.org/10.1111/1468-2230.00190

Johnson, P. (2010). Making the Market: Victorian Origins of Corporate Capitalism. Cambridge: Cambridge University Press.

Kantorowicz, E. H. (1997). The King’s Two Bodies : A Study in Mediaeval Political Theology. Princeton ; Chichester: Princeton University Press.

Maitland, F. W. (2003). State, Trust and Corporation. (D. Runciman & M. Ryan, Eds.) Cambridge Texts in the History of Political Thought. Cambridge: Cambridge University Press.

Turner, J. D. (2017). The Development of English Company Law before 1900 (No. 2017–1). Belfast: Queen’s University Centre for Economic History. Retrieved from https://www.econstor.eu/handle/10419/149911

Veldman, J., & Willmott, H. (2016). The Cultural Grammar of Governance: The UK Code of Corporate Governance, Reflexivity, and the Limits of “Soft” Regulation. Human Relations, 69(3). http://doi.org/10.1177/0018726715593160

Veldman, J., Morrow, P., & Gregor, F. (2016). Corporate Governance for a Changing World: Final Report of a Global Roundtable Series. Brussels and London: Frank Bold and Cass Business School.

Veldman, J., & Willmott, H. (2017). The Corporation in Management. In G. Baars & A. Spicer (Eds.), Critical Corporation Handbook. Cambridge, UK: Cambridge University Press.

Woodward, S. (1985). The Struggle for Fungibility of Joint-Stock Shares as Revealed in W.R. Scott’s Constituion and Finance of English, Scottish, and Irish Joint-Stock Companies to 1720 (No. 377). UCLA Economics Working Papers. UCLA Department of Economics. Retrieved from https://ideas.repec.org/p/cla/uclawp/377.html

 

No man can serve two masters

Rogue Trading at Lloyds Bank International, 1974: Operational Risk in Volatile Markets

By Catherine Schenk (Glasgow)

Abstract Rogue trading has been a persistent feature of international financial markets over the past thirty years, but there is remarkably little historical treatment of this phenomenon. To begin to fill this gap, evidence from company and official archives is used to expose the anatomy of a rogue trading scandal at Lloyds Bank International in 1974. The rush to internationalize, the conflict between rules and norms, and the failure of internal and external checks all contributed to the largest single loss of any British bank to that time. The analysis highlights the dangers of inconsistent norms and rules even when personal financial gain is not the main motive for fraud, and shows the important links between operational and market risk. This scandal had an important role in alerting the Bank of England and U.K. Treasury to gaps in prudential supervision at the end of the Bretton Woods pegged exchange-rate system.

Business History Review, Volume 91 (1 – April 2017): 105-128.

DOI: https://doi.org/10.1017/S0007680517000381

Review by Adrian E. Tschoegl (The Wharton School of the University of Pennsylvania)

Since the 1974 rogue trading scandal at Lloyds’s Lugano branch we have seen more spectacular sums lost in rogue trading scandals. What Dr Catherine Schenk brings to our understanding of these recurrent events is the insight that only drawing on archives, both at Lloyds and at the Bank of England, can bring. In particular, the archives illuminate the decision processes at both institutions as the crisis unfolded. I have little to add to her thorough exposition of the detail so below I will limit myself to imprecise generalities.

Marc Colombo, the rogue trader at Lloyds Lugano, was a peripheral individual in a peripheral product line, in a peripheral location. As Schenk finds, this peripherality has two consequences, the rogue trader’s quest for respect, and the problem of supervision. Lloyds Lugano is not an anomaly. An examination of several other cases (e.g. Allied Irish, Barings, Daiwa, and Sumitomo Trading), finds the same thing (Tschoegl 2004).

In firms, respect and power come from being a revenue center. Being a cost center is the worst position, but being a profit center with a mandate to do very little is not much better. The rogue traders that have garnered the most attention, in large part because of the scale of their losses were not malevolent. They wanted to be valued. They were able to get away with their trading for long enough to do serious damage because of a lack of supervision, a lack that existed because of the traders’ peripherality.

In several cases, Colombo’s amongst them, the trader was head of essentially a one-person operation that was independent of the rest of the local organization. That meant that the trader’s immediate local supervisor had little or no experience with trading. Heads of branches in a commercial bank come from commercial banking, especially commercial lending. Commercial lending is a slow feedback environment (it may take a long time for a bad decision to manifest itself), and so uses a system of multiple approvals. Trading is a fast feedback environment. The two environments draw different personality types and have quite different procedures, with the trading environment giving traders a great deal of autonomy within set parameters, an issue Schenk addresses and that we will discuss shortly.

Commonly, traders will report to a remote head of trading and to the local branch manager, with the primary line being to the head of trading, and the secondary line being to the local branch manager. This matrix management developed to address the problem of the need to manage and coordinate centrally but also respond locally, but matrix management has its limitations too. As Mathew points out in the New Testament, “No man can serve two masters, for either he will hate the one, and love the other; or else he will hold to the one, and despise the other” (Matthew (6:24). Even short of this, the issue that can arise, as it did at Lloyds Luggano, is that the trader is remote from both managers, one because of distance (and often time zone), and the other because of unfamiliarity with the product line. A number of software developments have improved the situation since 1974, but as some recent scandals have shown, they are fallible. Furthermore, the issue still remains that at some point the heads of many product lines will report to someone who rose in a different product line, which brings up the spectre of “too complex to manage”.

The issue of precautionary or governance rules, and their non-enforcement, is a clear theme in Schenk’s paper. Like the problem of supervision, this too is an issue where one can only do better or worse, but not solve. All rules have their cost. The largest may be an opportunity cost. Governance rules exist to reduce variance, but that means the price of reducing bad outcomes is the lower occurrence of good outcomes. While it is true, as one of Schenk’s interviewees points out, that one does not hear of successful rogue traders being fired, that does not mean that firms do not respond negatively to success. I happened to be working for SBCI, an investment banking arm of Swiss Bank Corporation (SBC), at the time of SBC’s acquisition in 1992 of O’Connor Partners, a Chicago-based derivatives trading house. I had the opportunity to speak with O’Conner’s head of training when O’Connor stationed a team of traders at SBCI in Tokyo. He said that the firm examined too large wins as intently as they examined too large losses: in either case an unexpectedly large outcome meant that either the firm had mis-modelled the trade, or the trader had gone outside their limits. Furthermore, what they looked for in traders was the ability to walk away from a losing bet.

But even small costs can be a problem for a small operation. When I started to work for Security Pacific National Bank in 1976, my supervisor explained my employment benefits to me. I was authorized two weeks of paid leave per annum. When I asked if I could split up the time he replied that Federal Reserve regulations required that the two weeks be continuous so that someone would have to fill in for the absent employee. Even though most of the major rogue trading scandals arose and collapsed within a calendar year, the shadow of the future might well have discouraged the traders, or led them to reveal the problem earlier. Still, for a one-person operation, management might (and in some rogue trading scandals did), take the position that finding someone to fill in and bring them in on temporary duty was unnecessarily cumbersome and expensive. After all, the trader to be replaced was a dedicated, conscientious employee, witness his willingness to forego any vacation.

Lastly, there is the issue of Chesterton’s Paradox (Chesterton 1929). When a rule has been in place for some time, there may be no one who remembers why it is there. Reformers will point out that the rule or practice is inconvenient or costly, and that it has never in living memory had any visible effect. But as Chesterton puts it, “This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable.”

Finally, an issue one needs to keep in mind in deciding how much to expend on prevention is that speculative trading is a zero-sum activity. A well-diversified shareholder who owns both the employer of the rogue trader and the employers of their counterparties suffers little loss. The losses to Lloyds Lugano were gains to, inter alia, Crédit Lyonnais.

There is leakage. Some of the gainers are privately held hedge funds and the like. Traders at the counterparties receive bonuses not for skill but merely for taking the opposite side of the incompetent rogue trader’s orders. Lastly, shareholders of the rogue traders firm suffer deadweight losses of bankruptcy when the firm, such as Barings, goes bankrupt. Still, as Krawiec (2000) points out, for regulators the social benefit of preventing losses to rogue traders may not exceed the cost. To the degree that costs matter to managers, but not shareholders, managers should bear the costs via reduced salaries.

References

Chesterton, G. K. (1929) ‘’The Thing: Why I Am A Catholic’’, Ch. IV: “The Drift From Domesticity”.

Krawiec, K.D. (2000): “Accounting for Greed: Unraveling the Rogue Trader Mystery”, Oregon Law Review 79 (2):301-339.

Tschoegl, A.E. (2004) “The Key to Risk Management: Management”. In Michael Frenkel, Ulrich Hommel and Markus Rudolf, eds. Risk Management: Challenge and Opportunity (Springer-Verlag), 2nd Edition;

Historicising Business Strategy

Evolving Ideas about Business Strategy

by Pankaj Ghemawat (NYU Stern, USA and IESE Business School, Spain)

Abstract

This paper updates an earlier article published in Business History Review that concluded that by the second half of the 1990s, there had been a profusion of new, purportedly practical ideas about strategy, many of which embodied some explicit dynamics. This update provides several indications of a drop-off since then in the rate of development of new ideas about strategy but also a continued focus, in the new ideas that are being developed, on dynamics. And since our stock of dynamic frameworks has, based on one enumeration, more than doubled in the last fifteen to twenty years, updating expands both the need and the empirical basis for some generalizations about the types of dynamic strategy frameworks—and strategy frameworks in general—that managers are likely to find helpful versus those that they are not.

Source: Business History Review 90, 1-23 (DOI: https://doi.org/10.1017/S0007680516000702)

Review by Kyle Bruce (Macquarie University, Australia)

Editor’s note

Ghemawat’s 2017 paper below should not be read in isolation but as part of a round table organized at Harvard Business School that brought together historians and management scholars to discuss the origins of ideas in business and management. The results of the round table were published as a special edition of the Business History Review. In this sense, Ghemawat’s contribution to the special issue and its discussion by Chris McKenna (in the same special issue) came to an independent yet similar conclusion to that expressed by Nobel laureate Robert Shiller, who suggested “that in the age of social information networks, economists need to rethink how and why information really spreads.” (See a summary of Shiller’s ideas in The Role of Narratives in Economics).

It is laudable that the executive editors of the Business History Review created a space to disseminate the results of the round table through the journal. However, as you will read below, Kyle Bruce questions whether this is the right way to engage other management scholars in business history as, strictly speaking, the contribution by Ghemawat would be found wanting as scholarly work of international standing.

A final note is that in its comments to Ghemawat, even McKenna gets it wrong by pointing to Lotus 1-2-3 as the first spreadsheet. It actually was VisiCalc.

Having said that, the aim in this space is to generate academic debate through a blog format. So by all means do chip in.

Bernardo Bátiz-Lazo
General Editor NEP-HIS & Editorial Board member, Business History Review.

As a historian and teacher of strategy and, moreover, as a close follower of Ghemawat’s work, I was very much looking forward to his recent update of his 2002 BHR paper on the history of the sub-discipline. I habitually invoke the decade-and-a-half old piece as background reading for my Executive MBA strategy students and hitherto have experienced little, if any, pushback from students typically cagey about the words “theory” or “history”. Regrettably, I am not so sure the updated paper under review here will escape unscathed for the simple reason that it is pretty tough to follow. Let me explain.

After briefly overviewing the 2002 paper that in essence discerned a profusion of new ideas about strategy – particularly those embodying a more dynamic approach – dating from the early to mid-80s, Ghemawat introduces his new findings. After a big peak in the mid-90s, there has been a marked drop-off in new ideas, but dynamics “is a sustained interest focus of strategic innovation rather than one of passing interest” (p. 5; emphasis added). So far, so good you might think, but I started to worry about the phraseology (“strategic innovation”?) attendant on the use of analytical tools from strategy and adjacent sub-disciplines to make sense of his findings; namely, “what should one make of the drop-off overall and the shift toward more attention to dynamics? And what, if anything, should be done?” (p. 8).

Pankaj Ghemawat

Pankaj Ghemawat

Unless the strictures concerning the dreaded “so what?” question have been lifted in history journals such as BHR, I could not discern after several reads a compelling argument as to why readers should be at all bothered by the findings presented? For students of the strategy-as-practice literature, for instance, the suggestion there’s fewer models and frameworks out there for practising managers to employ is not a concern given they probably don’t use them anyway. For my MBA students who routinely complain of framework fatigue, again, the theory drop-off is not a problem. And so, for me, the remainder of the paper was rather superfluous and unnecessarily complex. Curiously, I think Ghemawat makes it so when he concludes that while it’s certain there’s been a drop-off in the “rate of development of big new strategy ideas/frameworks, it is much harder to be definite about the welfare implications” (p. 10; emphasis added). For me, this conclusion renders redundant both the ensuing “what is to be done” question he poses, as well as the next eight-and-half pages of the article devoted to “a critical assessment of frameworks new and old” (p. 2).

After several reads of these aforementioned pages, I could not really follow or appreciate the “irreversibility” and “uncertainty” dimensions utilised to assess how dynamic current frameworks really are. However, I felt comforted when Ghemawat concludes that “quite a few” of said frameworks “seem subject to some practical limitations” (p. 19). This comfort was short-lived, though, when he finishes the paper with the frustrating and seemingly throwaway line that the way forward, as it were, “is to shift some attention away from the chronologies of frameworks to historiography that attempts to assess them in some fashion” (p. 21). I immediately asked myself: “well, why didn’t he just do this, then??”

fashion-management

For me, and I trust also BHR readers, a historiographical piece embodying intellectual history, actor-network theory, or sociology of scientific knowledge to account for the “trials of strength” in strategy theory, the tension between contributions from the academy and those from business practice, and the current fascination with dynamics, would have been an easier and more interesting read. Like much being published in business and management history journals of late, Ghemawat’s paper is short on actual history and, notwithstanding the final sentence, even short on how to DO history. I was left wondering why this paper was published in this journal and asking myself what this paper’s place tells me about BHR? I have no answers for these questions but look forward to some in due course.

References

Ghemawat, P. (2002) “Competition and Business Strategy in Historical Perspective”, Business History Review 76(1): 37-74. (DOI: https://doi.org/10.2307/4127751)

On Social Tables, Inequality and Pre-Industrial Societies

“Towards an explanation of inequality in pre-modern societies: the role of colonies and high population density”

by Branko Milanovic (City University of New York)

Abstract: Using the newly expanded set of 40 social tables from pre-modern societies, the paper tries to find out the factors associated with the level of inequality and the inequality extraction ratio (how close to the maximum inequality have the elites pushed the actual inequality). We find strong evidence that elites in colonies were more extractive, and that more densely populated countries exhibited lower extraction ratios. We propose several possibilities linking high population density to low inequality and to low elite extraction.

URL: http://econpapers.repec.org/paper/pramprapa/74877.htm

Distributed by NEP-HIS on: 2016-11-13

Guido Alfani (Bocconi University, Milan)

Given the recent increase in the availability of good-quality data on pre-industrial (or pre-modern) societies, there is much need for works of synthesis aimed at discovering the factors shaping long-term inequality trends. Branko Milanovic has been particularly active in this field, with the publication of a recent book on Global Inequality: A New Approach for the Age of Globalization (2016, Harvard University Press) [see the reviews here – Ed]. In this new working paper, Milanovic tries to move forward, using a large database of social tables to single out the potential causes of differences in historical inequality levels and in inequality extraction. He focuses in particular on institutional factors (inequality in colonies vs other areas) and on demographic factors (population density). The results are very interesting and represent a useful step forward in our understanding of inequality change in preindustrial societies.

Summary
This paper was distributed by NEP-HIS on 2016-11-13. It makes use of a relatively large collection of social tables for preindustrial societies, including overall 40 social tables for about 30 distinct countries/world areas over a very long time: from Athens in 330 BCE to British India in 1938. As is well known, social tables allow us to roughly estimate income inequality. They are particularly useful in situations of relative scarcity of data and although they have been in use for centuries – the first example is Gregory King’s social table dating 1688 – many new ones have recently been produced for a variety of preindustrial societies across the world (see Lindert and Williamson 2016 for the U.S., Saito 2015 for Japan, Broadberry et al. 2015 for England, and Alfani and Tadei 2017 for Ivory Coast, Senegal and the Central African Republic). Although estimating complete distributions is the better option (see for example the accurate reconstruction of income distribution in Old Castile around 1750 by Nicolini and Ramos 2016, the impressive work by Reis 2017 on Portugal from 1565 to 1770, and finally, the estimates of wealth inequality in the period 1300-1800 produced by the EINITE project for a variety of Italian pre-unification states and other European areas: Alfani (2015, 2017); Alfani and Ryckbosch (2016); Alfani and Ammannati (2017), this is not always possible or feasible and social tables must be considered a good alternative especially when there is a relative scarcity of data.

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As rightly argued by Milanovic, the recent accumulation of new evidence has not been accompanied by equal advances in the work on causal factors driving inequality change in preindustrial times. The seminal article by Van Zanden (1995), in which long-term inequality growth in the Dutch Republic was explained by long-term economic growth, has later been nuanced by works demonstrating that during the early modern period, in many parts of Europe inequality grew also in phases of economic stagnation, or even decline (Alfani 2015; Alfani and Ryckbosch 2016). The role played by large-scale mortality crises, particularly plague epidemics, has been underlined and the Black Death of 1347-51 has been shown to be the only event able to produce large-scale and enduring inequality decline in the period from ca. 1300 to 1800 (Alfani 2015; Alfani and Ammannati 2017). In a very recent book, Scheidel (2017) has taken this line of reasoning further, arguing that all substantial declines in inequality recorded in human history are due to catastrophic events (epidemics, wars, revolutions…).

Milanovic’s aim is to find further regularities, looking for possible economic, institutional or demographic drivers of inequality change in preindustrial times. He adopts the theoretical framework of the Inequality Possibility Frontier (introduced in Milanovic, Lindert and Williamson 2011), arguing that we should focus not only on how unequal a society is, but also on how much inequality it manages to “extract” compared to the maximum inequality it could achieve given that everybody needs to reach at least the subsistence level. Hence, as an economy manages to increase the per-capita surplus produced, it also acquires a potential for becoming more unequal. A first relevant empirical finding is that colonies tend to be exceptionally extractive, especially at low levels of per-capita GDP. As Milanovic points out, this is not surprising and can be explained by colonies being more exploitative, i.e. being pushed closer to the inequality possibility frontier by rapacious elites. This is apparent when looking at inequality extraction (being a colony raises the “inequality extraction ratio” by almost 13 percent points), but not necessarily when looking at overall inequality as measured by a Gini index.

Branko Milanovic

Branko Milanovic

A more novel finding is the negative correlation between population density and both inequality and inequality extraction. In fact, a “high number of people per square kilometer seems to be a strong predictor of relatively egalitarian economic outcomes” (p. 16). Explaining this empirical finding is not easy and Milanovic resorts to two conjunctures: 1) in a less extractive economy, the poor enjoy relatively good living conditions and this might lead to greater population growth; or 2) a particularly dense population might be better able to make the position of the elite/of the ruler relatively precarious, enjoying de facto some sort of control over the actions of the elite and forcing it to adopt less extractive policies. As is clear, the direction of causality is the opposite in the two explanations – which are probably to be considered not mutually exclusive. Other correlates of inequality and inequality extraction include per-capita GDP and urbanization rates, which turn out being borderline significant (per-capita GDP) or positively but non-significantly correlated (urbanization rate), coherently with what was found by other recent comparative studies (Alfani and Ryckbosch 2016; Alfani and Ammannati 2017).

Comment

Undoubtedly, Milanovic’s new article helps to fill in a real need for more comparative research on preindustrial societies. The findings, albeit provisional, are very interesting and either they provide useful confirmation of what has already been argued by others – for example about the inability of per-capita GDP to explain preindustrial inequality growth in a satisfying way– or they lead us to think along new lines, especially regarding the impact on inequality of demographic variables. In fact, as urbanization rates proved to be a far poorer explanatory variable for inequality change than we expected (see in particular Ryckbosch 2016; Alfani and Ryckbosch 2016; Alfani and Ammannati 2017), demographic factors came to be perceived as probably relevant, but also somewhat puzzling (exception made for mass-mortality events like the Black Death, whose inequality-reducing effects now stand out very clearly). Population density offers us a novel perspective and in time, might prove to be the right path to follow.

However, there is also some space for constructive criticism. A first point to underline is that, differently from what Milanovic argues, the time might not yet be ripe for the kind of definitive and encompassing comparison that he seems to have in mind. The data available is still relatively scarce, including for Europe, which is the world area that has attracted the greatest amount of recent research. Additionally, social tables, albeit easily comparable, are not perfectly comparable – for example because they can include a greatly varying number of classes/groups. In some instances, classes are very few and we have no hint at within-class inequality. These are two reasons why, as argued above, complete distributions are strictly preferable to social tables. Finally, in the current version of Milanovic’s database, for the vast majority of countries only one social table is available, whereas multiple social tables for the same country at different time points would make for sounder statistical analyses. There are ongoing projects, especially EINITE and related projects, whose aim is to provide comparable state-level information on wealth and income inequality for large areas of the world at different points in time in the long run of history, but these projects are heavily dependent on new archival research and require time to be completed.

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Secondly there are other possible common factors shaping long-term inequality change which Milanovic cannot consider in the context of the current article. Some of these have been underlined by a recent comparative paper by Alfani and Ryckbosch (2016) which, although focusing on “only” four European states during 1500-1800, nevertheless had the advantage of having recourse to inequality measures produced with a common methodology and covering all states continuously in time. This study underlined two factors common to all the areas covered: 1) “proletarianization”, i.e. the progressive disappearance of small peasant ownership, which occurred throughout Europe during the early modern period, and 2) the inequality-increasing consequences of the rise of the fiscal-military states from ca. 1500. These factors might have played a role also in other world areas, from the broader Mediterranean to East Asia and maybe elsewhere – but at present that is no more than speculation.

Obviously, such criticism in no way negates the considerable usefulness of Milanovic’s new paper – which is also a further demonstration of how his relatively new concept of the inequality possibility frontier allows for a deeper understanding of the actual conditions and consequences of distribution. It does, however, indicate that we are still a long way from being able to identify without ambiguity the main causes of inequality change in preindustrial societies that so many international economic historians are now attempting to discover.

Selected bibliography

Alfani, G. (2015), “Economic inequality in northwestern Italy: A long-term view (fourteenth to eighteenth centuries)”, Journal of Economic History, 75(4), 2015, pp. 1058-1096.

Alfani, G. (2017), “The rich in historical perspective. Evidence for preindustrial Europe (ca. 1300-1800)”, Cliometrica 11(3), forthcoming (early view: http://link.springer.com/article/10.1007/s11698-016-0151-8 ).

Alfani, G., Ryckbosch, W. (2016), “Growing apart in early modern Europe? A comparison of inequality trends in Italy and the Low Countries, 1500–1800”, Explorations in Economic History, 62, pp. 143-153.

Alfani, G., Ammannati, F. (2017), “Long-term trends in economic inequality: the case of the Florentine State, ca. 1300-1800”, Economic History Review, forthcoming.

Alfani, G., Tadei, F. (2017), Income Inequality in Colonial Africa: Building Social Tables for Pre-Independence Central African Republic, Ivory Coast, and Senegal, IGIER Working Paper, forthcoming.

Broadberry, S., Campbell, B., Klein, A., Overton, M, Van Leeuwen, B. (2015), British Economic Growth 1270-1870, Cambridge University Press.

Lindert, P.H. and Williamson, J.G., Unequal gains. American growth and inequality since 1700, Princeton University Press, Princeton 2016.

Milanovic, B. (2016), Global Inequality: A New Approach for the Age of Globalization, Harvard University Press.

Milanovic, B., Lindert, P.H., Williamson, J.G. (2011). “Pre-Industrial Inequality”, The Economic Journal, 121, pp. 255-272.

Nicolini, E.A., Ramos Palencia, F. (2016), “Decomposing income inequality in a backward pre-industrial economy: Old Castile (Spain) in the middle of the eighteenth century”, Economic History Review, 69(3), pp. 747–772.

Reis, J. (2017), “Deviant behaviour? Inequality in Portugal 1565–1770”, Cliometrica, 11(3), forthcoming (early view: http://link.springer.com/article/10.1007/s11698-016-0152-7).

Ryckbosch, W. (2016), “Economic inequality and growth before the industrial revolution: the case of the Low Countries (fourteenth to nineteenth centuries)”. European Review of Economic History, 20(1), pp. 1-22.

Saito, O. (2015), “Growth and inequality in the great and little divergence debate: a Japanese perspective”, Economic History Review, 68(2), pp. 399–419.

Scheidel, W. (2017), The Great Leveller: Violence and the Global History of Inequality from the Stone Age to the Present, Oxford University Press.

Van Zanden, J.L. (1995), “Tracing the Beginning of the Kuznets Curve: Western Europe during the Early Modern Period”, Economic History Review 48(4): 643-664.

Publication cultures in economic, business and financial history: Comparing apples and oranges?

1.)Quantifying the heterogeneity of publication cultures in economic, business and financial history

 

by Eline Poelmans and Sandra Rousseau, Faculty of Economics and Business, KU Leuven, campus Brussels

 

Abstract

Researchers working in the interdisciplinary field of ‘economic, business and financial history’ come from at least two different disciplinary backgrounds, namely history and economics. These two backgrounds may lead to differences in research practices, as there are potentially other demands for tenure and promotion requirements. We performed a survey to assess whether there is heterogeneity in the submission and publication culture (i.e. one multi-faceted culture, or simply multiple cultures) between respondents working in an economics versus a history department. Among other things, we found differences in their motivation for publishing, the type of publications they aim for, and their journal selection strategies. Our results show that the department the respondents work at—irrespective of their disciplinary focus and background—determines most of their research and publication decisions. Hence working successfully in an interdisciplinary field or working in a department different from the main field of research requires researchers to learn the (in)formal rules and practices of an unfamiliar field.

 
Published on: Essays in Economic & Business History (2016) Volume XXXIV pp. 95-135.

URL: http://www.ebhsoc.org/journal/index.php/journal/issue/current

and

2.)Factors determining authors’ willingness to wait for editorial decisions from economic history journals

 

by Eline Poelmans and Sandra Rousseau, Faculty of Economics and Business, KU Leuven, campus Brussels

 

Abstract

In this contribution, we measure how long researchers are willing to wait (WTW) for an editorial decision on the acceptance or rejection of a submitted manuscript. This measure serves as a proxy for the expected value of a publication to a researcher in the field of economic, business and financial history. We analyze how this WTW measure varies with the characteristics of the submitting authors themselves. We distinguish the impact of personal characteristics (including age, gender and geographic location) as well as work-related characteristics (including research discipline, affiliation and academic position). To identify the factors determining economic history authors’ WTW for editorial decisions, we use a valuation technique known as stated choice experiments. Our results show that respondents found the standing of the journal to be at least as important as its ISI impact factor. Moreover, we find differences in publication culture between economic and history departments. Overall, researchers’ willingness to wait is influenced to a greater extent by the research discipline in which the respondents are active (history vs. economics), than by their personal characteristics (e.g. the education or the type of Ph.D. they obtained).

Published on: Scientometrics (2015) 102: pp. 1347–1374

DOI 10.1007/s11192-014-1469-2

URL https://www.researchgate.net/publication/276234589_Factors_determining_authors

Summarised by Eline Poelmans and Sandra Rousseau

Overview

When authors choose a journal to submit a manuscript, the submission process is influenced by several author and journal characteristics. Also time pressure is an influencing factor, since academic job offers, promotions and tenure decisions tend to be based on researchers’ publication and citation records. Hence, both journal editors and prospective authors want to reduce the time between the initial submission and the final editorial decision.

Moreover, within interdisciplinary fields – such as the field of ‘economic, business and financial history’, a field at the intersection of two major social sciences – there can be large differences in both research attitudes, skills, focus and practices depending on the different backgrounds of researchers (such as having a PhD in history or in economics) as well as varying requirements for tenure, promotion or funding in the different departments the researchers are working (such as the department of history versus that of economics) that can also influence an author’s submission and publication decisions.

 

In the first paper, the authors conducted a survey to investigate whether working in the interdisciplinary field ‘economic history’ implies an additional challenge to the researcher in this field compared to those working in a more homogeneous field. The authors used data in order to quantify this heterogeneity (or ‘duality’) of the publication culture in economic history by investigating the impact of the disciplinary focus of researchers’ doctoral dissertation and current affiliation (history, economics or other) on respondents’ submission and publication behavior: their preferred publication outlets, their reasons for publishing, and their journal selection strategies.

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In the second paper, the authors assessed the impact of time constraints on the submitting author’s willingness to wait (WTW) for a publication in a journal with specific characteristics in the field of economic history and they analyzed whether and how this WTW measure varied with journal and personal characteristics. They studied the main effects of the different journal characteristics on the willingness-to-wait for a publication, as well as the interaction effects with the respondents’ characteristics to estimate the different values researchers attach to publications with particular characteristics in this field.

 

The first paper shows that the department the respondents work at determines most of their research and publication decisions. Hence, working in an interdisciplinary field such as economic history clearly comes at a cost: researchers with a PhD in one discipline who work in a department of another discipline may have to change their research and publication behavior significantly in order to obtain tenure or get promoted. These insights imply that it is inappropriate to use a strategy based on the conventions of a single discipline to evaluate researchers in a multidisciplinary field since it is unlikely that ‘one size fits all.’

 

The second paper found that respondents’ decisions on manuscript submission were dependent on specific journal characteristics, such as ISI impact factor and standing. Moreover, the respondents’ institution type with which they were affiliated (history versus economics) influenced the respondent’s willingness to wait to a greater extent than their personal characteristics (such as the type of Ph.D. they obtained).

 

Hence, as requirements with regard to tenure and promotion often differ between departments and disciplines, it is important to develop measurement methods to hire and evaluate researchers working in an interdisciplinary field that have obtained a PhD in one field (such as (economic) history) and end up in an economics department, and vice versa. In this respect it is important to develop and use multidisciplinary assessment strategies to evaluate the quality of researchers in a multidisciplinary field. For instance, it may be advisable to include researchers from both disciplinary backgrounds in selection committees.

Possibilities for future research

Obtaining a larger data set with more respondents can improve the paper. Moreover, checking whether (and making sure that) the dataset is representative for the discipline would be useful (e.g. the division male/female, the share of American, European, Asian, … researchers in this specific field, the share of people with a PhD in economics versus a PhD in history that work in the field of economic history, the division of permanent versus temporary contracts, etc…).

With regard to future research attaining more PhD students would be useful to see whether their research decisions are already formed during their PhD by the publication culture of the department they work at. It is also interesting to analyze whether there is a difference if the PhD student is conducting his PhD on an independent (governmental) scholarship.

A more in-depth analysis about how the researchers perceive the advantages and disadvantages of working in an interdisciplinary environment as well as measuring attitudes and opinions through multidimensional scales can improve insight into the challenges and rewards of performing interdisciplinary research. By identifying drivers and barriers to interdisciplinary research in the field of economic history – for instance by using the framework developed by Siedlok and Hibbert (2014) – advice for research institutions, funding agencies and policy makers could be formulated.

moneytime

Moreover, the results of these papers only apply to researchers active in the field of economic history. Thus, it would be interesting for future research to investigate whether these findings could be generalized to other (interdisciplinary) fields, such as law and economics or environmental economics.

Stated choice experiments could, for instance, be used to investigate the relative importance of factors influencing the decision to collaborate with a particular type of researcher (gender, rank, national or international) or research institution. They could also help in identifying classes of researchers that show similar collaborative behavior. Moreover, choice experiments could help in analyzing decisions to fund particular projects or to hire particular researchers. Further, they could also be useful in comparing authors’ citation behavior: such as studying the relative importance of different articles’ characteristics (such as familiarity with the authors, standing of the journal, time of publication, content fit, innovativeness, etc.) in the decision to cite a particular source in a text. Finally, choice experiments can be used to analyze the editors’ decision in matching referees with submitted manuscripts, depending on characteristics, such as specialization, maturity and past experience with a particular referee.

Finally, the crisis of 2007 showed that the knowledge of historical facts could maybe not have prevented the crisis, but at least have made the banks more cautious in their decision making process. However, so far, interdisciplinary research – such as economic, financial and business history – is unfortunately still considered by the academic world as a ‘side business’, most often not really belonging to a department, but as a research field floating somewhere in between economics and history. As long as the demands for tenure and the promotion requirements in different departments differ, researchers will be guided in their motivation to work on certain topics by these external evaluation criteria, instead of by the interest of historical facts that need to be researched in order to learn lessons for the future.

Given the value of interdisciplinary research in tackling complex real-life problems, it is important to understand the dynamics of such interdisciplinary research fields. Thus it is interesting to study the formal and informal sets of rules that guide the selection of research topics, collaborations, funding decisions and publication behavior. Such empirical – and repeated – studies allow us to identify positive and negative trends and provide the opportunity to react in a timely manner so that interdisciplinary research is – and continues to be – rewarding for researchers.

 

Additional References

Siedlok, F. and Hibbert, P., 2014. The organization of interdisciplinary research: modes, drivers and barriers. International Journal of Management Reviews16(2), pp.194-210.