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Working papers: 2021

ISSN 2632-9611

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WP529: A Two-Stage Model of Decision-Making over Financial Reporting Regimes and Techniques: Analysis and UK Case Studies

Yu-Lin Hsu and Gavin C. Reid

This paper develops a new two-stage decision model to explain the choices of financial reporting regimes (e.g. IFRS or UK GAAP) and techniques (e.g. valuing intangibles, by cost, income, or market methods) for UK companies. The theoretical framework is based on the choice theory of orderings (Lex and CoLex) and is expressed in decision trees which capture firms’ actions, based on calibrated benefits and costs. The decision-making processes are examined through three UK empirical case studies (one private and two public firms), that expound their decision trees, and explain their decisions. We probe the rationale of their decisions using field-work investigation methods, through which we develop a ‘stated preference’ metric of choice, which allows us to interpret how decisions are made, and how they differ: over time (notably when regime changes are being implemented e.g. the emergence of New UK GAAP post-2015); and across firms (where factors like ease of execution and the quality and quantity of information needed for decisions, are shown to play a large part).


WP528: A Social Recovery, Workplace Democracy and Security: COVID-19 and Labour Law

Ewan McGaughey

The COVID-19 pandemic has shown the painful consequences of poor job security and workplace democracy. The UK government’s initial flirt with ‘herd immunity’, the delay in lockdown, and the absence of a work strategy that prioritised safety after the summer of 2020, caused among the most appalling death rates in the world, worse than Trump’s America. However, a swift change in the job security policy stemmed mass unemployment, after initial reports of 2.1 million people claiming unemployment benefits. The ‘Coronavirus Job Retention Scheme’ eventually meant that the unemployment statistics (as opposed to claimant count) showed only a modest jobless rise. Comparison with the US where there are effectively no rights, and other countries with strong rights, shows that universal social security and workplace democracy are at the core of successful economic performance. This paper explains the UK’s health and safety rights, how the job retention scheme was unfurled with extension to employed and self-employed, and the connection between votes at work and employment. It shows how reality discredits the minority views of economic theorists who oppose labour rights, and suggests the legal reforms we can undertake to achieve a social recovery.


WP527: The Future of Democracy and Work: The Vote in our Economic Constitution

Ewan McGaughey

What should be the future of democracy? COVID-19 has exposed a desperate need, not just for a green recovery, and a social recovery, but a political recovery, to remake our institutions for the future, for justice on living planet. Today we are seeing that the vote, ‘a most transcendent thing’, is becoming an essential part of our economic constitution: votes at work, votes in capital and votes in public services. This is already practised, however imperfectly, however forgotten, in universities like Toronto, Cambridge, Oxford or Harvard, and the movement is growing, as it should. The evidence shows we are more productive, innovative, happy, and less unequal, when we have voice. Having moved ‘from status to contract’ in the industrial revolution, the future of work involves a move ‘from contract to membership’. The ‘right to take part in the government’ of our societies is depending less and less on holding money, or ‘other people’s money’, but is becoming universal. The days where shareholders monopolize the votes in the economy, and asset managers or banks monopolize votes on shares, are numbered. The true investors in the wealth of nations, people at work, savers for retirement, and all members of our society, are the future of democracy.


WP526: From 'Capital and Ideology' to 'Democracy and Evidence': A Review of Thomas Piketty

Ewan McGaughey

Thomas Piketty’s Capital and Ideology (2020) is a major, encyclopaedic and data-driven contribution to the effort of constructing a better human civilization. This review summarises the main argument: a positive thesis that in every society, ideology feeds laws and institutions that create inequality, and inequality then bolsters ideology; a normative thesis that we need a better ideology, including ‘participatory socialism’, to solve our biggest challenges. The review then complements and critiques three central issues in the argument, that (1) the true concentration of economic power, the votes in the economy, is even more extreme than inequality of wealth and income, (2) the legal construction of markets, through property, contract, corporate, or human rights law, can ‘pre-distribute’ income and wealth to a vast extent before tax, and (3) social justice means expanding (not merely correcting or re-distributing) everyone’s opportunity, creative capacity, and human potential, and helps everyone to develop their personality to the fullest. Social justice is an unparalleled force, and is still the best answer to far-right, authoritarian or other failed ideologies, which have escalated inequality and driven climate damage. Perhaps the greatest achievement of Piketty’s work could be to bring economics firmly back to the values in the Universal Declaration of Human Rights.


WP525: Decoding Employment Status

Simon Deakin

There is much at stake in the classification of work relations: on the one hand, the stability of the tax base and the capacity of the state to deliver public goods; on the other, the structure of enterprise and the rights of workers in the ‘gig’ economy and beyond. Classification decisions, however, are made using legal concepts which many view as artificial and manipulable, to the point where it is hard to discern the considerations which are actually guiding decisions. Decomposing the ‘employment’ concept reveals something of the implicit ‘weighting’ of tests and indicators which underlies judicial and administrative determinations. Viewed in this light, statutory reformulations such as the ‘ABC’ test can play a role in ‘reweighting’ the classification process, extending the protective coverage of labour laws and resisting fiscal erosion.


WP524: The Governance of COVID-19: Anthropogenic Risk, Evolutionary Learning, and the Future of the Social State

Simon Deakins and Gaofeng Meng

We consider the implications of the COVID-19 crisis for the theory and practice of governance. We define ‘governance’ as the process through which, in the case of a given entity or polity, resources are allocated, decisions made and policies implemented, with a view to ensuring the effectiveness of its operations in the face of risks in its environment. Core to this, we argue, is the organisation of knowledge through public institutions, including the legal system. COVID-19 poses a particular type of ‘anthropogenic’ risk which arises when organised human activity triggers feedback effects from the natural environment. As such it requires the concerted mobilisation of knowledge and a directed response from governments and international agencies. In this context, neoliberal theories and practices, which emphasise the self-adjusting properties of systems of governance in response to external shocks, are going to be put to the test. In states’ varied responses to COVID-19 to date it is already possible to observe some trends. One of them is the widespread mischaracterisation of the measures taken to address the epidemic at the point of its emergence in the Chinese city of Wuhan in January and February 2020. Public health measures of this kind, rather than constituting a ‘state of exception’ in which legality is set aside, are informed by practices which originated in the welfare or social states of industrialised countries, and which were successful in achieving a ‘mortality revolution’ in the course of the nineteenth and twentieth centuries. Relearning this history would seem to be essential for the future control of pandemics and other Anthropogenic risks.


WP523: The Impact of Intellectual Property Types on the Performance of Business Start-ups in the USA

Bernadette Power and Gavin C Reid

Using a large, longitudinal panel (2004-2011) of USA start-ups this paper shows the extent to which IP types (e.g. trademarks, patents, copyrights, outward licensing) enhance multidimensional performance. An ordered probit analysis (with random effects), corrected for sample selection bias, estimates performance to derive the following conclusions. First, trademarks and out-licensing IP types increase a firm’s chances of being a high performer, confirming the importance of certain forms of IP protection for start-ups. Second, patenting significantly reduces the chances of being a high performer, suggesting patenting has limited performance benefits for start-ups. Third, few performance synergies exist in the joint use of IP types, suggesting that strong complementarities among IP types are limited. While out-licensing patents and out-licensing copyrights certainly increase performance, out-licensing patents and out-licensing trademarks actually diminish it. Further, registering more trademarks and outlicensing more trademarks also diminishes performance, suggesting start-up firms should keep trademarks in-house.


Working paper (Centre for Business Research, University of Cambridge. Online)