Contents of issue 4/2014
Maciej Bałtowski, Grzegorz Kwiatkowski - State‑Owned Enterprise Functioning and Governance, summary
Witold Małecki - Prevention of Procyclicality in the Banking Sector, summary
Piotr Wdowiński - Macroeconomic Credit Risk Factors in Poland’s Banking Sector, summary
Mateusz Mokrogulski - The “Deposit War” in the Polish Banking Sector, summary
Jan Sulmicki - Excessive Sovereign Debt Outstanding in Advanced Economies, summary
Maciej Lis, Iga Magda - Life-Cycle Wage Dynamics and Self-Perceived Health Status, summary
Lesław Niemczyk - Financial Analysis of the Knowledge-Based Enterprise, summary
Zygmunt M. Mazurkiewicz - The Economy as a System of Useful Production, summary
Book Review: Leokadia Oręziak, OFE katastrofa prywatyzacji emerytur w Polsce
(OFE: Pension System Privatization Disaster in Poland), Książka i Prasa, Warsaw 2014, 401 pp. - reviewed by Marek Lubiński
Book Review: Agata Adamska, Własność i kontrola. Perspektywa akcjonariuszy spółek publicznych
(Ownership and Control in Publicly Traded Companies), Szkoła Główna Handlowa w Warszawie, Oficyna Wydawnicza, Warsaw 2013, 270 pp. - reviewed by Wacław Stankiewicz
Maciej Bałtowski, Grzegorz Kwiatkowski - State‑Owned Enterprise Functioning and Governance
The article looks at various models of how state‑owned enterprises (SOEs) function in various regions of the world and how they are managed.
According to the authors, state‑owned enterprises remain an essential component of modern economies, especially in post‑socialist countries and in the developing world. This is unlikely to change anytime soon, the authors say. They analyze the principles underlying the functioning of SOEs in various countries as well as the principles of state governance, concluding that these principles vary considerably.
The authors analyze SOE sectors using a number of criteria. Among these is the origin of the enterprises and their objectives, including non‑economic functions. From this perspective, Bałtowski and Kwiatkowski identify six models: Anglo‑Saxon, European (continental), post‑socialist, Chinese, Russian, and one applied in emerging economies.
Subsequently, the authors investigate SOE sectors in terms of what principles and tools governments use in exercising their ownership function. From this angle, Bałtowski and Kwiatkowski identify three governance models: centralized, decentralized, and dual.
Yet another typological criterion used by the authors is the extent of state ownership. On this basis, in the final part of the article, Bałtowski and Kwiatkowski formulate conclusions and recommendations for the Polish economy. These are related to the overall role of the government in the economy as well as the economic and non‑economic objectives of state‑owned enterprises and the effectiveness of the state governance system. Solutions in these areas should be based on the best international practices, the authors say.Keywords
: state‑owned enterprise, state ownership, corporate finance and governance, economic systemJEL classification codes
: L32, G3, P52Article
Witold Małecki - Prevention of Procyclicality in the Banking Sector
The paper discusses and evaluates proposals from various economists and politicians on how to reduce procyclicality—or behaviors positively correlated with the overall state of the economy—in the banking sector. The author juxtaposes these proposals with specific reform measures, both those that have already been implemented and those planned in the future.
Małecki defines procyclicality as “such operations of banking sector entities that contribute to more intense fluctuations in the business cycle.”
The author reviews arguments that either support or counter the proposition that the banking sector is procyclical. He then looks at these arguments in the context of reforms that have already been implemented or are expected to take effect in the future.
The key conclusion that can be drawn from the analysis is that there is no single miracle remedy for the problems arising from the procyclicality of the banking sector, Małecki says. An optimal measure that could help significantly reduce the procyclicality effect is a combination of various measures involving structural reforms as well as changes in banking regulation and in how stabilization policy is pursued, the author adds.
Structural and regulatory reforms carried out in the banking sector in recent years have generally followed the path recommended by many economists, according to Małecki. The same goes for changes in how countercyclical macroeconomic policy has been pursued, the author says.
However, these changes have not been radical enough and leave a lot to be desired in terms of an optimal mix of reforms designed to prevent procyclicality in the banking sector, the author concludes. Thus, it is hardly possible to expect that procyclicality will be substantially limited any time in the foreseeable future, Małecki says.Keywords
: banks, procyclicality, business cycles, banking sector reformsJEL classification codes
: E32, E58, G21, G28Article
Piotr Wdowiński - Macroeconomic Credit Risk Factors in Poland’s Banking Sector
The article explores key micro- and macroeconomic factors with an impact on credit risk and analyzes the credit risk model prevalent in Poland’s banking sector.
Credit risk is one of the most important risks in the banking sector, the author says. He adds that risk management should be subject to strict owner control and regulatory and supervisory measures.
On the basis of quarterly data for a period from the first quarter of 1997 to the second quarter of 2013, Wdowiński estimated an error correction model for aggregate credit risk in Poland, as measured by the proportion of non‑performing loans (NPLs) in total loans.
The key macroeconomic factors considered by the author were GDP, the interest rate, the unemployment rate, and the exchange rate. An ex post simulation for the 2008–2012 period, based on an adverse macroeconomic scenario for Poland, showed that such a scenario could lead to a marked increase in credit risk for non‑financial enterprises and households, Wdowiński says. As a result of this scenario, the banking sector could be affected by a significant decline in activity and its financial position would deteriorate. This would mean fewer investment opportunities for banks and a decline in their capital position, which would reduce their ability to absorb losses. Such a situation, the author concludes, could lead to “second‑round” effects based on limiting financing for the real economy due to increased credit risk and increased lending margins.Keywords
: banking sector, credit risk, stress testing, error correction model, simulation analysis, macroeconomic scenarioJEL classification codes
: C22, C51, C53, C54, E44, E47, G28Article
Mateusz Mokrogulski - The “Deposit War” in the Polish Banking Sector
The article delves into what the author terms a deposit war in the Polish banking sector, a process that has been under way since 2008, according to Mokrogulski. The author analyzes the causes and outcomes of the process.
The research is mainly quantitative and incorporates a single‑equation econometric model. However, the analysis is also comparative in nature, Mokrogulski says, because the Polish banking sector is evaluated against its counterparts in other EU member states.
The analysis is supplemented with institutional issues related to financial supervision in Poland. The author’s calculations show that the “deposit war” mostly applies to deposits with maturities ranging from one to six months.
Due to interest rate rises, banks reported a significant increase in their short‑term deposit volumes, the author says. His models show that an increase in interest on deposits by 1 percentage point led to an average growth of the deposit volume by 2.7 % on a monthly basis. In the case of deposits with original maturities of over 1M up to 3M the growth was 5.4 %, the author says. Moreover, despite higher interest costs at the time of the deposit war, the financial condition of Polish banks did not deteriorate compared with their counterparts in other countries in Europe, according to Mokrogulski. Liquidity measures introduced by the Polish Financial Supervision Authority (KNF) additionally encouraged banks to maintain liquid assets and funds at sufficiently high levels. In the future, providing long‑term funding to banks could help prevent further deposit wars, the author concludes.Keywords
: interbank market, interest rate, deposit, financial supervision, liquidityJEL classification codes
: D20, G21, G28Article
Jan Sulmicki - Excessive Sovereign Debt Outstanding in Advanced Economies
The author sets out to demonstrate that the United States and eurozone economies are suffering from insufficient international competitiveness and that their competitive position has not improved despite repeated attempts at boosting it. These unsuccessful attempts have been offset through sustaining effective demand in the real economy at the expense of worsened financial stability, the author says.
In 2007, the United States and eurozone member states prevented their banking sectors from crashing by resorting to massive financial transfers. The private financial sector was strengthened at the expense of a rapid rise in public debt, Sulmicki notes, an operation that was largely financed through foreign portfolio investments. This has resulted in a feeling of unease among potential investors, amplified by rating agency evaluations reflecting the increasing risk of portfolio investments in developed country bonds.
The question is what the future of indebted developed countries that have been unable to implement the necessary adjustment processes will be, the author says. Many of these countries are finding it increasingly difficult to sustain a policy of increasing debt levels and the amount of currency in circulation. They have been unable to increase their competitiveness because the governments are not willing to radically decrease the population’s standard of living. Such an approach leads to continued labor market problems and a rapid pauperization of the middle classes, a process that entails growing social dissatisfaction, Sulmicki concludes.Keywords
: sovereign debt, rating agencies, highly indebted developed economiesJEL classification codes
: F01, F34, G01Article
Maciej Lis, Iga Magda - Life-Cycle Wage Dynamics and Self-Perceived Health Status
The article examines the relationship between health, employment and productivity growth within a person’s life cycle, as measured with the level of individual wages in line with the neoclassical theory.
The authors proxy productivity with wages and analyze employment rates, wages and their dynamics by age for people with different health status in Poland. Using nonparametric methods and data from the European Survey on Income and Living Conditions (EU‑SILC) in 2005–2009, the authors show that poorer health is associated with lower earnings and lower employment rates. Poorer health diminishes the probability of employment, the authors say, but the declining employment rate at an older age is more closely connected with falling employment within a health group than with a rising percentage of people in poor health. Lower wages for persons with poorer health are mainly due to their lower education and shorter work experience as well as their concentration in low‑paid sectors and occupations, Lis and Magda note.
The isolated impact of health on wage dynamics within a person’s life cycle is very small, according to the authors. Moreover, the results of the study suggest that the decline in health is not the main driver of the observed slump in employment rates at older ages in Poland. The very low employment rates for younger people and those in poor health remain a major challenge for labor market and social policy makers, the authors conclude.Keywords
: health, productivity, aging, life‑cycle wage dynamicsJEL classification codes
: I15, J11, J24Article
Lesław Niemczyk - Financial Analysis of the Knowledge-Based Enterprise
The article discusses the theoretical foundations of a new approach to the financial analysis of the enterprise. This new approach is needed, the author says, because classical financial analysis fails to precisely diagnose intellectual capital resources controlled by knowledge‑based enterprises.
All disciplines of finance are currently facing the challenge of expanding their instruments to include new tools for recording, presenting and interpreting economic processes characteristic of knowledge resources (intellectual capital), the author says. The article discusses the subject and presents the main assumptions of financial accounting for competence assets and intellectual capital.
The author lists the most important tools of this new branch of accounting: “knowledge‑based balance sheets” and “books of competencies.” The article presents the methodology for a preliminary analysis of knowledge‑based balance sheets, which involves an examination of their fundamental structure and dynamics.
The author proposes a “basic indicator of post‑industrial financial analysis” called “return on knowledge” (ROK). He also defines the phenomenon of intellectual leverage and attempts to quantify it.
According to Niemczyk, the available range of classical financial analysis tools should be expanded to include “the structure of competence assets (intellectual capital), the nominal growth of competence assets (intellectual capital), the real growth of competence assets (intellectual capital), the self‑production of intellectual capital, return on knowledge, the degree of intellectual leverage, the profitability of competence assets, and the cost effectiveness of competence assets.”Keywords
: enterprise, intellectual capital, accounting, financial analysis, return on knowledge, intellectual leverageJEL classification codes
: M40, M51, 034Article
Zygmunt M. Mazurkiewicz - The Economy as a System of Useful Production
The author proposes a “phenomenological method of economic research” based on a theory developed by French economist Jean‑Baptiste Say and holding that “production is the creation, not of matter, but of utility.”
Mazurkiewicz draws from the concepts of utility offered by French mathematical economist Léon Walras and German philosopher Martin Heidegger.
Direct references to Walras and Heidegger as well as the ideas of American linguist and philosopher Noam Chomsky helped the author define what he calls the basic module of an economic system.
The author examines two Walrasian models of how the economy works: a model based on bringing order to aggregate production using economic categories and a syntactic model that treats the economy as a totality of concepts of useful things and at the same time as the totality of syntactic structures. The operationalization of these models was made possible by solutions derived from the theory of generative grammar, Mazurkiewicz says, and from Heidegger’s relational construction of the wholeness of concepts of useful things.
The fundamental problem of an economy is how to generate its own development, Mazurkiewicz says. He adds that the concept of usability—governing “the functioning of things in each application embedded into practical human activity (the unity of pragmata and praxis aspects)”—is essential to getting an insight into the processes of economic development. “The concept of usability precedes any specific use of the product,” the author says. “It is an a priori principle for every production and exchange process and as such a constitutive substance of the economic system.”
Mazurkiewicz says the method he proposes in the article makes it possible to “capture moments of formation, activity, and the development potential of both planned and ongoing business ventures.”Keywords
: rationalism, phenomenology, usability, syntactic structure, innovation, Jean‑Baptiste Say, Léon Walras, Martin Heidegger, Immanuel Kant, René Descartes, Noam ChomskyJEL classification codes