DOI: 10.5553/DOQU/221199812014002001001

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, 'Editorial', (2014) The Dovenschmidt Quarterly

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      Dear Reader,
      We proudly present the Dovenschmidt Quarterly's first edition of 2014. The financial crisis which, in part, prompted us to start this journal, still continues today, changing shape, form and effect. We have seen that the economic upheaval caused by the crisis has in turn stimulated social and political tensions, especially in Europe and the United States, which in many ways bore the brunt of and responsibility for the crisis. While numerous reforms have permanently altered the legal and socio-political landscape, much has stayed the same rendering this so-called time of transition simultaneously exciting and alarming.
      While corporate social responsibility has continued its rise in influence, environmental issues, corporate scandals and a change-resistant financial sector indicate the continuing importance of focusing on our mission to call for a more thorough analysis of corporate structures in favour of a more socially responsible approach to business. In support of this, our previous edition with Jan Eijsbouts as guest editor focused on the UN Guiding Principles on Business and Human Rights. The issue contained an article by John Ruggie, the UN rapporteur on business and human rights who was instrumental in developing the Guiding Principles.
      After the previous issue which was dedicated to one specific theme, we have opted this time for a non-thematic issue consisting of three articles covering a range of topics. The first article, written by Pavlos Masouros, provides a Marxist institutional and corporate governance analysis of Germany's relative success during the financial crisis and is aptly named ‘Corporate Governance and the Great Recession: An Alternative Explanation for Germany's Success in the Post-2008 World’. In the second article, Tomas Königs, Sohail Wahedi and Tjalling Waterbolk focus on how the European Union, in light of local and international legal examples, should legislate with regard to conflict minerals. In the third article, Michael Faure and Klaus Heine examine the prospect of using insurance to protect against financial crisis, akin to how insurance has been developed to protect against natural disasters. To pique your interest, we have provided an overview of each article below.
      According to Masouros, the advent of shareholder value has blended in a beneficial way not only with the German system of cooperative collective bargaining and with traditional stakeholderist institutions, but also with the asymmetrical design of the European Monetary Union (EMU) that benefits trade-surplus countries. It is this institutional complementarity that has endowed Germany with a comparative advantage over other nations. Germany's cooperative collective bargaining, as opposed to other nations' uncooperative (unpredictable) collective bargaining, enabled Germany to pursue a path of competitive export, resulting in a considerable trade surplus compared with the trade deficit of its European neighbours. To maintain an inflation-free environment, Germany recycled its export profits through capital flows into deficit nations. While this allowed these deficit nations to fund their trade deficits, it also resulted in asset value inflation and the formation of bubbles if they were unable to turn this additional investment into productive activities. Eventually, the Stability and Growth pact required that, in order to control the German-stimulated inflation and high growth rate in deficit countries, these recycled capital flows to deficit nations were reversed. Consequently, growth rates in the deficit nations ground to a halt, bubbles burst and the subsequent investors' flight to safety led them to Germany. Here they found a safe haven and stimulated the German economy during the Great Recession.
      The second article by Königs, Wahedi and Waterbolk expresses with concern that the trade in conflict minerals has led to the eruption and conservation of conflicts and gross violations of human rights, in particular in the central African region. In recognition of the serious human rights violations, varying from slavery to the conscription of child soldiers and rape, various actors have sought to tackle this development. Königs, Wahedi and Waterbolk analyze how corporate social responsibility in the European Union can be used to regulate the trade in conflict minerals. The United Nations and United States have made some efforts in this respect already, ranging from the UN due diligence guidelines to the mandatory disclosure regime encoded in the US Dodd-Frank Act's Section 1502. It is in the context of these other initiatives that Königs, Wahedi and Waterbolk examine whether and how the EU should continue its promotion of self-regulation or whether public regulation provides a more effective alternative. A detailed examination of the benefits and limitations of the public and private measures has led the authors to believe that the EU should promote a mix of public and private regulation, one which is cleverly calibrated to provide the strongest incentive for companies to comply with their duties.
      In the third article, Faure and Heine examine insurance options as a remedy against financial crisis. In this exploratory discussion, the authors argue that the unpredictability of financial crisis bears similarities to natural disasters and that it should be theoretically possible to insure against and minimize the impact of financial crises. Even more, insurance may provide a superior solution than the various forms of bailouts that occurred between 2007 and 2012. Heine and Faure identify three main issues in relation to providing insurance against financial crisis. The first issue is related to transparency and risk predictability. Appropriate levels of insurance can only be developed when sufficient, accurate data are present. Currently, this level of transparency is absent. A precondition to developing insurance against financial crises is to create more data and transparency. The second issue relates to moral hazard and adverse selection. The third issue is that the costs following a financial crisis may simply be too great to insure. In other words, insurers may lack capacity. The authors approach and suggest solutions for each of these issues.
      We thank our readers for their interest and express our continuing commitment to use the Dovenschmidt Quarterly to provide a platform for more thorough analyses of corporate structures so that we can, together, adopt and advocate an informed approach to responsible business.

      The Editorial Board

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