Trust and productivity

Relatively recent academic evidence explains how productivity works in places with underdeveloped legal institutions and cultural norms.
In 2009, Hsieh Chang-Tai and Peter Klenow found that a big part of the reason why China and India are so much poorer than the United States is that wildly unproductive firms are more likely to survive in those countries than in America.
After running a novel experiment, Nicholas Bloom, of Stanford University concluded that these firms were so unproductive because they were horribly managed (as opposed to having worse workers or inferior equipment). He speculated that the unproductive firms were able to survive because better-managed businesses were limited in their ability to expand thanks to uncooperative capital markets and, intriguingly, a dearth of trustworthy managers.

The problem is not the absence of people who know how to run businesses but the society at large.

In another paper, Mr Bloom and his colleagues argued that entrepreneurs in poorer countries are reluctant to trust people who are not directly related to them to manage any part of their enterprises. They are afraid that people from outside the family will steal from them and that the judicial system will not protect them. This (not unjustified) fear limits the ability of good firms to expand. Once you run out of siblings and cousins, you can't open more factories. The result is that bad firms are not driven out of business. Conversely, countries with higher levels of "social capital," i.e., trust, generally have higher productivity and are therefore richer, precisely because good firms have more resources available to drive out the bad ones and increase the standard of living through creative destruction.

This was the inspiration behind Paul Romer's ill-fated Charter Cities project, which ran aground in Honduras. The goal was to import the values and institutions of societies with high levels of "social capital" to poor countries in the hope that it would allow them to become richer and more productive. Ironically, the Honduran mission failed precisely because the agency that was supposed to ensure transparency refused to allow outsiders to audit agreements made between the government and private firms.

Monopolies, Corporations and the Italian Malaise

"American regulators are examining the close links between Apple and Google, reports the New York Times. It's no secret that Apple and Google share two board members: Eric Schmidt, Google's chief executive, and Arthur Levinson (formerly of Genentech), but the rules on whether such ties promote anti-competitive behaviour are now being looked into."

Corporations on the rise!

It is encouraging to notice that someone is still concerned about competition, trusts and monopolies.
Since the crisis started we have been witnessing corporations merging, buying and consolidating as they wish will little or no oversight. All this has been justified in the context of the economical crisis and supporting the faulty logic that if they do not grow gigantic they will not survive this crisis.
There will be a new anti-trust regulation when and if the crisis will end to prevent a handful of companies to control an entire sector of the economy? The answer will be most certainly NO! Since by then they will be too big to be split and too big to be controlled by any authority or government. Phase II of the corporation evolution has started in September 2008 and although at the moment we see them as victims of this crisis It will not take long to see clearly that they are a dangerous concentration of power and wealth.

The Italian Malaise

If USA poses itself the dilemma of competition and monopolies, in Italy there is no discussion on these issues at all. Italy has more problems with unfair competition and monopolies than US.
A peculiar distortion of the Italian market is the possibility for a member of the board or a CEO to serve simultaneously in different companies. Some of them even serving at the same time in competing companies. Any other country would see this as a disaster for the company since the chances for inside trading, competition manipulation and corruption are endless. Not a problem in Italy since most of the members are chosen or imposed politically and on the basis of the leverage they can bring to the company. Ethical considerations are still non-existent in Italian companies. The stock exchange in Milan is one big happy family manipulating balances and defrauding.
Parmalat crack brought to the attention of the world the incredible corruption and manipulations of the Italian financial market but still this is the tip of the iceberg.
The system is practically rotten, overburdened with debt and the only reason it is still surviving is due to the fact the Italy is a paradise for crooks, balance frauds and book cooking are no longer prosecuted and it is a common practice. The Italian financial system is all image with no substance, this economical crisis will bring more and more cracks on the facade of this house of cards.