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This chapter analyzes what is the optimal governance model for market infrastructure institutions using the broad goal of efficiency as the main yardstick to compare different models. Three fundamental elements of governance are examined: an organization's ownership structure, its profit mandate, and its board composition. The chapter is composed of four sections. The first section outlines the archetypal ownership and mandate models that may be adopted by a market infrastructure institution. The second section identifies and discusses the pivotal factors that affect the relative efficiency of the different ownership and mandate models. The third section discusses two issues of fundamental importance to market infrastructure institutions' boards: the roles such boards should undertake, and the merits and difficulties of having independent directors or user directors on these boards. The last section encapsulates these discussions and presents key lessons about how to choose the optimal ownership structure and mandate for a market infrastructure institution.

This chapter explores what regulatory intervention in the governance of market infrastructure institutions is optimal. Attention is focused on how such intervention can enhance the realization of the three core objectives of securities markets regulation identified by International Organization of Securities Commissions (IOSCO), namely the protection of investors, ensuring that markets are fair, efficient, and transparent, and the reduction of systemic risk. The chapter is divided into five sections. In the first, some preliminary comments are presented. In the next three sections, the manner in which regulatory intervention in the governance of market infrastructure institutions may promote each of the IOSCO core objectives in turn is examined. The last section encapsulates these discussions and presents key lessons about how best to regulate the governance of market infrastructure institutions. In order to do so, 16 general propositions are articulated.

This chapter examines a unique set of assessments of securities markets and their regulation, from countries around the world, in order to provide a global perspective on policymakers' viewpoints about the regulation and governance of market infrastructure institutions. The assessments were undertaken as part of an initiative called the Financial Sector Assessment Program (FSAP), implemented jointly by the International Monetary Fund and the World Bank. Each assessment evaluates the extent to which a country's securities markets regulatory regime reflects internationally recognized standards. The assessments prepared for the FSAP since its inception in 1999 up until 2006 are analyzed. Together they provide insights on three topics: how exchanges, central counterparties, and central securities depositories are regulated and governed globally; official perceptions on the optimal way of regulating markets and market infrastructure institutions; and the assumptions that are often made when examining the governance and regulation of market infrastructure institutions.

Chapter 3 takes up the question of the robustness of the cross-country evidence for the orthodox claim that labor market institutions explain the pattern of unemployment across the affluent countries. A detailed survey of the most influential cross-country statistical studies finds a wide range of results that are highly sensitive to the nature of the variables, the time period, and the econometric method employed. Simple scatter plots of unemployment against six standard measures of labor market institutions for five-year periods between 1980 and 1999 show no significant relationships. In their multivariate tests, which follow standard approaches, the authors find weak and even perverse effects of the standard institutional variables. They conclude that “the empirical case has not been made that could justify the sweeping and unconditional prescriptions for labor market deregulation which pervade much of the policy discussion.”

This chapter examines how different reforms were chosen and implemented in various transition countries. It focuses on price and subsidy policy reform, property rights reform and farm restructuring, and liberalization and the development of market institutions.

At the core of the orthodox view is the belief that policy makers face an ineluctable choice between employment and equality. With data from the OECD for the major affluent OECD countries, empirical support for a variety of tradeoffs is explored: between unemployment rates and earnings inequality; between the change in unemployment rates and the growth in earnings inequality; between unemployment inequality (high vs. low skill) and earnings inequality; and between employment rate inequality (high vs. low skill) and earnings inequality. The authors find little evidence for these predicted tradeoffs. The chapter also looks at skill distributions and finds that differences in institutions, not skill distributions, are the main source of cross-country differences in earnings inequality. They conclude that the labor market institutions that clearly compress wages do not appear to have similarly clear and substantial adverse effects on employment performance.

This introductory chapter begins with a discussion of the nature of governance. It then sets out the book's purpose, namely to analyze how market infrastructure institutions are governed and how they should be governed. The central thesis presented here is that there is no single global answer either to the question of how market infrastructure institutions are governed, or to the question of how market infrastructure institutions should be governed. Instead, the answers to these questions are specific to the contexts in which they are raised. This argument contradicts the notion promoted in many other analyses of financial markets, that standardization, harmonization, and the creation of an international consensus are critical. A key aim of the book is to provide insight into the governance of market infrastructure institutions for a wide range of situations globally. Much of the analysis is therefore presented in an abstract and general way so as to be useful across different types of institutions, jurisdictions, and contexts. An overview of the subsequent chapters is also presented.

This introductory chapter briefly outlines the historical development of the welfare state and then provides an overview of the several dimensions of the employment problem, focusing on the pattern of unemployment and employment rates across affluent OECD countries for various demographic groups. It outlines the “OECD-IMF orthodoxy,” the widely accepted view that the main source of employment problems in affluent countries is benefit generosity and labor market regulation. The chapter compares some of the main indicators of labor market institutions and social benefits that are commonly blamed for poor employment performance and considers the justification for them on equity and efficiency grounds.

This concluding chapter makes use of evidence from the earlier chapters in this volume, from other recent country case studies, and from additional data on selected country “success stories” and “failures” to sum up the empirical case against the orthodox view—that labor market rigidities explain high unemployment and that free market reforms are required for good employment performance. Some dimensions of the French, Italian, Belgian, and Austrian experiences not covered in the earlier chapters are briefly discussed. The country case study evidence suggests an alternative to the orthodox rigidity account: employment performance across affluent countries appears to be related to the ability to effectively coordinate macroeconomic and social policies with the wage bargaining system, and that this in turn seems to require both strong employer and union associations and a relatively stable and consensual political environment. In any case, it is evident that fundamentally different labor market models are compatible with low unemployment, ranging from the free market “American Model” to the much more regulated and coordinated Scandinavian systems. The policy discourse should move beyond free market orthodoxy.

This chapter explains the effects of the different reforms which were chosen and implemented in various transition countries. It provides evidence on the effects of price and subsidy policy reform, property rights reform and farm restructuring, liberalization and the development of market institutions, and on the effects of the interaction between these reforms.

Like most of Europe, Canada experienced high levels of unemployment from the early 1980s through the late 1990s. It responded by introducing significant labor market reforms aimed at implementing OECD-style flexibility. In chapter 4, Jim Stanford points out that based on standard indicators of flexibility, like employment shifts across sectors, geographic mobility, and the levels of part-time work and self-employment, Canada gets high scores. He argues that the real objective of Canadian reforms has not been greater labor market flexibility per se, but greater labor market discipline through deregulation He finds that it is aggregate demand conditions, not labor market institutions, which best accounts for differences in labor market performance between the United States and Canada.

The chapter provides an overview of how market infrastructure institutions in the cash equity markets around the world were governed as of September 2006. The 90 member exchanges of the World Federation of Exchanges, and their associated clearing and settlement entities, were examined. For exchanges, the dominant control model, at 40 percent of the population, was that of a private company; 27.8 percent of the population were under mutual control, 16.7 percent were listed, and 15.6 percent were government controlled. For clearing institutions, the dominant control models were exchange control at 37.9 percent of the population and user control at 40.2 percent. Government control was low at 13.8 percent, as was control by independent entities at 7.8 percent. For settlement entities, user control was the dominant model at 45.1 percent of the population, with exchange control still common at 28.1 percent, although less important than for clearing entities.

Looks at some of the labour market outcomes of recent economic reforms. The extent to which labour market institutions affect the relationship between reform policies and income inequality remains controversial. Some see labour market institutions as a hindrance to more efficient development and growth, while others argue that without proper labour market institutions an economy cannot progress. Labour market policies, regulations, and institutions have at least three goals: improving allocative efficiency (matching supply and demand); improving dynamic efficiency (increasing the quality of the labour force); and improving or maintaining a sense of equity and social justice among labour force participants. These different goals inform the discussion throughout the chapter, which is organized as follows: after an introduction, the second section touches briefly on some theoretical aspects of labour markets and reform policies; the third reviews trends in labour market changes in terms of informalization of employment, wage shares in national income, and wage inequality; the fourth reviews some general trends in labour market policies that have typically been implemented under the Washington Consensus, namely, a decline in minimum wages, shifts in the bargaining power of unions, and a reduction in employment protection; the final section offers conclusions on whether or not labour market policies reduce income inequality.

From a stunning 23.9% in 1994, Spain’s unemployment rate fell to 13% in 2001. In this chapter, Bustillo challenges the conventional views that the main culprits of Spain’s high unemployment were overly generous and protective labor market institutions, and that the recent dramatic improvement can be explained by free market oriented institutional reforms. Benefit levels were not nearly as generous as many observers believe—about 30% of the average wage, one of the lowest in the European Union. Spain has been characterized by wage moderation, relatively low labor costs, and relatively high earnings inequality. Nor are employment protection laws particularly onerous: by the mid-1980s dismissal rates were comparable to other leading OECD countries. The author contends that the sources of much of the unemployment problem can be found elsewhere: in the rapid transformation from a highly agricultural to a service economy in a period of political upheaval in which employer-union relations were highly charged; a rapidly growing labor force; low R&D investment; an ineffective system of job training and placement; and limited geographic mobility, due largely to high housing prices which made it risky for workers to relocate.

While the Netherlands experienced high unemployment in the late 1980s, it outperformed the United States in the early 1990s and has done so since 1997. Germany’s high unemployment is entirely a post-unification phenomenon; it was not until 1993 that Germany’s unemployment rate was higher than that of the United States. The author argues that despite Dutch reforms, by the late 1990s their regulations still tended to be stronger and social protection spending more generous than Germany’s. Wage and skill dispersion are quite similar, as are the unemployment benefit systems. The answer lies elsewhere. The Netherlands has been distinguished by high levels of part-time employment, particularly among women, and has experienced substantially slower wage growth (partially compensated for by tax cuts), which contributed to an export boom. The key to the Dutch success has been a consistent mix of monetary, fiscal and wage policies. In contrast, in Germany the politics of the unification process helped produce both large public debts and substantial growth in real wages. The response was fiscal austerity, tight monetary policy, and a rise in social security payments levied on both employers and employees. The chapter concludes that the policy debate has greatly overemphasized the role of supply-side work incentives (regulations and benefits) and neglected the role of consistent wage bargaining, tax, and macroeconomic policies.

In this chapter, Misha Petrovic and Gary Hamilton outline the market-making perspective and contrasts this perspective with two alternatives perspectives (namely, theories of comparative and competitive advantage) that are frequently used to conceptualize international trade and the global economy. The alternatives are generally ahistorical and non-organizational, and both rely on unrealistic assumptions about how actual markets work. The two authors then describe the historical background for the retail revolution, and show that market making by retailers involves multiple institutional innovations that have contributed to the evolution of both horizontal and vertical competition between retailers and their suppliers in the course of making national and global markets. The market-making perspective is shown to be historical, developmental, and organizational.