Labs

1999

14

June 1999

Lessons from Lexecon: Battling Back Against Frivolous Securities Lawsuits

Milken Institute Conference Center
Santa Monica, CA

Securities litigation against corporate America could impact the economy as the fear of lawsuits by investors and the costs of defending them by companies divert capital away from productive uses, presenters at this roundtable discussion said.

"I've talked to investors from all over the world, and their deep concern is securities litigation," said Mickey Kantor, former U.S. Secretary of Commerce and now a partner in the law firm of Mayer, Brown & Platt. "It strikes fear in their hearts."

With investment driving the economic boom of the '90s in the U.S., the economy could suffer if investors are scared away from American companies because of the increase in class-action lawsuits alleging securities fraud.

"Without that investment, which can be inhibited by the fear of these kinds of lawsuits, we're going to shoot ourselves in the foot," said Kantor, who also served three years as U.S. Trade Representative.

To prevent this from happening, several things are needed — from tort legislation and tougher judges to a legal strategy that fights these lawsuits based on sound economic research and theory, said members of the panel, who were also attorneys from Mayer, Brown & Platt, co-sponsor of the event.

The firm recently won a $50-million settlement in a lawsuit against Milberg Weiss Bershad Hynes and Lerach, a New York law firm that has sued hundreds of companies on behalf of shareholders. Mayer, Brown & Platt sued the firm, accusing it of abusing the legal process by trying to destroy the reputation of Lexecon Inc., a consulting firm that has testified on behalf of companies sued by Milberg Weiss.

In April, a jury in Chicago awarded Lexecon $45 million in compensatory damages in the case. The two sides agreed to a $50 million settlement before the jury could decide on punitive damages.

The volume of securities class-action lawsuits in federal court has been climbing. Recent research described in a Policy Short published by the Milken Institute, "The Economic Costs of Frivolous Securities Litigation," shows that in 1998, the number of such suits filed was close to one suit a day for every trading day that the stock market was open, breaking the record set in 1994. The research also shows that smaller companies — those that are the fastest-growing in the country, such as high-tech firms — are being sued more frequently than larger companies.

Alan N. Salpeter, the lead attorney in the Milberg Weiss case for Mayer, Brown & Platt, said the Lexecon victory should send a signal to corporate America that it needs to fight securities lawsuits, not just settle them.

"If everybody settles these cases, then we'll never make law in this area," said Salpeter. "We'll never be able to fight back as a defense bar and establish some principals that are helpful. There's only so much that can be done in passing legislation. But there's a lot that can be done through the appellate process."

One of the lessons of the Lexecon case, he added, is that it "was clearly about someone who fought back."

Other solutions offered by the panelists included:

When building a defense, lawyers must think of the economics of the case. Many factors cause stock prices to fall, he said. Build a strong economics case as to why the price fell.

Tort litigation. The Private Securities Litigation Reform Act of 1995 helped reduce the number of frivolous lawsuits, but the numbers are climbing back. New legislation is needed to curb these suits. Passing new laws is a long and difficult process, however, said two other speakers — Philip R. Recht, former deputy administrator of the National Highway Traffic Safety Administration who joined Mayer, Brown & Platt this year, and Mark H. Gitenstein, former chief counsel to the U.S. Senate Judiciary Committee who has been a partner with the firm since 1990.

They, along with Kantor, stressed the need for defense lawyers to be as aggressive as plaintiffs' attorneys have been in taking their case to politicians in Washington and Sacramento.

Gitenstein said he has learned four important lessons from his years in Washington:

"There has to be a good public policy reason for reform." It's not just who you know, he said, but "what you know" that counts.

"You cannot do tort reform in Washington unless it is bipartisan."

Be prepared for incremental reform. "You can't go for the whole enchilada," he said. "You're not going to get the whole enchilada."

Broad reform is possible, but only when the issue is positioned in a way that "the average American can understand it."

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24

May 1999

Korea Update '99

Regal Biltmore Hotel
Los Angeles, CA

Diplomatic efforts currently under way may be North Korea's last chance to create permanent peace and stability on the Korean peninsula, South Korea's ambassador to the United Nations said today.

"We sincerely hope that the North Korean leadership seizes the opportunity to establish a more permanent basis for peace and security," See-Young Lee said in a luncheon talk co-sponsored by the Asia Society, Milken Institute, and UCLA Center for Korean Studies. "It is incumbent on them to respond positively to our overtures so that we can together create a new paradigm for peaceful coexistence and respect."

Lee's talk came one day before U.S. special envoy William Perry arrived in North Korea for talks meant to persuade its leaders to abandon their nuclear weapons and missile programs in exchange for a package of economic and diplomatic benefits.

Perry brought with him a joint message from the U.S., South Korea and Japan, which have worked on a package of incentives to encourage the North to end its weapons programs.

Lee said the package is part of a strategy of engagement with North Korea that his country hopes will finally persuade the communist regime to turn from confrontation to peace with its neighbors.

"We believe the package deal presents the North Korean regime with its best chance for survival," said Lee, pointing to the North's numerous economic problems. "It may be their last chance as well."

Also speaking at the event were Hilton Root, a senior fellow at the Milken Institute, and Ci-Wook Shin, a professor of sociology at UCLA.

Hilton Root
Root discussed his recent report, "The New Korea: Crisis Brings Opportunity," which proposes that compromises be made by the three major sectors in South Korea - the giant chaebols, labor and finance - so that needed economic reforms can go forward.

"Labor markets, enterprise markets and financial markets are part of an integrated social bargain in Korea," Root said. "People there understand these as related, not as separate."

Unfortunately, the International Monetary Fund only looked at financial reforms when it helped out the South Korean government in 1997.

"The IMF failed to understand that reforms must include all three sectors at once if changes are to occur, and as a result, the necessary reforms have not taken place," Root said.

Despite these failures, Root said there is room for optimism.

"There still needs to be an integrated settlement. There still needs to be a meeting of labor with management and with the capital markets, the banks, the IMF and the president in which there are tradeoffs, in which different groups make concessions, because all of these three groups hold part of the power," he said. "Nothing will happen if one works exclusively with one of these groups and not with all three at the same time."

Ci-Wook Shin
Shin spoke on social crises affecting South Korea that, despite some recent good news about that country's economy, remain serious problems.

"If you read Korean newspapers these days, you may get the impression that the crisis may be over," he said. "Stock prices went up. Some people are expecting growth of 4 to 5 percent this year. But if you talk to people in Korea, you get a more conflicting picture. You get the impression that the crisis is far from over."

Among the most serious problems is unemployment, now at between 8 and 9 percent - very high by Korean standards.

"Jobs are more than just about simply making money. The workplace is a place for social occasions," he said. "Losing a job is more than simply losing a means to make money, but also losing your social worth."

As a result of this high unemployment, labor unions are in trouble. They have lost public support.

"The labor movement is at a crossroads. It is facing a very tough challenge," he said. It must shore up its support, while being careful not to take actions that hurt its interests.

"Any miscalculation may facilitate the demise of labor activism in South Korea," he said. "The next couple of months will be crucial for labor activism in South Korea."

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04

May 1999

Corporate Debt and the Technology Shock

Milken Institute Conference Center
Santa Monica, CA

Thanks to rapid advancements in technology, the U.S. economy continues pushing to new heights, but while this growth may continue, the risks to investors have also grown, two economists said in a talk at the Milken Institute.

"Technology is driving economic growth, not just in the United States, but by extension, in the world," said David Goldman, Global Credit Strategist for Credit Suisse First Boston. "It will continue to do so because of the unleashed forces that no force on earth can stop."

The "technology shock," as Goldman calls it, has turned the investment world upside down. Price-to-earnings ratios have skyrocketed; companies that used to be secure, low-risk have become more volatile as they enter the high-tech market; and as the stock market continues to go up, volatility has gone up, too - exactly the opposite of what has occurred historically.

All of these rapid changes have made life more unpredictable for investors.

"We're in a world such as has never been seen before," Goldman said. "People are getting better stock returns, but feeling more and more nervous about it. This is an anomalous event."

The American economy is so dependent on stock market gains from the high-tech sector that poor earnings could threaten the overall economy - and that has created uncertainty around the world.

"The American consumer is spending, to some extent, capital gains out of her stock portfolio," Goldman said. "Consumption is very much dependent on the stock market, and the stock market is dependent on these kinds of valuations. This makes the world a riskier place. It means that although growth has been stronger than any of us forecast, it's a narrowly based growth, and one based on sources that are difficult to understand."

One result of this volatility is that high-yield debt may be a safer investment than investment-grade debt, he said. The default rate for high-yield bonds is the lowest it has ever been.

Although there are certain indicators that economists can use to gauge the market - with the volatility of stock prices and the cost of hedging equity prices being two of the most important - there are still many uncertainties, Goldman said.

"The high-yield debt market is between fear and greed," he said. "We're likely to continue with that kind of very odd, not quite knowing how to look at the market for some time."

Bob Kricheff, Managing Director at CS First Boston, highlighted some of the technology areas that are particularly active today, such as cable television, the Internet, and telecommunications. He said the high-yield market is feeding much of their growth.

"The high-yield market really does not act without the major technology sectors and vice versa," he said. "They're closely linked."

To show how much technology industries have restructured the high-yield market, Kricheff pointed to statistics that showed that in 1992, this area made up 13 percent of the market. Today, it makes up 30 percent.

"It's creating some phenomenal opportunities for wealth, some phenomenal opportunities for productivity, and some phenomenal opportunities for employment," he said.

But he added the same cautious note as Goldman about the risks of such a rapidly changing and popular market.

"What worries me is people blindly investing money in everything that ends with a dot-com."

He said investors should keep in mind four things:

  • The technology area is made up not of just one, but many sectors.
  • Rapid change is the norm, so don't get trapped in "old world views" and get stuck on one theme or one company.
  • Don't focus on a company's assets, but how well they execute their business plan.
  • Focus on customers; they are the key to this industry.

"Everybody gets tied up in the technology," Kricheff said. "That is what's changing the economy. But at the end of the day, it's not necessarily what's driving businesses. It's still a lot of execution and focus and winning customers and revenue."

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29

April 1999

China in Transition: Social & Economic Challenges

Milken Institute Conference Center
Santa Monica, CA

China has made tremendous progress in moving toward a market-based economy in just a few short decades, but still faces monumental challenges in the years ahead - from having enough food to feed its people to finding enough jobs for its millions of workers, a group of experts said Thursday night.

But while the problems are vast and difficult, its leadership appears to be working hard to prevent them from becoming major catastrophes - and in many cases is succeeding, the speakers said.

"What we're seeing in China today is a leadership that is struggling with enormous problems," said Barry Naughton, a professor in International Relations and Pacific Studies at the University of California, San Diego. "It might still be swamped by these problems, but so far, from everything we can see, it is maneuvering to keep a very dramatic forward momentum going on."

One of the most recent signs is China's concessions on negotiations for entry into the World Trade Organization, he said.

"It is a very large and very important package of concessions by the Chinese that has the effect of opening Chinese markets in very important ways to outside business," Naughton said. "I would say this WTO agreement represents a recognition that government-sponsored attempts to restructure industry in a planned way aren't working, and the only thing that works in China, and that the only thing that's going to work in the future, is to ratchet up the degree of competition, ratchet up the degree of economic change."

Naughton was one of three speakers who addressed an audience at the Milken Institute Conference Center on, "China in Transition: Social & Economic Challenges." The event was co-sponsored by the Asia Society, the Milken Institute and the USC-UCLA Center for East Asian Studies. The event was moderated by James Tong, co-director of the center and a professor of political science at UCLA.

All three speakers pointed to large-scale problems facing China's leadership, from vast environmental pollution to rural poverty.

Vaclav Smil, professor of geography at the University of Manitoba, said China faces terrible problems of air pollution, soil degradation and water shortages - all of which spell trouble for China's ability to feed itself.

With so many mouths to feed, and with only a limited amount of food available on the world market, China has no choice but to grow its own crops to feed its people.

But, he said, "You have to have a reasonably healthy environment to do that."

Anthony Saich, resident representative of the Ford Foundation in Beijing and Daewoo Professor of International Affairs at the Kennedy School of Government at Harvard University, said that rural poverty remains one of China's biggest problems.

"The long-term future of China resides in resolving very deep-seated rural problems," Saich said. "It's still where 80 percent of the population lives, and it's where domestic demand will eventually have to be stimulated to keep the Chinese economy moving along."

As the Chinese leadership struggles with these problems, it is faced with many dilemmas, the speakers said. One of the most difficult is being able to reduce the country's massive state-run enterprises while maintaining its strong growth rate, Naughton said.

"In order to continue this process, (Prime Minister) Zhu Rongji needs to be able to hold out to the workers who are being laid off the possibility, the promise that they'll find some other kind of work, some new occupation, that they're not just going to be cast aside on the ash heap of history," he said. "Zhu Rongji needs to keep the growth rate up."

To do this, the prime minister has injected government money into various infrastructure projects.

"The reason this is a dilemma is that in doing so, Zhu Rongji is inevitably working at cross-purposes," he said. "The money that gets pumped from the state into infrastructure projects inevitably goes primarily back into the state sector. So on the one hand, Zhu is shrinking down the state sector by intensifying market competition. On the other hand, he is propping it up by pouring government funds into a large-scale investment program."

"That's a set of choices that is easy to criticize," Naughton added, "but it's hard to figure out what he should do that's a whole lot better."

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1998

19

November 1998

What's Happening on the Regulatory Front?

Milken Institute Conference Center
Santa Monica, CA

The current push in Washington for more federal regulations - on everything from trade to high technology - poses a threat to the American economy, Fred Smith said at the Milken Institute.

As a result of these regulations, some industries have been stymied, such as in biotechnology, where regulations make it difficult for entrepreneurs to get their products to market. In other industries, such as small drug manufacturers, regulations threaten their ability to compete with larger companies.

"Right now, the whole mood toward regulatory reform is at an ebb," said Smith, president and founder of the Competitive Enterprise Institute. "The forces favoring greater regulation are having a bit of a renaissance."

It is time for Congress to control this regulatory fever. The U.S. should treat regulations the way it treats the federal budget - Congress must authorize it and the president must sign it into law. Lawmakers cannot continue to allow each agency to impose whatever controls it wants, with little oversight, he said.

"It's becoming recognized that it's something that has to happen," said Smith. "Over the next 20 years, we will have some form of regulatory accountability, which will essentially mean that regulations will be included in a more precise way in the U.S. budget. I think that will lead to a view that regulations can be promulgated by agencies, but they don't become law until Congress and the president sign them into law. That's a kind of tool that would attract bipartisan support over time."

Lack of accountability is just one problem with current regulations, he said. The other is a feeling by many agencies that anything new is risky, such as medicines or the Internet. The problem with that way of thinking, he said, is that it inhibits progress.

"There are risks of going too quickly into the future, but there are also risks of staying too long in the past," he said.

Smith pointed out two areas in particular that are hurt by too much regulation. One is in biotechnology. In many ways it is similar to the computer industry, where bright entrepreneurs push the boundaries of technology. The difference, however, is that the computer industry has few regulations while biotechnology has many.

"One of them produces a Bill Gates, the other hasn't produced much wealth at all," Smith said. "One of the reasons is a Steve Jobs or Steve Wozniak can start off with a brilliant idea, develop it in their garage and then, if it really works, attract capital and go out and become incredibly wealthy. A biotech firm can start with its product in a small lab, but when it wants to take the next step and become a marketable product, it has a real impediment, because it has to go through the regulatory process."

The other area where regulations hurt is trade, where the end of the Cold War has resulted in the United States demanding more from its partners. With the Soviet Union in power, we dealt with the world "on its own terms," which sometimes meant dealing with countries with poor human rights records or repressive leaders. "With the Cold War over, in America in particular, a lot of utopian fantasies have been freed," he said.

Groups as diverse as Greenpeace and the Christian Coalition are trying to impose their moral beliefs on the rest of the world through federal trade policies, which jeopardizes our commerce with the world, Smith said.

"The risk with this new world is that protectionism will become a moral thing to do - 'Yes, we'll trade with Burma as soon as they have wonderful human rights.' These are areas that are not going to be easy to achieve and they create incredible backlash potential among the rest of the world."

Smith is the president and founder of the Competitive Enterprise Institute, a public interest group that promotes market-based solutions to economic and environmental public policy issues. CEI publishes Ten Thousand Commandments, an annual survey of federal regulations. Smith co-authored the book Environmental Politics: Public Costs, Private Rewards, and has contributed to numerous other books as well as to leading national newspapers and public policy journals.

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30

October 1998

The Asian Crisis Updated

Milken Institute Conference Center
Santa Monica, CA

The continuing financial crisis in Asia will not ease for at least another year, but if Japan undertakes needed reforms, we could see the economies of that region begin to turn around by the year 2000, Marcus Noland said in a speech at the Milken Institute.

Japan's economic health is critical to Asia's future. If it doesn't solve its financial problems, the rest of Asia probably won't solve theirs either, he warned.

"The real issue for the rest of Asia is Japan," said Noland, Senior Fellow at the Institute for International Economics in Washington, D.C. "Japan is key to a speedy and constructive resolution of the crisis."

During his talk to about 150 guests at the Institute, Noland highlighted Japan's problems:

- An estimated growth rate this year of between minus-2 percent and minus-3 percent.

- Rising unemployment among the core male population.

- An increase in precautionary savings.

- The flight of deposits from commercial banks to government-run institutions.

Noland offered several solutions:

1. To stimulate demand for goods, Japan should establish a finite inflationary target and then "simply print money until it is reached" - an idea, he concedes, that does not have many supporters in Japan.

2. Japan must follow through on its promises to spend public money to stimulate the economy - and spend that money wisely. "There have been so many special packages, so many stimulus plans and so many supplementary budgets in the last 15 years that haven't amounted to much that no one actually believes them," Noland said. So when the government announces, as it recently did, a 10-trillion yen stimulus package, he expects it to actually spend about 3 trillion yen.

3. Japan must act aggressively to shut down insolvent banks and pay off bad loans, which some estimate as high as $1.5 trillion. The government recently earmarked 60 trillion yen (about $500 billion) to fix the problem, a decision praised by Noland. But, historically, the government has been reluctant to implement such plans. "The government doesn't want to act aggressively, because it fears that if it aggressively tries to shut insolvent banks that it will exacerbate a credit crunch. And it also wants to protect its friends," Noland said.

Because of this reluctance, Japan runs a risk of making things worse.

"Given the set of institutions, incentives and corporate governance practices that their economy operates under, one runs the risk of simply recapitalizing a flawed system and setting yourself up to exacerbate the crisis somewhere further down the road with a public that would, understandably, be even less willing to pay the bill," Noland said.

Fortunately for Japan, it is stable and has many resources at its disposal. The rest of Asia isn't so fortunate. South Korea, Thailand, Indonesia, Malaysia and the Philippines have all suffered tremendous economic losses due to fiscal, regulatory and political problems. Unfortunately, righting Japan's economy may cause further damage to some of these countries - especially South Korea. A devaluation of the yen, for example, would cost Korea exports not only to Japan, but also to other countries like the United States as Japanese goods became more competitive.

Noland also touched on these problems:

- The U.S. trade deficit could reach $300 billion this year. While that is not a problem at the moment, it could become a big problem later. "If the U.S. economy weakens, the trade deficit could rise in terms of political salience in the U.S. And if Japan has not pulled out of its recession by the time the United States economy weakens, then the world economy could truly be a mess," Noland said.

- China, while not as bad off as the rest of Asia, still faces many problems, including its own poor banking system and the transition of state-owned enterprises to the private sector. A devaluation of some type can be expected from China next year.

Without a healthy Japan, however, the rest of Asia cannot recover, Noland said. Even the $30-billion stimulus package recently announced by Japan to revive the economies of other Asian countries will go only so far. "Restoring robust growth in Japan would be more desirable," Noland said. And that will take time.

"This is going to be a slog," Noland said. "This is unlikely to turn around quickly. I don't think one can have any real confidence in positive growth until 2000."

Noland is one of the nation's most preeminent scholars of East Asian economies. He formerly served as a senior economist on the Council of Economic Advisers and has authored numerous books and articles on subjects ranging from the impact of the Asian currency devaluations to the U.S.-Japan economic conflict. He has testified before Congress in his areas of expertise and has consulted the World Bank, the New York Stock Exchange, and the U.N. Conference on Trade and Development.

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07

July 1998

Financial Instruments and Portfolio Risk

Milken Institute Conference Center
Santa Monica, CA

Do investors really know the risk of their high-yield bonds? Most methods currently used to value these bonds operate on the assumption that interest rates and equity returns are independent. But are they? Professor Theodore Barnhill argues that investors need to take both interest rate and credit risk into account, or else they will seriously underestimate the risk of holding such securities.

Barnhill is a professor of finance at George Washington University and the director of its Financial Markets Research Institute, created in 1995 to fund and conduct research in a variety of financial studies. Barnhill also co-founded FinSoft, a financial software development company focusing on security valuation and risk management. His book High Yield Bonds, co-edited with William Maxwell and Mark Shenkman, is forthcoming.

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24

April 1998

The Economics of Consolidation in the U.S. Defense Industry

Milken Institute Conference Center
Santa Monica, CA

In the early 1990s, the aerospace industry remained both the most technology-intensive U.S. manufacturing industry (measured by R&D as a fraction of sales) and the single largest high-technology industry (in terms of total R&D performed). From 1993 to 1997, as the result of changing Defense Department policies, U.S. aerospace and defense producers underwent an unprecedented wave of large-scale consolidation. With the recent decision to oppose the merger of defense giant Lockheed-Martin with Northrop-Grumman, U.S. government policymakers have signaled that further reduction in the numbers of potential prime contractors for key defense products will be subject to much more stringent scrutiny, closing a chapter in the recent history of these industries.

What forces have been driving these policy changes, and what impact have they had on the structure of U.S. aerospace and defense industries? What was the public policy rationale for encouraging consolidation, and how has it changed in light of current and probable future trends in defense spending? Has government policy gone too far, or not far enough?

As an economist, Kenneth Flamm has written extensively on trade, technology, and competition in global high-tech industries. His most recent book is Mismanaged Trade? Strategic Policy and the Semiconductor Industry. From 1993 to 1995 he served as Principal Deputy Assistant Secretary (Economic Security) and Special Assistant to the Deputy Secretary of Defense and was responsible for dual use technology policy and international programs.

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22

April 1998

The Frontiers of Global Economic Development

Milken Institute Conference Center
Santa Monica, CA

How to govern for prosperity will be one of the most important policy puzzles of the next century. Although the study of political economy has provided many answers as to how political arrangements can create incentives for growth, not all leaders govern for prosperity.

Hilton Root, a Senior Fellow at the Milken Institute and a former senior research fellow at the Hoover Institution and professor in public policy and international policy at Stanford University, discusses these issues as they relate to how paths to economic success or failure begin with the political institutions of sovereign states.

Root organized and directed the Hoover Initiative on Economic Growth and Democracy, an advisory group that explores the relationship between economic performance and political choice in order to implement effective policies for developing countries.

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17

April 1998

Why Do Emerging Markets Have So Little Firm-Specific Risk?

Milken Institute Conference Center
Santa Monica, CA

One of the most important roles of markets is to process information. But without secure property rights, judicial efficiency, honest government, and meaningful accounting information, markets cannot allocate capital efficiently and economic growth stands to suffer.

Bernard Yeung examines how emerging markets are subjected to economy-wide fluctuations to a greater extent than advanced economies because of political conditions that discourage informed trading, and instead foster "noise" trading. Yeung is a professor of international business at the University of Michigan Business School. His current research includes trade policies and firm behavior, foreign direct investment, and international trade.

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13

April 1998

The Government as Venture Capitalist

Milken Institute Conference Center
Santa Monica, CA

The Small Business Innovation Research (SBIR) program, the largest U.S. public venture capital initiative, provided more than $7 billion to small high-technology firms between 1983 and 1997. Harvard Business School Professor Joshua Lerner relates his findings about the long-run impact of the SBIR program, including the growth rate of SBIR awardees compared to other firms, the characteristics of the SBIR awardees that performed the best, and distortions inherent in the award process.

Lerner worked for several years on issues in technological innovation and public policy at the Brookings Institution, for a public-private task force in Chicago, and on Capitol Hill. His research focuses on the structure of venture capital organizations and their role in transforming scientific discoveries into commercial products.

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16

March 1998

Restructuring Regulation and Financial Institutions

Milken Institute Conference Center
Santa Monica, CA

On Monday, March 16, 1998, the Milken Institute hosted "Restructuring Regulation and Financial Institutions." This one-day conference presented the ideas of eight distinguished economists in sessions on banking, capital markets, mutual funds, pension funds, derivatives, insurance, government-sponsored enterprises, and systemic risks. Prominent discussants, including Nobel LaureateMerton Miller from the University of Chicago, discussed the papers presented.

Donald H. Straszheim, president of the Milken Institute, provided introductory remarks, and Institute chairman Michael Milken spoke at lunch.

As financial crises both at home and abroad highlight, the world's financial institutions face dynamic markets governed by a bewildering array of regulatory policies. This conference looked at the U.S. financial arena and placed each of the eight areas examined into an appropriate historical market and regulatory context. Presenters then examined what aspects of contemporary regulation either impede or enhance economic efficiency, and assessed what changes in regulatory policy are desirable. In addition, the conference addressed the influence of information technology on the future of financial markets.

Papers presented at the roundtable were later published in a book, Restructuring Regulation and Financial Institutions.

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09

February 1998

Technological Change, Education, and the Labor Market

Milken Institute Conference Center
Santa Monica, CA

Claudia Goldin and Lawrence Katz, both professors of economics at Harvard University and research associates at the National Bureau of Economic Research, present a historical view of the impact of educational and technological developments on the U.S. economy, focusing on the interplay among technology, education, and human capital in the 20th century.

Professor Goldin's research covers a wide range of topics in American economic history, including industrial laws and legislation, women and employment, and the labor market and economic conditions in the past century. In the words of The Wall Street Journal, she is "a sort of historical detective." Goldin is a former editor of The Journal of Economic History and has authored and edited several books, the most recent of which is The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, with Michael Bordo and Eugene White.

Katz's work has spanned the issues of income inequality, unemployment, changes in wage structure, and theories of wage determination. Katz has been editor of the Quarterly Journal of Economics since 1991, and is the co-editor of the recent NBER book Differences and Changes in Wage Structures.

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26

January 1998

What's Different About Family Businesses?

Milken Institute Conference Center
Santa Monica, CA

Ralph Chami, assistant professor of business economics at the University of Notre Dame, presents his research on family businesses, which make up 40 percent of Fortune 500 companies and account for half of the U.S. GDP. His theory of family business encompasses both market forces and the non-market institution of family. He explores the tradeoffs a parent makes as owner and manager in deciding employee compensation packages and examine how trust, altruism, and family succession affect family members' behavior and the survival of their firms.

Chami also specializes in the economics of information and of risk and uncertainty. He recently published "Altruism, Matching, and Nonmarket Insurance" in Economic Inquiry, "King Lear's Dilemma: Precommitment versus the Last Word" in Economics Letters, and "Development Policies in the Presence of Unemployment and Non-Traded Intermediate Goods" in the Journal of Economics.

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