Noel Maurer

Associate Professor of Business Administration (Leave of Absence)

Noel Maurer is an associate professor at the Harvard Business School in the Business, Government and the International Economy (BGIE) unit. Maurer earned his Ph.D. from Stanford University in 1997. Between 1998 and 2004 he worked as an assistant professor in the Department of Economics at ITAM, a university in Mexico City. Maurer also worked at an NGO dedicated to helping small rural communities in Chiapas find new business opportunities for their inhabitants.  He joined the Business School faculty in 2004.

Maurer’s primary research interest is on how governments protect (or fail to protect) property rights and how do private actors defend their property rights against predatory governments or in the face of political instability? Maurer’s first two books, The Power and the Money and The Politics of Property Rights (the second co-authored with Stephen Haber and Armando Razo) examined how Mexican politicians and private actors created mechanisms that enabled investors to protect their property rights by transferring rents to third parties upon whom the government depended for political support. If those rents were interrupted, then the third parties would withdraw their support, and the government would risk collapse. These arrangements allowed Mexico’s economy to grow substantially despite a revolution, a counter-revolution, a counter-counter-revolution, two military coups, three coup attempts, three civil wars, and two presidential assassinations.  Maurer’s third book, Mexico Since 1980 (co-authored with Herb Klein, Kevin Middlebrook and Stephen Haber) asked why Mexico’s authoritarian government collapsed in the 1980s and 1990s.  It also asks how Mexico’s transition to democracy affected the business environment.  What did democracy change and what did it not? 

He is currently researching the history of the U.S. government's attempts to protect American investors when they venture outside the United States.  He is also working on further developing a course on the politics and economics of the energy business.

Featured Work

Publications

Books

  1. The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal

    On August 15, 1914, the Panama Canal was officially opened for business, thus changing the face of both world trade and military power and playing a pivotal role in the rise of the United States on the world stage. Today we view the creation of the Panama Canal as a story of U.S. triumphalism; but the true story is a bit murkier. The first study of the Panama Canal to make use of both conventional historical methods and the tools of quantitative analysis, The Big Ditch examines the impact of the Panama Canal on the Republic of Panama, the United States, and the world. Noel Maurer and Carlos Yu deftly chronicle the economic history of the Canal, from the very earliest proposals made by Spain in 1529, through an abortive French attempt in the 19th century, to the construction, opening, and operation of the Canal by the U.S., and finally the turning over of the Canal to Panama, which was promised by the Carter administration in 1977 and made effective December 31, 1999. The true story of the Canal upends the more conventional tale of U.S. triumphalism and its shepherding of one of the largest infrastructure works ever built. First, the Canal produced great economic dividends for the first quarter-century following its opening, despite massive cost overruns and delays. Second, the United States captured most of these economic benefits, partially because of its geographical situation and partially because it could leverage its military might to obtain a better agreement than would have otherwise been reached. Finally, the U.S. agreement to give ownership of the Canal back to Panama in the 1970s was not a gesture of magnanimity, but because the strategic and economic value of ownership had since disappeared. In a surprise to those who argued that it was impossible for a fledgling Latin American nation plagued by corruption to manage the Canal better than its powerful patron to the north, the story of the Canal since its handover has been that the Panamanians have ultimately proved better at running it. Under the distant governance of a large country not particularly vested in the Canal's operation, the Panama Canal was run as a public utility. The Panamanian government, in contrast, has run the Canal as a for-profit corporation, increasing safety and decreasing costs along the way. Maurer and Yu's nuanced analysis of the contribution of the United States to state-building, economic development, and democratization of Central America does more than just advance our understanding of the national and global consequences of the Panama Canal and the imperialist motives and influences of the United States. In an age where everyone is looking for new models to capture the benefits of private enterprise under conditions of state ownership, the tale told by The Big Ditch serves as a vital and object lesson for those who question the ability of governments to run companies effectively.

    Keywords: For-Profit Firms; Development Economics; Political History; Infrastructure; State Ownership; Ship Transportation; Panama; United States;

    Citation:

    Maurer, Noel, and Carlos Yu. The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal. Princeton University Press, 2010. View Details
  2. Mexico Since 1980

    This book addresses two questions that are crucial to understanding Mexico's current economic and political challenges. Why did the opening up of the economy to foreign trade and investment not result in sustained economic growth? Why has electoral democracy not produced rule of law? The answer to those questions lies in the ways in which Mexico's long history with authoritarian government shaped its judicial, taxation, and property rights institutions. These institutions, the authors argue, cannot be reformed with the stroke of a pen. Moreover, they represent powerful constraints on the ability of the Mexican government to fund welfare-enhancing reforms, on the ability of firms and households to write contracts, and on the ability of citizens to enforce their basic rights.

    Keywords: Developing Countries and Economies; Foreign Direct Investment; Government and Politics; Growth and Development; Law Enforcement; Welfare or Wellbeing; Mexico;

    Citation:

    Haber, Stephen, Herb Klein, Noel Maurer, and Kevin Middlebrook. Mexico Since 1980. World Since 1980. Cambridge University Press, 2008. View Details
  3. The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929

    Keywords: Property; Rights; Government and Politics; Economics; Growth and Development; History; Mexico;

    Citation:

    Haber, Stephen, Noel Maurer, and Armando Razo. The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929. Political Economy of Institutions and Decisions. NY: Cambridge University Press, 2003. View Details

Journal Articles

  1. The Empire Struck Back: Sanctions and Compensation in the Mexican Oil Expropriation of 1938

    The Mexican expropriation of 1938 was the first large-scale non-Communist expropriation of foreign-owned natural resource assets. The literature makes three assertions: the U.S. did not fully back the companies, Mexico did not fully compensate them for the value of their assets, and the oil workers benefited from the expropriation. This paper finds that none of those assertions hold. The companies devised political strategies that maneuvered a reluctant President Roosevelt into supporting their interests, and the Mexican government more than fully compensated them as a result. Neither wages for oil workers nor Mexican government oil revenue rose after the expropriation.

    Keywords: Natural Environment; Assets; Value; Motivation and Incentives; Government and Politics; Strategy; Interests; Revenue; Non-Renewable Energy; Energy Industry; Mexico; United States;

    Citation:

    Maurer, Noel. "The Empire Struck Back: Sanctions and Compensation in the Mexican Oil Expropriation of 1938." Journal of Economic History 71, no. 3 (September 2011): 590 – 615. View Details
  2. Lawsuits and Empire: On the Enforcement of Sovereign Debt in Latin America

    The re-occurring phenomenon of sovereign default has prompted an enormous theoretical and empirical literature. Most of this research has focused on why countries ever chose to pay their debts (or why private creditors ever expected repayment). The problem originates from the fact that repayment incentives for sovereign debts are minimal since little can be used as collateral and the ability of a court to force a sovereign entity to comply has been extremely limited, especially given the lack of a supranational legal authority capable of enforcing contracts across borders. In this paper we contrast the market reaction to attempts to enforce sovereign debt contracts via U.S. "dollar diplomacy" in Latin America in the pre-World War II period and by legal action in the 1990s and early 2000s. We argue that dollar diplomacy created an effective and credible enforcement regime while legal actions by creditors, conversely, do not appear to have done so.

    Keywords: Lawsuits and Litigation; Insolvency and Bankruptcy; Sovereign Finance; Borrowing and Debt; Debt Securities; Motivation and Incentives; Markets; Equity; Banking Industry; Latin America;

    Citation:

    Ahmed, Faisal Z., Laura Alfaro, and Noel Maurer. "Lawsuits and Empire: On the Enforcement of Sovereign Debt in Latin America." Law and Contemporary Problems 73, no. 4 (fall 2010). View Details
  3. What T. R. Took: The Economic Impact of the Panama Canal, 1903-1937

    The Panama Canal was one of the largest public investments of its time. In the first decade of its operation, the canal produced significant social returns for the United States. Most of these returns were due to the transportation of petroleum from California to the East Coast. The United States also succeeded in leveraging the threat of military force to obtain a much better deal from the Panamanian government than it could have negotiated otherwise.

    Keywords: History; Development Economics; International Relations; Investment Return; Negotiation Deal; Panama; United States;

    Citation:

    Maurer, Noel, and Carlos Yu. "What T. R. Took: The Economic Impact of the Panama Canal, 1903-1937." Journal of Economic History 68, no. 3 (September 2008). View Details
  4. Related Lending and Economic Performance: Evidence from Mexico

    Related lending, a widespread practice in LDCs, is widely held to encourage bankers to loot their banks at the expense of minority shareholders and depositors. We argue that neither looting nor credit misallocation are necessary outcomes of related lending. On the contrary, related lending often exists as a response to high information and contract enforcement costs. Whether it encourages looting depends on other institutions, particularly those that create incentives to monitor directors. We examine Mexico's banking system, 1888–1913, in which there was widespread related lending. We find little evidence of credit misallocation despite a financial crisis and government-organized rescue.

    Keywords: Crime and Corruption; Developing Countries and Economies; Financial Crisis; Financing and Loans; History; Business and Shareholder Relations; Banking Industry; Mexico;

    Citation:

    Maurer, Noel, and Stephen Haber. "Related Lending and Economic Performance: Evidence from Mexico." Journal of Economic History 67, no. 3 (September 2007): 551–581. View Details
  5. Enforcing Property Rights Through Reputation: Groups in Mexico's Early Industrialization, 1878-1913

    Keywords: History; Rights; Groups and Teams; Reputation; Property; Developing Countries and Economies; Mexico;

    Citation:

    Maurer, Noel, and Tridib Sharma. "Enforcing Property Rights Through Reputation: Groups in Mexico's Early Industrialization, 1878-1913." Journal of Economic History 61, no. 4 (December 2001): 950–973. View Details

Book Chapters

  1. The Internal Consequences of External Credibility: Banking Regulation and Banking Performance in Porfirian Mexico

    Keywords: History; Performance; Banks and Banking; Banking Industry; Mexico;

    Citation:

    Maurer, Noel. "The Internal Consequences of External Credibility: Banking Regulation and Banking Performance in Porfirian Mexico." Chap. 3 in The Mexican Economy, 1870-1930, edited by Jeffrey Bortz and Stephen Haber, 50–92. Social Science History. Palo Alto, CA: Stanford University Press, 2002. View Details
  2. Institutional Change and Economic Growth: Banks, Financial Markets, and Mexican Industrialization, 1878-1913

    Keywords: History; Organizational Change and Adaptation; Financial Markets; Economic Growth; Developing Countries and Economies; Banks and Banking; Banking Industry; Financial Services Industry; Mexico;

    Citation:

    Maurer, Noel, and Stephen Haber. "Institutional Change and Economic Growth: Banks, Financial Markets, and Mexican Industrialization, 1878-1913." Chap. 2 in The Mexican Economy, 1870-1930, edited by Jeffrey Bortz and Stephen Haber, 23–49. Social Science History. Palo Alto, CA: Stanford University Press, 2002. View Details

Working Papers

  1. The Empire Struck Back: The Mexican Oil Expropriation of 1938 Reconsidered

    The Mexican expropriation of 1938 was the first large-scale non-Communist expropriation of foreign-owned natural resource assets. The literature generally makes three assertions: the U.S. government did not fully back the companies, Mexico did not fully compensate them for the value of their assets, and the oil workers benefitted from the change in ownership. This paper musters data and evidence that supports only the first of those assertions, and only to a limited extent: the companies devised political strategies that maneuvered Roosevelt into supporting their interests, and they were more than fully compensated by the Mexican government as a result.

    Keywords: Non-Renewable Energy; Governance Controls; Business History; Ownership; Business and Government Relations; Natural Environment; Energy Industry; Mexico; United States;

    Citation:

    Maurer, Noel. "The Empire Struck Back: The Mexican Oil Expropriation of 1938 Reconsidered ." Harvard Business School Working Paper, No. 10-108, June 2010. View Details
  2. The Cost of Property Rights: Establishing Institutions on the Philippine Frontier Under American Rule, 1898-1918

    We examine three reforms to property rights introduced by the United States in the Philippines in the early 20th century: the redistribution of large estates to their tenants, the creation of a system of secure land titles, and a homestead program to encourage cultivation of public lands. During the first phase of American occupation (1898-1918), we find that the implementation of these reforms was very slow. As a consequence, tenure insecurity increased over this period, and the distribution of farm sizes remained extremely unequal. We identify two primary causes for the slow progress of reform. The first was the high cost of implementing these programs, together with political constraints which prevented the government from subsidizing land reforms to a greater degree. The second was the reluctance of the government to evict delinquent or informal cultivators, especially on public lands, which reduced the costs of tenure insecurity.

    Keywords: Governing Rules, Regulations, and Reforms; Rights; Property; Business and Government Relations; Agriculture and Agribusiness Industry; Philippines;

    Citation:

    Iyer, Lakshmi, and Noel Maurer. "The Cost of Property Rights: Establishing Institutions on the Philippine Frontier Under American Rule, 1898-1918." Harvard Business School Working Paper, No. 09-023, August 2008. (Revised April 2009.) View Details

Cases and Teaching Materials

  1. Poweo: David and Goliath in the French Electricity Market

    Charles Beigbeder, the president and founder of Poweo, an alternative electricity and gas operator in France, needs to decide on the company's strategy in light of electricity deregulation and the dominant position of Électricité de France (EDF) in the French market. Can Poweo successfully compete against EDF, with its giant installed nuclear base, and will competition bring benefits to French consumers?

    Keywords: Energy Generation; Competitive Strategy; Competition; Privatization; Monopoly; Market Entry and Exit; Energy Industry; France;

    Citation:

    Maurer, Noel, and Elisa Farri. "Poweo: David and Goliath in the French Electricity Market." Harvard Business School Case 711-037, March 2011. (Revised June 2011.) View Details
  2. Dubai in Crisis

    On November 25, 2009, the small city-state of Dubai shook financial markets across the world when the Dubai World holding companies announced that it would ask its creditors to standstill its debts. After three decades of phenomenal growth, something had gone off the rails with Dubai's development model. What caused the trouble? Was it simply a temporary setback or a sign that the city-state needed to change its business model? Could Dubai maintain its independence from Abu Dhabi in the wake of the bailout? And if the emirate's current model was not sustainable, then how exactly should it change? This case explores all these issues, in light of the Great Recession, the geopolitical context, and Dubai's history.

    Keywords: Business Model; Development Economics; Financial Crisis; Borrowing and Debt; Business History; Business and Government Relations; Dubai;

    Citation:

    Maurer, Noel. "Dubai in Crisis." Harvard Business School Case 710-061, March 2010. (Revised May 2011.) View Details
  3. Cosan: Thinking Outside the Barrel

    The Cosan case introduces students and executive education participants to political economy and business strategy in the biofuels industry. Cosan, based in Brazil, is the largest grower and processor of sugarcane in the world and the largest sugar and ethanol producer in Brazil; it is also the world's largest exporter of ethanol for vehicle fuels. Rubens Ometto, Cosan's CEO, has staked out a leading position in the Brazilian ethanol and sugar industries by virtue of his efficiencies in agricultural production and in downstream logistics. He now needs to consider whether, and how aggressively, to expand abroad, either with production facilities or by exporting Brazilian output. He also needs to decide the appropriate vertical structure for the firm: whether he should be involved more extensively in agriculture, processing, distribution, or retail. The answers to these questions depend on his views of the future of the industry and on the governmental institutions that will affect the distribution of value along the value chain.

    Keywords: Renewable Energy; Global Strategy; Governing Rules, Regulations, and Reforms; Industry Structures; Business and Government Relations; Business Strategy; Vertical Integration; Agriculture and Agribusiness Industry; Energy Industry; Brazil;

    Citation:

    Reinhardt, Forest L., Noel Maurer, and Ricardo Reisen de Pinho. "Cosan: Thinking Outside the Barrel." Harvard Business School Case 710-017, October 2009. (Revised October 2010.) View Details
  4. The Smart Grid

    The development of the smart grid—the integration of traditional elements of energy transmission and delivery with information technology—heralds a new era in the power industry. Many new business opportunities will be created as the smart grid gets developed. What strategies should Cisco employ to become a leader in this industry? What obstacles and challenges must Cisco overcome to compete successfully in this new industry?

    Keywords: Energy; Innovation Strategy; Technological Innovation; Problems and Challenges; Growth and Development; Information Technology; Strategy; Energy Industry;

    Citation:

    Henderson, Rebecca, Noel Maurer, and Catherine Ross. "The Smart Grid." Harvard Business School Case 310-072, May 2010. (Revised November 2012.) View Details
  5. Afghanistan 2006: Building a Brand New State

    In 2006, Afghanistan remains a country in turmoil. It has a newly elected democratic government, a rebounding economy, and considerable economic potential. But the country is still torn by rival factions and dominated by the opium trade. Explores how Afghanistan has been rebuilt since the U.S. invasion of 2001, and what it means to create a modern state. Can state institutions be imposed from the outside? And what are the prospects for democracy in such a perilous place?

    Keywords: Developing Countries and Economies; Economic Growth; Policy; Government and Politics; Political Elections; Organizations; Outcome or Result; Afghanistan;

    Citation:

    Maurer, Noel, Debora L. Spar, and J. Gunnar Trumbull. "Afghanistan 2006: Building a Brand New State." Harvard Business School Case 707-033, January 2007. (Revised February 2010.) View Details
  6. The Future of Iraq Project (A)

    In March 2009, the government of Iraq decided to hold its first oil field auctions. The auctions were for service contracts on the country's southern oil fields; the winner would obtain the right to produce oil above a certain target for a fixed fee. The bidders competed on the fee charged per barrel and the amount by which they promised to increase production. At the same time, the Kurdish regional government continued to sign Production Sharing Agreements with foreign companies for its oil fields, unrecognized by the national government. In a context of continuing (if much reduced) political violence and legislative deadlock in the national parliament, three actors needed to make key decisions. Jean Claude Gandur, the CEO of Addax Petroleum, needed to decide whether to continue investing in the Kurdish region in light of Baghdad's continuing opposition. The Iraqi oil minister, Hussein al-Shahristani, needed to design the oil auctions in such a way that oil companies would be moved to invest, and invest quickly, despite the lack of a national oil law. Finally, the American secretary of state, Hillary Clinton, needed to decide what Iraqi oil policy would be in the best interest of the United States, and what levers (if any) the U.S. government could pull in order to insure that such a policy would be carried out. What would the three actors decide, and how would their decisions affect the future of Iraq and the world oil market?

    Keywords: Non-Renewable Energy; Foreign Direct Investment; Policy; Auctions; Production; Business and Government Relations; Energy Industry; Iraq;

    Citation:

    Maurer, Noel, and Sogomon Tarontsi. "The Future of Iraq Project (A)." Harvard Business School Case 710-002, September 2009. (Revised December 2009.) View Details
  7. The Future of Iraq Project (B)

    The first round of bidding on the rights to develop Iraq's oil field did not go as planned. All the bidding groups wanted to charge a fee per barrel that the Iraqi government considered too high. As a result, the Iraqi government conducted the auction a second time, this time making it clear that it would not consider fees above $2.00 per barrel. (In addition, the winner needed to deposit $500 million with the Iraqi oil ministry.) Only one bid was accepted: a consortium of the company formerly known as British Petroleum (now BP), the China National Petroleum Company (CNPC), and the Iraqi-state-owned South Oil Company. The consortium had previously bid $3.99 for the same field. It now had to negotiate the actual terms of the contract with the Iraqi government. In addition, the executives in London and Beijing needed to decide whether it made sense to exercise the option they had just purchased. Would they be throwing good money after bad by investing in the Rumaila super-giant field at such a low fee per barrel, or would there be strategic returns down the line?

    Keywords: Non-Renewable Energy; Foreign Direct Investment; Contracts; Auctions; Business and Government Relations; Energy Industry; Iraq;

    Citation:

    Maurer, Noel, and Sogomon Tarontsi. "The Future of Iraq Project (B)." Harvard Business School Supplement 710-016, September 2009. (Revised December 2009.) View Details
  8. Peoplepower, Inc.: The Republic of the Philippines

    In 2006, the Philippines faces a difficult choice. Japan has offered the country a trade agreement that includes access to the Japanese labor market for Philippine nurses and other professionals. The same trade agreement, however, means opening the country's manufacturing enterprises to Japanese exports, which is bitterly opposed by some of the nation's largest foreign investors. President Gloria Arroyo-embattled by coup attempts and political scandals-must decide whether to advance the nation's three-decade-old strategy of encouraging the export of its labor resources or whether to attenuate that strategy to meet the demands of large foreign investors.

    Keywords: Diasporas; Developing Countries and Economies; Trade; Foreign Direct Investment; Human Capital; Business and Government Relations; Conflict and Resolution; Japan; Philippines;

    Citation:

    Maurer, Noel. "Peoplepower, Inc.: The Republic of the Philippines." Harvard Business School Case 706-052, April 2006. (Revised June 2008.) View Details
  9. The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry (TN)

    Teaching Note to 706043.

    Keywords: Markets; Apparel and Accessories Industry; Lesotho;

    Citation:

    Abdelal, Rawi E., Regina M. Abrami, Noel Maurer, and Aldo Musacchio. "The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry (TN)." Harvard Business School Teaching Note 707-003, July 2006. (Revised February 2007.) View Details
  10. The Barber of Buenos Aires: Argentina's Debt Renegotiation

    Tells the story of Argentina's aggressive strategy for renegotiating its sovereign debt from 2003 to 2005. Most creditors accepted the offer to swap their debt for new securities worth 35 cents on the dollar, with no recognition of all past-due interest. Many holdouts, however, remain outside the deal. Some experts believe that Argentina's stance will have negative consequences for the country's private sector and gives a worrisome signal about public policies; others maintain that circumstances beyond the government's control had placed the country in an unsustainable situation, and the successful renegotiation opens up new opportunities. The case presents the story of Argentina's debt saga from the point of view of the country's creditors (foreign and domestic), its government, and private Argentine companies that had to do business in the post-renegotiation environment. Also, discusses the larger issue of how the international financial community should handle sovereign debt workouts.

    Keywords: Private Sector; Borrowing and Debt; Insolvency and Bankruptcy; International Finance; Foreign Direct Investment; Sovereign Finance; Government and Politics; Negotiation Tactics; Outcome or Result; Situation or Environment; Argentina;

    Citation:

    Maurer, Noel, and Aldo Musacchio. "The Barber of Buenos Aires: Argentina's Debt Renegotiation." Harvard Business School Case 706-034, April 2006. (Revised December 2006.) View Details
  11. The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry

    In Maseru, the capital of the Kingdom of Lesotho, the stirrings of industrialization and modernization were promising, and more than 50,000 workers, mostly women, were employed in the textile sector; the figure reflected more than a threefold increase in just a few years. Just outside Maseru, however, life was pastoral. Of Lesotho's 1.9 million citizens, 86% were engaged in subsistence agriculture. The country's hopes for progress rested with the jobs created by Taiwanese and Chinese firms. In early 2006, however, the survival of the nascent industry hung in the balance. The appreciation of Lesotho's currency, the loti, made life difficult for the apparel firm, which exported almost all of their production to the United States. Although the firms enjoyed duty-free access to an otherwise protected U.S. clothing market through the African Growth and Opportunity Act, the provisions that most benefited Lesotho would expire in 2007. A few large buyers would be making sourcing decisions that could make or break Lesotho's industry. Local union leaders were upset with the government's handling of the textile boom and its putatively impending bust. Certainly the government would play an important role in formulating a strategy and adjusting the institutional context, but decisions made by the unions, foreign investors, foreign buyers, and the American government would also be critical. How would posterity judge Lesotho's first encounter with world markets--as a triumph or a disaster?

    Keywords: History; Labor Unions; Trade; Business and Stakeholder Relations; Financial Crisis; Globalized Markets and Industries; Business and Government Relations; Decision Choices and Conditions; Foreign Direct Investment; Developing Countries and Economies; Fashion Industry; Apparel and Accessories Industry; Lesotho;

    Citation:

    Abdelal, Rawi E., Regina M. Abrami, Noel Maurer, and Aldo Musacchio. "The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry." Harvard Business School Case 706-043, March 2006. (Revised November 2006.) View Details
  12. What Should the Federal Reserve Do? Thoughts of Greenspan and Bernanke

    Presents remarks by Alan Greenspan and Ben Bernanke on monetary policy, explicit inflation targets, and the relative merits of asset price targeting.

    Keywords: Inflation and Deflation; Asset Pricing; Central Banking; Financial Strategy; Policy; Banking Industry;

    Citation:

    Iyer, Lakshmi, and Noel Maurer. "What Should the Federal Reserve Do? Thoughts of Greenspan and Bernanke." Harvard Business School Case 706-017, December 2005. (Revised July 2006.) View Details

Other Publications and Materials

  1. Françafrique and Oil

    France's special relationship with its oil-producing former colonies has become entirely divorced from economic or strategic considerations. What drives the relationship, rather, are special interests: the French oil companies, the connections between African leaders and French politicians, and bureaucratic inertia. The recent scandals involving Elf-Aquitaine have greatly weakened what remains of the "special relationship" between France and its former colonies of Gabon and Congo; inasmuch as the three countries are still linked, oil is no longer particularly relevant.

    Keywords: Relationships; Economics; Strategy; Natural Environment; Interests; Crime and Corruption; Energy Industry; France; Gabon; Congo, Republic of the;

    Citation:

    Maurer, Noel. "Françafrique and Oil." 2012. Mimeo. (Workshop on Oil and Political Relations, Council on Foreign Relations.) View Details

    Research Summary

  1. The Myth of the Resource Curse

    The so-called "resource curse" hypothesis argues that plentiful natural resources distort political systems and lead countries to be worse off in the long run. While it is certainly possible to squander a mining or oil boom, however, there are few cases in which a country appears to have been worse off than it would have been with less abundant natural resources.
  2. The Panama Canal

    The Big Ditch is the first quantitative economic history of the Panama Canal and its effect on Panama, the United States, and the world economy.  It makes three general arguments.  First, that the Panama Canal was very important to American commerce through the 1940s.  Second, American policy unintentionally denied Panama any economic benefits from the Canal until the 1970s.  Finally, since the 1999 handover, the Panamanians have run the Canal far better than the Americans ever did.

    The canal provided large cost savings for American commerce before 1940.  Despite very large cost overruns, and a seven-year delay in opening to commercial traffic, the benefits of the canal were more than enough to justify the cost.  The canal redistributed income from the South to the Northwest, spurring the Northwestern lumber industry, and it facilitated the expansion of the Californian oil industry.  (The railroads, perhaps surprisingly, were not much affected.) 

    After World War 2, the canal's importance to the United States declined rapidly.  International traffic outstripped intercoastal traffic, which moved to the interstate highways.  Most international cargos were commodities, in which the non-American producers would bear the impact of any rate hikes imposed by a non-American canal management.  Finally, aid to Panama (spent in order to prevent discontent) rapidly outstripped the profits the canal earned the Treasury.  Yet nationalist sentiment inside the United States, and a real fear that Panama might mismanage the canal, made a handover difficult. 

    Omar Torrijos, who ruled Panama as a dictator in the 1960s and 1970s, set the stage for the successful handover.  He eliminated patronage networks (for his own reasons, of course) and created the embryo of the banking and trade cluster that would help Panama prosper decades later.  The 1977 Panama Canal treaty set a 22-year transfer period, giving Panamanians time to learn the skills needed to operate the canal.  Finally, the democratic government that followed the American overthrown of Manuel Noriega in 1989 created a number of clever institutional mechanisms to insure that the Panama Canal would be run as a profit-making private enterprise despite 100% state ownership. 

    The final result was today's Panama Canal Authority, which since 1999 has greatly improved the canal's productivity and profitability.  The Canal's new management focuses on “shareholder value,” rather than the bureaucratic incentives that defined the American period.  Rather than a source of discontent, the canal has become a source of growth for Panama, and continues to be one of the world's most important trade links.

  3. Political Risk, Foreign Intervention and International Arbitration

    The Empire Trap:  America's Attempts to Protect Property Rights Overseas, 1898-2008, is a history of the U.S. government's attempts to protect the property rights of American investors when they venture outside the boundaries of the United States.  Washington's willingness to deploy American power, soft and hard, varied dramatically across the century, but one pattern held until the 1960s:  U.S. governments would categorically reject interventionism designed to favor or protect Americans, only to find themselves drawn back into involvement in the affairs of foreign nations on behalf of private American interests.  What explains this pattern, how was it broken in the 1960s, and will it return in the future?

    The Empire Trap argues that it is, as a general principle, very hard for democratic governments to credibly promise to ignore the interests of their citizens’ when they venture abroad.  The political reason is simple:  foreign policy is as subject to capture by private interests as any other public policy.  Private interests have multiple tools at their disposal.  They can mobilize nationalist sentiment.  They can create ways to tie their interests to other foreign policy interests of the United States.  They can find ways to insure that a failure to protect their interests will damage the executive's credibility in other spheres.  Finally, overseas investors can benefit from the fact that the benefits of U.S. intervention accrue largely to a small group, while the costs are diffuse and spread over society.  The economic characteristics of intervention facilitate these strategies.  Simply put, each marginal intervention by the U.S. government appears to have a small economic cost.  With each intervention, however, the government's credibility becomes more tied up with the policy's goal.  Once the U.S. government begins to actively support the activities of another, for whatever reason, policies become very hard to reverse.

    The U.S. found itself sucked into the empire trap repeatedly over the 20th century.  The U.S. annexed the Philippines and Puerto Rico in 1898 for reasons that had nothing to do with the property rights of Americans.  The experience was not pleasant, and few people wanted to repeat the experience.  Yet by 1928 the U.S. government ran Haiti, the Dominican Republic, and Nicaragua; its officials were embedded in the governments of Bolivia, Colombia, Cuba, Honduras, and Panama; and it had explicit contingent commitments to intervene on behalf of its investors in Costa Rica, Guatemala, Peru, and Venezuela.  The massive shock of the Great Depression allowed the Hoover and Roosevelt administrations to disengage from those commitments, but even before the 1930s ended FDR (against his better instincts) had been drawn into using American economic power to force Mexico to compensate the expropriated oil companies.  After World War 2, the Eisenhower administration, to its chagrin, found itself manipulated into overthrowing foreign governments on behalf of American businesses.  The Eisenhower and Kennedy administration tried to ignore Third World expropriations, only to have Congress mandate the imposition of crushing sanctions in the event that a foreign government seized American properties. 

    How was the cycle broken?  In the context of the Cold War, the potential cost of punishing foreign governments was huge.  The Soviets could move into any gap.  The empire trap had become a lot more dangerous.  The U.S., therefore, backed the creation of the institutions of international arbitration (the same ones that govern cross-border investment today) not to protect overseas property rights, nor solve international coordination problems, nor apply a new set of norms about "proper" international behavior.  Rather, said institutions were created give the American executive branch a credible political excuse not to act on behalf of American investors abroad.  The government could point business towards arbitration, and use the existence of international institutions to justify a refusal to sanction foreign governments. 

    Today, however, the institutions created during the 1960s have come under strain, tasked with missions that they were not designed to carry out.  Should they be allowed to collapse, the empire trap could reopen.  Policy makers and business leaders need to think hard about the tradeoffs involved in getting the government back into the business of protecting property rights outside the boundaries of the United States, especially in a world where other countries, increasingly, will be facing their own versions of the empire trap.