Course Overview

This is a course about exploiting the opportunities created by the emergence of a global economy and managing the risks that globalization entails. All managers now face a business environment where international, macroeconomic, and political phenomena matter. Understanding the genesis of financial and currency crises, stock market booms and busts, social and labor unrest, the rise of populism, and major swings in politics and policies is a crucial aspect in taking informed managerial decisions. Adverse macroeconomic and political phenomena can have a catastrophic impact on firm performance: witness the strong companies destroyed by the Mexican tequila crisis and those damaged by recent protests around the globe. Yet, such episodes also create business opportunities – and not just for the hedge funds and speculators that profit from them. Managers that have and use a coherent framework for understanding and analyzing these phenomena will enjoy a competitive advantage.

Career Focus

Internationally oriented careers; careers in global financial management; senior executive jobs; careers in policy-making.

Educational Objectives

The educational objectives of the IMaGE course are threefold.

First, the course aims to provide participants with a basic understanding of how contemporary macroeconomics explains dramatic events in the international economy, such as recurrent banking and financial crises in several countries. Much of this explanation focuses on the role of confidence, expectations, and crowd psychology. These factors result in aggregate behavior - e.g., demand in the U.S. economy as a whole - behaving in a different manner than would be suggested by simply summing individual behavior. This, in turn, justifies the establishment of macroeconomics as a separate discipline, distinct from microeconomics with its focus on individual firm and household decisions.

Second, the course discusses how institutions can be developed which focus the uncoordinated actions of individual households and firms as well as voters and politicians on good, rather than bad, overall outcomes. Such institutions are key determinants of macroeconomic and political outcomes. In some countries, legal, political, and economic institutions are able to coordinate private decisions on stable and productive paths. Where institutional development is weak - as seems to be the case in much of the developing world - private actions are poorly coordinated and the result is greater macroeconomic volatility, higher political risk, and slower growth. Understanding what constitute good institutions and how institutions influence economic and political behavior is therefore crucial.

Finally, the course is intended to develop a simple framework linking institutional design and macroeconomic performance. This framework can be used to evaluate how globalization is likely to change the performance of specific markets and thus assess the associated risks and opportunities.

Course Content and Organization

Most of the cases and class discussions focus on the country level, although several cases look at specific sectors (e.g., the retail industry in Chile, or the startup sector in Israel) or particular policies (inflation targeting in Brazil), and others span multiple countries (Chinese investments in Africa, or climate change). The course itself consists of four modules.

The first module ("Macroeconomic and Financial Dynamics") uses the experience of a famous economist (John Maynard Keynes) and several countries which have suffered through tremendous economic dislocation to identify and develop the issues of communication, confidence, coordination, and institutional development that are central to the remainder of the course. It investigates the mechanisms underlying recent macroeconomic and financial crises and explores their institutional underpinnings as well as their economic and political consequences. Representative cases include the Mexico Tequila crisis of 1994-95; Populism, banking crises, and exchange rate crises in Argentina; and Uganda and the Washington Consensus.

The second module ("Competing Institutional Models") studies how the U.S. and other rich countries have developed institutional structures permitting the coordination of individual business decisions on good economic outcomes, as well as their influences on macroeconomic policy design and performance. Moreover, it demonstrates how institutional differences across countries ultimately rest in differences in norms and beliefs, and explores how changes in the environment can render previously successful institutional structures outmoded, thereby creating both opportunities and risks for firms and households. Representative cases include Margaret Thatcher and the Blair wealth project; Latvia navigating the strait of Messina; Eliot Spitzer pushing Wall Street to reform; and Israel between the oligarchs and the startup nation.

The third module (“Politics: Influence and Unrest”) studies the dynamics leading to the creation and fissuring of political consensus on institutions, broad policy orientations, and specific policies. It gives special attention to the role of information influencing politicians’ choice of policy and the people’s preferences, as well as factors generating information bias. It explores the interactions between all stakeholders influencing policy-making (ruling elites, companies, media, and the people) and their impact on business. Representative cases include Lobbying in the chemical industry in the U.S.; Unrest in Chile, Looting at Walmart International; and Populism, fake news, and elite betrayal in the Trump era.

The fourth module ("The Future of Globalization") uses the macroeconomic and political economy tools and insights built in the previous modules to study the latest trends in globalization and their effects. It discusses how the increasing integration of international trade and of the global capital markets can affect the economic performance and generate political turmoil within previously successful and stable nations by undermining the internal coherence of the institutional structures on which their economic performance rested and the policy options available to them. Representative cases include the Trans-Pacific Partnership; Goodbye IMF conditions, hello Chinese capital: Zambia’s copper industry and Africa’s break with its colonial past; the 2012 Spanish labor reform; and Climate change: Paris, and the road ahead.

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