В. В. Селезнева, О. В. Емелина

Современные реалии экономического английского. The Language of Economics through the Prism of Topical Issues

Уровень B2–C1

Учебник

Под редакцией
О. В. Емелиной

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УДК 811.111(075.8)

ББК 81.432.1-9

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Авторы:

Селезнева В. В., кандидат филологических наук, заслуженный работник высшей школы Российской Федерации, доцент Московского государственного института международных отношений (университета) Министерства иностранных дел Российской Федерации;

Емелина О. В., старший преподаватель кафедры английского языка No 6 Московского государственного института международных отношений (университета) Министерства иностранных дел Российской Федерации.

Рецензенты:

Субочев В. В., доктор юридических наук, профессор, заведующий кафедрой государственного регулирования Московского государственного института международных отношений (университета) Министерства иностранных дел Российской Федерации;

Чугунова С. А., доктор филологических наук, профессор кафедры теории английского языка и переводоведения Брянского государственного университета имени академика И. Г. Петровского.

Данный учебник предназначен для студентов старших курсов бакалавриата Московского государственного института международных отношений (университета) Министерства иностранных дел Российской Федерации, обучающихся по направлению «Государственное и муниципальное управление», и написан в соответствии с требованиями программы по английскому языку по аспекту «Экономический перевод».

Учебник базируется на принципах компетентностного подхода к изучению иностранного языка для уровня профессионального владения В2–С1.

УДК 811.111(075.8)

ББК 81.432.1-9

© Селезнева В. В., Емелина О. В., 2025

© ООО «Проспект», 2025

ПРЕДИСЛОВИЕ

Данный учебник предназначен для студентов старших курсов бакалавриата МГИМО (У) МИД России, обучающихся по направлению «Государственное и муниципальное управление», и написан в соответствии с требованиями программы по английскому языку по аспекту «Экономический перевод».

Учебник базируется на принципах компетентностного подхода к изучению иностранного языка для уровня профессионального владения В2—С1, который предполагает формирование следующих общекультурных компетенций: свободно осуществлять устную и письменную коммуникацию на иностранном языке международного общения на деловом и профессиональном уровне; самостоятельно приобретать с помощью информационных технологий и использовать новые знания в практической деятельности; системно мыслить, выявлять международно-политические смыслы и значения проблем, попадающих в фокус профессиональной деятельности; представлять информационные материалы широкой аудитории с применением современных программных средств обработки и редактирования информации, а также профессиональных компетенций: применять иностранные языки для решения профессиональных вопросов; владеть профессиональной терминологией и понятийным аппаратом сферы международной деятельности на русском и иностранных языках; владеть политически корректной устной и письменной речью в рамках профессиональной тематики на русском и иностранных языках; обладать уверенными навыками построения реферативного письменного текста и устного представления мнений по международно-политической проблематике; работать с материалами СМИ, составлять обзоры прессы по заданным темам; находить, собирать и первично обобщать фактический материал, делая обоснованные выводы.

Представленное Вашему вниманию учебное издание ставит своей целью совершенствование таких языковых компетенций, как умение получать, понимать и анализировать информацию профессионального характера, читать и понимать научную литературу на английском языке, переводить профессионально-ориентированные тексты, сопоставлять различные точки зрения на научную проблему, понимать часто встречающиеся в профессиональной литературе идиоматические выражения, метафоры и другие фигуры речи, кроме того, понимать имплицитную информацию в речи и учитывать особенности межкультурного общения в деловой среде.

Учебник включает в себя 4 раздела, которые посвящены определенным предметно-лексическим темам:

1. Экономика начала нового тысячелетия.

2. Корпоративное управление.

3. Инвестирование и реалии фондового рынка.

4. Экономические кризисы и их последствия.

Каждый раздел (Unit) учебника состоит из нескольких тематических подразделов (Sections). Подразделы начинаются с небольших вводных текстов, предваряющих знакомство студентов с определенными аспектами раздела.

Языковой материал учебника аутентичен: тексты представляют собой аналитические статьи ведущих экономических изданий. Закреплению навыков информационно-аналитической работы способствуют предлагаемые к текстам упражнения.

Рубрики Further Translation Practice и Grammar and Vocabulary Practice содержат модели перевода и систему упражнений, направленную на развитие данной языковой компетенции.

Самостоятельная работа студента над материалами разделов включает в себя составление презентаций на заданную тему, поиск и анализ информации в различных интернет-источниках и экономических изданиях.

В конце разделов предлагаются проверочные работы для текущего контроля за усвоением пройденного материала. Учебник рассчитан на 50 учебных часов. На освоение одного раздела отводится приблизительно 8–10 часов.

Авторы сочли необходимым предложить к урокам, в зависимости от сложности изучаемой темы, лингвострановедческие комментарии и исторические справки, так как считают, что это не только способствует формированию базовых экономических понятий, но и дает представление о состоянии современной экономики в целом, о явлениях и процессах, участниками и свидетелями которых являются и те, кто изучает язык.

При составлении данного учебника авторы использовали в соответствии со ст. 1274 Гражданского кодекса Российской Федерации современные аутентичные материалы с обязательным указанием имен авторов, произведения которых используются, и источников заимствования, правомерно обнародованные произведения и отрывки из них в качестве иллюстраций (в широком смысле) в объеме, оправданном целью и методикой.

Unit 1
MAKING SENSE OF THE MODERN ECONOMY

Section 1. ECONOMIC THEORIES THAT SHAPED THE WORLD OF ECONOMICS

Lead-in

1. Read and translate text. Answer the following questions:

1) How has economic thought evolved through different historical eras?

2) How has economic thought mirrored or influenced changes in economies?

3) What are some significant economic theories that have shaped the field of economics?

4) How do these economic theories differ in their perspectives and implications?

5) Do economic theories remain static or do they evolve over time?

The academic discipline of economics, although not formally recognized until the nineteenth century, has a rich historical lineage stretching back to ancient civilizations. Aristotle, the eminent Greek philosopher, pondered questions concerning wealth acquisition and the ideal guardianship of property, themes foundational to economic thought. This intellectual lineage extends through the Middle Ages with scholars like Thomas Aquinas postulating moral obligations for businesses to charge fair prices.

Economic theory has metamorphosed alongside societal shifts, evolving from feudalistic views in the Middle Ages to mercantilist perspectives in the Renaissance era, centering trade policy as a tool to advance national interests. The advent of the industrial revolution heralded the birth of modern political economy, driven by an era of technological progress and hitherto unseen material prosperity.

Economic thought often mirrors changes in the economy, just as it can catalyze economic policy alterations. It oscillates between focusing on aspects of human behavior, such as greed and self-interest, and viewing economic activity as a self-regulating mechanism working toward collective benefit.

The crux of this chapter lies in exploring some significant economic theories, pillars upon which modern economics stands:

1. Classical Economics: Pioneered by thinkers like Adam Smith and David Ricardo in the 18th and 19th centuries, classical economics extols the virtues of free markets, self-interest, and limited government intervention.

2. Keynesian Economics: This theory, developed by John Maynard Keynes, emphasizes the role of aggregate demand in determining economic outcomes and posits that government intervention can mitigate economic downturns.

3. Neoclassical Economics: Building upon classical economics, this approach employs mathematical models to understand individual decision-making and market equilibrium.

4. Austrian Economics: Associated with economists such as Ludwig von Mises and Friedrich Hayek, this school of thought underscores the primacy of individual action and market competition, while critiquing government intervention.

5. Marxist Economics: Karl Marx’s theory focuses on the relationship between labor, capital, and class struggle, arguing that capitalism inherently exploits the working class.

6. Institutional Economics: This approach examines the influence of institutions, including laws and social norms, on economic behavior.

7. Behavioral Economics: This field combines psychology and economics to scrutinize individual economic decision-making, challenging the rational actor model.

8. Game Theory: This methodology analyses strategic interactions between individuals or entities.

9. Development Economics: This field delves into economic development in low-income countries, probing factors like poverty, inequality, and institutional dynamics.

10. Monetarist Theory: This approach, popularized by economists like Milton Friedman, highlights the control of money supply as a stabilizing economic factor.

These represent a snapshot of the theories that have sculpted the economics discipline. Each offers unique insights into how economies operate and can be steered. As new evidence emerges, economic theories continue to evolve, demonstrating the vibrant dynamism of this field.

Based on https://www.newworldencyclopedia.org/entry/History_of_economic_thought

2. Translate the sentences from Russian into English.

1. Пять принципов поведенческой экономики

a) На людей влияют моральные и ценностные суждения. Люди часто делают то, что считают «правильным», а не то, что принесет им наибольшую пользу.

b) Люди по-разному оценивают ситуации, в которых участвуют или не участвуют деньги. Мы различаем рыночный и социальный контекст. Для неоклассического экономиста, однако, нет никакой разницы, дарите вы лучшему другу книгу за $20 или чек на ту же сумму.

c) Люди инвестируют средства нерационально. Они придают большее значение недавним событиям по сравнению с далекими и не слишком точно рассчитывают вероятности. Кроме того, люди не любят терять деньги. Человек склонен инвестировать, пока у него сохраняется ощущение, что он чем-то владеет.

d) Люди часто руководствуются привычками и не думают о том, насколько их поведение оптимально. Привычка — вторая натура.

e) Человек — это сплав опыта, как собственного, так и других людей. Часто мы делаем что-то, опираясь не на свои суждения, а на то, что делают другие.

2. Перед развивающимися странами стоит проблема, которую американский экономист Уильям Истерли определяет так: пожертвования почти не помогают бедным народам перейти к индустриализации. Китай получал денежную помощь много лет, но эти деньги никак или почти никак не обусловили его феноменальный экономический рост с начала 1990-х. Один из способов содействия борьбе стран Африки с бедностью — разрешить им торговать с богатыми странами без пошлин на экспорт. Другой — позволить им создавать временные барьеры для импортеров, чтобы создать конкурентные преимущества для товаров, произведенных на внутреннем рынке.

3. Теория игр — это научная дисциплина, позволяющая людям выработать стратегию. Она изучает попытки человека предсказать действия других людей и результаты таких попыток. В последние десятилетия теория игр выполняет в экономике очень важную функцию. Адам Смит еще в XVIII веке доказывал, что люди по природе эгоистичны, но если эгоистичность опосредуется рынком, выигрывает в конечном счете все общество. Теория игр изучает, как эгоистичность воздействует на заключение сделок.

Люди вынуждены домысливать намерения других рациональных, руководимых личным интересом людей, и это — ключевой фактор в теории игр. Поскольку наше взаимодействие сплошь и рядом включает в себя стратегическую взаимозависимость, теория игр стала чрезвычайно влиятельной прикладной дисциплиной, часто используемой политиками, экономистами и коммерсантами. Банкиры применяют ее, когда просчитывают поглощения, работодатели и профсоюзы — когда участвуют в спорах по поводу зарплаты, политики — когда ведут переговоры, скажем, о международных торговых договорах, и когда решают, развязывать войну или нет, бизнесмены — когда определяют цену на товар с целью сокрушить конкурентов.

4. Традиционная экономика предполагает, что, несмотря на сложность задачи, люди способны без труда выбрать продукт сообразно своим интересам. Ложность этой предпосылки доказал бум на рынке недвижимости в 2000-х. Многие семьи с низким достатком брали ипотечный кредит, не понимая, что через пару лет ставка процента поднимется и ежемесячные выплаты станут для них неподъемными. Сторонники классической теории не предвидели масштаба катастрофы в том числе и потому, что не смогли понять: люди принимают нерациональные решения, которые могут в итоге аукнуться потерей жилья.

5. Основное различие между кейнсианством и монетаризмом заключается в отношении к роли государства в экономике. Сторонники кейнсианства считают, что государство должно не просто вмешиваться в экономику, а непосредственно регулировать ее. Монетаристы же, напротив, считают, что государство должно как можно меньше вмешиваться в экономику, так как рынок как саморегулирующаяся система всегда лучше любого вмешательства государства исправит любые перекосы и проблемы.

3. Read and translate the text. Answer the following questions:

1) How did classical economics, the standard school of thought from the 18th to the 20th centuries, explain the working of the entire economies during recessions?

2) What is the key idea of Keynesian economics?

3) How does the multiplier, introduced by Keynes, work? Give examples.

4) Speak about the six principal tenets of Keynesianism.

5) Why do some economists call the principle of the Keynesian multiplier controversial?

Government Spending Boosts the Economy by More Than What it Spent
The Keynesian Multiplier

Besides the primary employment created by the initial public works expenditures, there would be additional indirect employment.

Don Patinkin, US economist (1922–1995)

At the core of Keynesian economics is the idea that fiscal policy (government taxes and spending) should be used as a tool to control the economy. It was a theory espoused by one of the 20th century greatest thinkers, British economist John Maynard Keynes, whose ideas helped shape the modern world economy and are still widely respected and followed today.

Keynes’s magnum opus-The General Theory of Employment, Interest and Money (1936) was a direct response to the Great Depression. He argued that governments had a duty, one that has hitherto been neglected, to help keep the economy afloat in times of trauma. It was a rebuke to an idea set out by Frenchman Jean-Baptiste Say (1767—1832) that throughout the economy as a whole ‘supply creates its own demand’, meaning that merely producing goods would spark demand for them.

Kick-starting the economy

The assumption until the Great Depression had been that the economy was in large part self-regulated that the invisible hand (shorthand for the law of supply and demand), left to its own devices, would automatically raise employment and economic output to optimal levels. Keynes strongly disagreed. During a downturn, he said, a drop in demand for goods could cause a serious slump, causing the economy to contract and pushing up unemployment. It was the responsibility of government to kick-start the economy by borrowing cash and spending it, hiring public-sector staff and pouring cash into public infrastructure projects, for example, building roads and railways, hospitals and schools. Interest-rate cuts can do some way towards boosting an economy, but they are not the whole answer.

According to Keynes, the extra cash spent by government would filter through the economy. For example, building a new motorway creates work for construction firms, whose employees go out and spend their money on food, goods and services. This spending creates further employment. These newly employed workers will also spend some of their income, creating yet more employment. This process will help keep the wider economy ticking over.

Key to Keynes’s argument was the idea of the multiplier. Say the United States government orders a $10 billion aircraft carrier from the shipbuilders Northrop Grumman. You might assume the effect of this would be merely to pump $10 billion into the economy. Under the multiplier argument, the actual effect would be bigger. Northrop Grumman takes on more employees and generates more profits; its workers spend more on consumer goods. Depending on the average consumers’ propensity to consume’, this could raise total income output by far more than the amount of public money actually injected.

The six principal tenets

There are six principal tenets behind Keynesianism:

1. An economy’s performance is influenced by both public and private decisions and sometimes behaves erratically.

2. The short-term matters sometimes even more than the long term. Short rises in unemployment may cause even more damage in the long run since they can leave a permanent dent in a country’s economy. As Keynes famously said: “In the long run, we are all dead”.

3. Prices and, especially, wages respond slowly to changes in supply and demand, which in turn means unemployment is often higher or lower than it ought to be given the economy’s strength.

4. Unemployment is often too high and volatile, while recessions and depressions are economic maladies — not efficient market responses to unattractive opportunities.

5. The natural boom and bust of the economy is a problem that government should actively attempt to stabilize.

6. Keynesians tend to be more concerned about combating unemployment than conquering inflation.

A controversial theory

In the 1970s Keynesian policies came under fire, particularly from monetarists. They attacked the principle of the Keynesian multiplier, claiming that governments would finance spending through taxation and debt. Tax would take money out of the economy, so create the opposite effect to that desired, while debt would cause inflation, lessening the purchasing power of those vital wages.

Ironically, however, Keynes enjoyed a major comeback in the wake of the 2008 financial crisis. As it became clear that cuts in interest rates would not be enough to prevent the US, UK and other economies falling into a recession, economists argued that governments should borrow money in order to cut taxes and boost spending. That is precisely what they did, in what was widely seen as a serious break with the previous two and a half decades. Against all odds, Keynes was back.

https://fee.org/articles/does-government-spending-boost-the-economy/

4. Summarise the key tenets of Keynesian economics using the outline given below:

1) Government spending boosts the economy by more than is spent.

2) If the government increases spending during a recession by building new infrastructure, for example, it will create employment.

3) The newly employed workers will save some of their income, and spend the rest.

4) This spending will increase demand and create new jobs.

5. Read and translate the text. Answer the following questions:

1) What are the key tenets of Milton Friedman’s theory now known as monetarism?

2) Compare the basic principles of Keynesian economics and monetarism.

3) How did Milton Friedman explain the onset of the Great Depression in 1920—1933?

4) Why did the Establishment have to turn to Friedman’s theory in the 1970s?

5) Comment on the quotation: “All gods fail, if one believes too much”.

Monetarism: John Maynard Keynes versus Milton Friedman

The two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued people should be left to their own devices, with the government’s main role to monitor and control the amount of money flowing around the economy. In his seminal book a Monetary History of the United States 1867–1960, co-authored with Anna Schwartz, he set out the theories of monetarism.

Always fight inflation

“Inflation is always and everywhere a monetary phenomenon”, Friedman said. In short, by pumping extra money into the system (as the Keynesians were prone to doing) governments would drive up inflation, risking major pain for the economy. Friedman believed that if central banks were charged with maintaining control of prices, most other aspects of the economy such as unemployment, economic growth, productivity would more or less take care of themselves.

While Keynes had asserted that it was highly difficult to persuade workers to accept lower wages, classical monetarist theory argued otherwise: that lower incomes for workers and lower prices for firms were acceptable in the face of rising inflation. The growth rate of an economy, argued Friedman, could be determined by controlling the amount of money being printed by central banks. Print more cash and people would spend more, and vice versa. It was a far cry from Keynesianism, which downplayed the importance of money. It also marked an important political departure: whereas Keynes argued politicians should attempt to control the economy through fiscal policy, Friedman advocated giving independent central banks control over the economy using interest rates (albeit with some strict rules).

In a downturn, Friedman said, central banks should prevent deflation by pumping more money into the system. On this reasoning, he argued that in the run-up to the Great Depression, the Federal Reserve made the mistake of clamping down too hard on America’s banks and allowing too many to fail, which in turn made the economic slump even more painful. In fact, he blamed the Fed for turning what might have been a minor recession into the depression it ultimately was.

An idea whose time had come

At first the establishment paid little attention to Friedman’s arguments. After all, during the 1960s Keynesianism seemed to be working well: growth was steady, inflation was low and unemployment was under control.

Then came the oil shocks and the economic turmoil of the 1970s. The Western world endured stagflation, with shrinking economic growth, rising inflation and joblessness. Keynesian economics seemed to have no answer for this, paving the way for Friedman’s theory. He had predicted that such an outcome was possible and he proposed a solution: fight inflation, not unemployment.

On both sides of the Atlantic, politicians slowly embraced the doctrine. In the 1980s Paul Volcker, chairman of the Federal Reserve, took the United States through a painful and traumatic recession in order to get prices back under control. In the UK, incoming Prime Minister Margaret Thatcher warmed to the monetarist message. In Germany, the Bundesbank also started to pay specific attention to the speed at which money was being printed.

Monetarism vs. Keynesianism — the outcome

The result of the clash between Friedman and Keynes is, as is so often the case for contests between giants, a draw. Modern central banks tend to focus on both monetary and more traditional indicators when deciding on policy. Although the focus on money diminished in the late 1990s and early 2000s, it has returned more recently, with economists claiming the slump in money growth helped explain the economic downturn that followed the 2008 credit crisis.

On the other hand, there is a growing consensus that the kinds of policies suggested by Friedman, and espoused by Thatcher and Reagan in the 1980s — liberalizing financial markets, clamping down on inflation and money growth, giving companies more freedom to borrow and to hire and fire staff were actually partly responsible for causing the build-up in debt that triggered the financial crisis. As economics commentator Martin Wolf said, shortly before the UK and US dipped into recession: ‘Just as Keynes’s ideas were tested to destruction in the 1950s, 1960s and 1970s, Milton Friedman’s ideas might suffer a similar fate in the 1980s, 1990s and 2000s. All gods fail, if one believes too much.

http://www.telegraph.co.uk/finance/economics/6132058/Give-control-to-banks-and-problems-take-care-of-themselves.html

6. Summarise the fundamentals of monetarism using the outline given below:

7. Read and translate the text. Answer the following questions:

a) What notion does standard neoclassical economics hinge on?

b) Explain the term Homo economicus.

c) What does behavioural economics investigate?

d) Who were the founders of behavioural economics?

e) Give examples to prove that emotions can make people act irrationally.

f) How can people be influenced into taking particular decisions. Exemplify your answer.

Behavioural Economics

Economics has an Achilles’ heel. Until recently many practitioners attempted to ignore or dispute this shortcoming but it can ultimately be held responsible for many of the glaring mistakes economists have made for hundreds of years. It is the erroneous assumption that humans are rational.

Experience shows that people are by no means consistently rational. An obese smoker, were he truly rational, would go on an immediate diet and give up cigarettes, recognizing the danger he is causing to his health. Were each of us truly rational, we wouldn’t be so swayed by ‘buy one get one free offers’; we would judge the adequacy of our salaries based entirely on their absolute level rather than comparing them with what our neighbour, or our spouse’s sister’s husband, earned. People are prone to emotion to excitement, love, jealousy and grief, for example which can make them act irrationally.

Behavioural economics investigates why and how people act irrationally. It is among the newest and most fascinating areas of academic study, combining economics and psychology. Moreover, far from merely being an interesting realm of study, it is now starting to play a key role in economic policymaking. And as understanding develops as to how the mind and the brain work, so behavioural economists are providing greater insight into what really drives people to act as they do.

The pioneers of behavioural economics were psychologists Amos Tversky and Daniel Kahneman, who, in the 1970s, adapted theories on how the brain processes information and compared them with economic models.

They found that when people are faced with uncertainty, they tend to react neither rationally nor indeed randomly but in certain predictable ways. Typically, they use mental shortcuts, rules of thumb, called heuristics. These can be influenced by experience or environment. For instance, someone who has been burnt by a frying pan will tend to be more careful when picking one up in the future.

People can also be influenced into taking particular decisions by the way a certain proposition is described to them — something known as framing. For instance, in one paper Tversky and Kahneman laid out the scenario that the US was facing the outbreak of an unusual Asian disease expected to kill 600 people. They posited two alternative courses of action: Program a in which a projected 200 people will be saved, and Program B, which has a one-third probability that 600 people will be saved and a two-thirds probability that no one will be saved. Some 72 per cent of respondents chose Program A, although the actual outcomes of the two programmes are identical.

A more recent example comes from MIT behavioural economist Dan Ariely, who asked his students to write part of their Social Security number on a piece of paper, and then to suggest how much they would be willing to pay for a bottle of wine. The amount they were prepared to pay depended on their Social Security number those with the lowest digits tended to bid the lowest and those with the highest bid more. This phenomenon is known as anchoring, and, like framing, it undermines the firmly held view that prices in the marketplace are a function of supply and demand.

So people do not always make decisions based on their own self-interest. This is a profoundly important realization, since most economies are structured largely on such an assumption. For instance, economists usually assume that people will save throughout their lives because it is in their own interests to have money left over for when they retire. They assume that people will not take on more debt than they believe they can reasonably handle. In fact, according to behavioural economics, we are quite often pushed into taking on debt not by self-interest but by heuristics. The powerful implication is that people need to be nudged in a certain direction — to save, to lose weight, to improve their finances rather than being expected to do it of their own volition. This has led to what some economists call ‘nudge economics’ efforts to put behavioural economics into practice. For instance, although people should not be deprived of free choice, some argue they should be pushed gently in a particular, positive direction. A commonplace example is that of automatically enrolling employees in a pension scheme but offering them an opt-out. Another controversial idea mooted by UK Prime Minister Gordon Brown in 2008 is to apply this idea of ‘presumed consent’ to organ donations, assuming by default that everyone is willing to be a donor unless they explicitly indicate otherwise.

The field of economics has been transformed by behavioural insights, which have irrevocably undermined the assumption that humans always act rationally and in their own self-interest. The truth is that people are more complex. For the economics of tomorrow, the task is to find a way to integrate these two models.

http://getrichordietrying.us/

8. Summarise the main ideas of the text above using the outline given below:

1) Introduction: brief overview of the historical mistake in economics of assuming human rationality and introduce the concept of behavioural economics;

2) Irrational Human Behavior: provide examples of human irrationality in various scenarios, showing how emotions influence decisions;

3) The Emergence of Behavioural Economics: explain how behavioural economics combines economics and psychology, and its growing importance in policy-making;

4) Pioneers and Key Concepts: detail the work of psychologists Amos Tversky and Daniel Kahneman in the 1970s, and introduce the concepts of heuristics, framing, and anchoring;

5) Implications and Examples: present recent examples, such as Dan Ariely’s experiment, and specify how behavioural economics challenges traditional economic assumptions;

6) Nudge Economics and Practical Applications: introduce ‘nudge economics,’ with examples like pension schemes and organ donations, and speak about its role in policy and decision-making;

7) Conclusion: highlight the importance of integrating traditional economic models with behavioral insights and emphasize the impact on policy design and understanding economic phenomena.

Section 2. DIGITAL FUTURE OF MODERN ECONOMY

Lead-in

1. Read and translate the text. Answer the following questions:

1) What is the digital economy?

2) What are the key components of the digital economy?

3) How does the digital economy differ from the traditional economy?

4) What are some challenges posed by the digital economy?

5) What is the impact of the digital economy?

In the age of ubiquitous technology, the advent of the digital economy, also referred to as the Internet Economy, the New Economy, or Web Economy, has brought about revolutionary changes in the economic landscape. This global network of economic activities, commercial transactions, and professional interactions, facilitated by the internet, has altered how we live, work, and interact.

At its core, the digital economy comprises three main components: e-business infrastructure (hardware, software, telecom, networks, human capital, etc.), e-business (how business is conducted, any process that an organisation conducts over computer-mediated networks), and e-commerce (transfer of goods and services). However, it expands far beyond just business transactions and includes digital interactions and activities in our daily lives, such as e-learning, e-government, social networking, and online personal finance management.

The digital economy has become a pivotal force in shaping the modern economy. It offers unprecedented opportunities, such as enhancing the accessibility of goods, services, and information, fostering innovation, opening up new employment avenues, and promoting economic growth.

For instance, it has allowed businesses to transcend geographical barriers, reach a global audience, operate 24/7, and personalise their offerings like never before. Consumers enjoy an array of benefits including convenience, variety, and the ability to compare and choose as per their preferences. The digital economy has also enabled a more flexible and inclusive workforce, presenting opportunities for remote work, freelancing, and digital entrepreneurship.

However, this digital transformation is a double-edged sword. The digital economy also presents challenges that need to be carefully navigated. The risk of data breaches, cybercrime, and privacy invasion is ever-looming. It has also led to a digital divide where those lacking digital literacy or access to technology are at a disadvantage. Moreover, the dominance of tech giants raises issues of monopoly and competition. The gig economy, whilst offering flexibility, has been critiqued for unstable employment and inadequate worker protections.

Comparing the digital economy with the traditional economy, the contrast is stark. The traditional economy is material, localised, and operates in set hours, while the digital economy is virtual, global, and operates round the clock. The former follows a linear value chain, while the latter often exhibits a platform-based network effect.

The growth of the digital economy calls for new regulations, policy adaptations, and digital literacy initiatives. As we progress deeper into the digital age, it is paramount to understand the dynamics of the digital economy to harness its benefits and mitigate its challenges. Furthermore, an agile and adaptable mindset will be required to navigate and flourish in the continually evolving digital future.

Key Takeaways:

• A digital economy is the digitalization of economic activities, mostly businesses. However, the term is diverse now, and digitalization can be seen in every social and industrial sector.

• The necessities for the digitalization of an economy are electronic devices, infrastructure, the internet, and, most importantly, regulations governing the economy.

• Its benefits are more evident in e-commerce, e-governance, cloud computing, communication, e-payment, education, and healthcare.

• Some important innovations include artificial intelligence, the internet of things, augmented reality, virtual reality, automation, etc.

Based on https://www.wallstreetmojo.com/digital-economy

2. Comment on the following tables.

a) Speak about pros and cons of the digital economy.

b) Examine the key differences between digital economy and traditional economy. Comment on the table below.

3. Translate the following sentences from Russian into English.

1. Новая экономика базируется не на экстенсивном потреблении исчерпаемых природных ресурсов, а на знаниях. Обработка информации становится более прибыльной и эффективной, чем использование материальных ресурсов. Информация и знания являются ключевым объектом управления, поэтому лидерами рынка становятся компании, которые более быстро и качественно работают с информацией.

2. В новой экономике фундаментально меняется понимание идей, связанных с бизнесом, в том числе, понимание сущности конкуренции. Инновационная деятельность становится не столько фактором получения дополнительной прибыли, сколько условием выживания компании на рынке.

3. Важнейшая характеристика новой экономики — глобализация, характеризующаяся высокой мобильностью международного финансового капитала, трансграничной миграцией трудовых ресурсов, интернационализацией науки и возможностью внедрения национальных достижений за пределами страны.

4. В условиях новой экономики производство приобретает транснациональный характер. К субъектам международного производства относятся, прежде всего, ТНК, международные финансовые институты и региональные объединения. Понятие «национальный продукт» утрачивает первоначальный смысл, т. к. продукт становится результатом интеграции участников транснационального производства. Активизируется глобальный характер экономических процессов через взаимодействие субъектов хозяйственной деятельности, осуществляемое при помощи сетевых связей, существующих в мировой экономике.

5. Цифровая экономика в России превратилась в национальную цель, если не сказать, в национальную идею. На самом высоком уровне осознают значимость успехов в цифровизации как стратегического преимущества страны на мировом уровне. Два года назад правительство выступило инициатором проведения эксперимента по созданию выделенной должности руководителя, ответственного за цифровую трансформацию в крупнейших госкорпорациях и компаниях с госучастием.

4. Read and translate the text. Answer the following questions.

1) What is the main concept discussed in the text “What is the New Economy”?

2) What does the term “technical bubble” stand for? How did it affect the development of economy on the whole?

3) How has the new economy impacted employment patterns?

4) What are some challenges associated with the new economy? How has the new economy affected industries and business models?

5) What are some potential future developments or trends in the new economy?

What Is the New Economy?

New economy is a buzzword to describe new, high-growth industries that are on the cutting edge of technology and are believed to be the driving force of economic growth and productivity.

A new economy was first declared in the late 1990s as hi-tech tools, particularly the Internet and increasingly powerful computers, made their way into the consumer and business marketplace. The new economy was seen as a shift from a manufacturing and commodity-based economy to one that used technology to create new products and services at a rate that the traditional manufacturing economy could not match.

Initially new economy was a term used to add to the hype of what tech companies in the 1990s were promising in terms of new ways of doing business and earning a living. As originally coined, the new economy is here, with more people using technology in their daily lives. The companies at the forefront of the new economy have become larger than many of the traditional manufacturing companies they were predicted to replace in terms of importance. More recently, the term new economy has also been used to refer to a redesign of the capitalist system around environmental and social goals.

Understanding the New Economy

The idea that a new economy had arrived was part of the hysteria surrounding the tech bubble of the late 1990s and early 2000s. The new economy was variously heralded as the knowledge economy, the data economy, the e-commerce economy, and so on. Unfortunately for the long-term health of the new economy arising in the 90s, investors and financial institutions bid up technology sector stock prices to unprecedented highs without fully considering the fundamentals. The excitement around the tech sector did more harm than good, and the rate at which these firms were pushed to become the next Microsoft likely destroyed many potentially good business ideas in the pursuit of great ones.

Although the tech bubble has long since burst, many of the remaining firms like Google, Amazon, and Facebook remain very innovative and at the forefront of technology. Now the new economy is often used to describe different aspects of the technology sector beyond simple Internet presence and functionality. Since the tech boom of the 90s, we’ve seen the growth of many new and exciting subsectors in tech. These include the sharing economy, the streaming economy, the gig economy, cloud computing, big data, and artificial intelligence. As of 2020, the companies involved in tech, particularly Alphabet, Amazon, Facebook, Microsoft, and Apple, have overtaken most companies in the world in terms of market cap.

Are We in the New Economy?

The question ever since the bursting of the tech bubble is, of course, whether or not the new economy is here or still on the horizon. Certainly, the traditional manufacturing economy is being increasingly automated using innovations coming out of the tech sector. Of course, we still buy and sell products, but the service economy enabled by technology is becoming an ever-growing part of the global economy.

So, we are definitely living in an economy that is qualitatively different from the one in the 1980s. Less people are employed in direct manufacturing and many of us are more anxious of being replaced by a machine than the old fear of having our job outsourced to a nation with a cheaper cost structure. Now that the new economy appears to be here, many people are not as confident that it was the one, they wanted after all.

New Economy and the Restructuring of Capitalism

Although the term new economy developed as an investment buzzword around the promise of early Internet companies to change the world, the term has also been associated with calls to redesign the global economic system. The demand for a new economy in term of a total redesign of global capitalism has been put forth by people who see this as a necessary step to meet social and environmental goals. In this context, a new economy is one that focuses less on driving profits to shareholders through management and more on good corporate citizenship, positive community impacts, and distributing asset ownership differently.

A complete overhaul of capitalism is quite challenging given the entrenched interests, although some investors have found ways to work within the system with ESG investing. This approach rewards companies that act in ways that are more socially and environmentally beneficial even if doing so limits bottom line profits. The impact of this movement is just starting to be felt in the publicly traded market and has yet to reach private equity and the more aggressive corners of finance.

While the new economy in the technology sense was largely welcomed and is just now being regretted by those who were negatively impacted, a new economy in terms of restructuring our capitalist system around social, environmental, and sustainability goals has faced stiff resistance. This resistance against change within the system has slowed progress and encouraged more people, particularly younger people bearing the brunt of economic inequality and longer-term externalities, in calling for the whole economic system to be changed.

https://www.investopedia.com/terms/n/neweconomy

Translation Pattern

5. Translate the following sentences from English into Russian. Use the translation pattern above.

1. The main tool central banks use to control inflation is interest rates.

2. In practice, full employment is impossible, partly, because people need time to seek out the right job even when it is available and partly because, as an economy develops and technology advances, some workers will inevitably lack the skills necessary to take on particular jobs.

3. In a surprised turnaround America’s treasury secretary said that the remaining funds would be used to provide capital infusions to ailing companies and tackle consumer debt, rather than buy illiquid mortgage-related assets.

4. Although the developed world continues to consume record amounts of oil — in terms of number of barrels — the amount of oil it needs to generate economic growth has diminished.

5. Investment is the cash poured into business on a relatively long-term basis, for instance to build new factories or production facilities.

6. Deriving from micros, ancient Greek for ‘small’, microeconomics is the term used to study how households and businesses make their decisions and interact with markets.

7. Scientists have argued that by 2050 to prevent catastrophic effects from climate change, the world must reduce by half its greenhouse emissions so called because they cause heat to be trapped in the earth’s atmosphere, as in a greenhouse.

8. ESG investing has taken the center stage in finance. Investors are increasingly pouring money into ESG funds, while asset managers seek to embrace ESG factors within their strategies to attract more inflows.

9. Britain’s government unveiled a broad bail-out for the banking sector. The plan has three main elements: making public funds available to banks to boost their capital; doubling the amount of money accessible through the Bank of England’s special liquidity scheme and providing guarantees for bank’s new short-and-medium debt.

10. From an investor’s standpoint, the purpose of using growth ratios is to not only see how a company is performing but to pinpoint companies that are undervalued. These companies represent potential investment opportunities for further consideration.

6. Translate the following sentences from Russian into English. Pay attention to the translation pattern above.

1. Улучшение технических характеристик — важный фактор повышения покупательской привлекательности любого автомобиля.

2. С доисторических времен люди использовали природные ресурсы для улучшения условий своего существования (enhance existence). Сначала, чтобы выжить, жгли древесину и торф (peat), затем во времена Промышленной революции для получения паровой энергии стали жечь уголь.

3. Для заключения договора необходимо (be required) согласие сторон с условиями договора.

4. С целью повышения эффективности государственных услуг необходимо повысить информированность населения (public awareness).

5. Европейский Банк Реконструкции и Развития выделил значительные финансовые средства для реализации государственного проекта по модернизации школ европейской части России.

6. Сокращение объема импорта является важнейшим условием для уменьшения государственного долга.

7. Увеличение государственных расходов является неотъемлемой частью мероприятий, направленных на повышение привлекательности сельскохозяйственного сектора экономики.

8. Основные показатели деятельности компании предоставляют необходимую информацию для биржевого анализа стоимости акций компании.

9. Состояние экономики определяет набор показателей для анализа благосостояния населения.

10. Руководство реализует программу повышения капитализации компании, основные мероприятия которой направлены на совершенствование бизнес-процессов, повышение финансово-экономической устойчивости, более тесное взаимодействие с рыночными институтами и субъектами инвестиционного сообщества.

7. Read and translate the text. Answer the following questions.

1) What is the main reason for the creation of the “mirror world”?

2) How does the “mirror world” benefit the economic development?

3) What structural changes does the New Economy imply?

4) What are the main aggravators of the transition to the “mirror world”?

5) To what extent are you personally exposed to “digital twining”?

A Deluge of Data is Giving Rise to a New Economy

The advantages and pitfalls of the new “data economy”

An army of clones is invading the world. Digital copies of industry equipment came in first, and now the electronic ghosts of almost anything, from toothbrushes to entire factories, are joining the virtual world. Humans have begun designing their alter egos. The US National Football League is producing an electronic avatar for each player. The “digital twins” are far more than replicas of their original. Certain digital twins come with the laws of nature programmed in doubling the database of anything that has ever happened to the original. Sports coaches, for instance, are thus able to run simulations, predict when an athlete might get injured and adjust their training routines to avoid problems.

Digital twins are just one part of a vast shift in the world’s economy. They populate “mirror worlds”: a new dimension of human life based on and fuelled by data. Year by year, ever more parts of the physical realm are being represented and simulated in the virtual world. The emergence of these mirror worlds brings about a distinct economy, new markets, institutions, infrastructure, businesses and even geopolitical arrangements.

Mirror worlds are not mere mathematical representations of real ones. They also give new meaning to the saying that knowledge is power. Increasingly, digital copies are taking on lives of their own and acting on the physical world. They are used to optimise everything, from the acoustics of a headset to an entire national railway network, enabling all sorts of AI algorithms to recognise objects and faces, understand speech and distinguish smells. And they translate into new business models.

A good place to start analysing any economy is by measuring it. A robust methodology has yet to be developed, but the data economy is already large. Statistics Canada, a government agency, last year tried to estimate the value of the country’s data (its stock plus related software and intellectual property in the field). The result was between C$157bn-218bn (US$118bn-164bn). If that number is close, a big “if”, the value of all the data in America, whose GDP is 12 times that of Canada, could amount to $1.4trn-2trn, which would be nearly 5% of America’s stock of private physical capital.

If the amount of data generated around the world is any guide, this new economy is growing fast. IDC, a market-research firm, estimates the world will generate about 90 zettabytes this year and next, which is more than all data produced since the advent of computers.

Yet even more striking than the rapid growth of the data economy are the tensions and trade-offs it produces. Take its economics. In some ways, data are a natural resource, much like oil, which can be owned and traded (The Economist called data the “world’s most valuable resource” back in 2017). But data also have characteristics of a public good, which ought to be used as widely as possible to maximise wealth creation. New institutions must be created to reflect this tension, as was the case for intellectual property.

The infrastructure of the data economy, too, is torn between two poles. Currently, it mainly consists of huge data centres packed with servers where data are stored and crunched. Yet such centralisation has drawbacks, not least because it consumes huge amounts of energy and creates privacy risks. A decentralising counter-movement is already under way: more data are processed at the “edge”, closer to where they are collected.

Businesses are also facing a digital reversal. Many firms want to use data to infuse their corporate applications with AI. They have built central repositories such as “data lakes”, which hold all kinds of digital information. Such systems are of limited use, however, if a firm and its employees lack the required skills, refuse to believe the data or even to share them internally.

Finally, the geopolitics of data will not be simple, either. Online giants in particular have assumed that the data economy will be a global affair, with the digital stuff flowing to where processing is best done for technical and cost reasons. Yet governments are increasingly asserting their “digital sovereignty”, demanding that data not leave their country of origin.

Yet, there is another aggravator of the transition to the mirror world: the risk is that the wealth it creates will be even more unequally distributed than in its terrestrial twin.

https://www.economist.com/special-report/2020/02/20/a-deluge-of-data-is-giving-rise-to-a-new-economy

8. Read and translate the text. Answer the following questions.

1) What are some of the challenges that countries in Asia face in harnessing the potential of the digital economy?

2) How has the digital economy impacted traditional industries in Asia?

3) How has the digital economy transformed consumer behavior in Asia?

4) How can governments promote the development of digital infrastructure?

5) What are some government initiatives or policies aimed at promoting the digital economy in Asia?

Harnessing the Potential of the Digital Economy of the Asian Region

How Digital Economy Tools Can Assist to Rebalance the Global Economy

The digital economy refers to a broad range of economic activities that use digitized information and knowledge as key factors of production. Today we increasingly perceive this as conducting business through markets based on the internet and the World Wide Web. The digital economy is also referred to as the Internet Economy, New Economy, or Web Economy. The internet, cloud computing, big data, fintech, and other new digital technologies are used to collect, store, analyze, and share information digitally and transform social interactions. The digitization of the economy creates benefits and efficiencies as digital technologies drive innovation and fuel job opportunities and economic growth. The digital economy permeates all aspects of society, influencing the way people interact and bringing about broad sociological changes.

Digital transformation is having a massive impact on world economies. E-commerce transactions account for 25% of the business to consumer (B2C) market in the world, led by the People’s Republic of China, where companies like Alibaba and Tencent have grown at a break-neck pace. The transaction volume of the PRC’s retail e-commerce market has increased tenfold in the period of 2013—2020.

Financial technologies have given rise to new ways of delivering financial services, particularly in facilitating payment and lending, which promotes financial inclusion. Fintech-based lending in Asia reached $102.8 billion while the proliferation of technologies further improved the efficiency of the payments system and strengthened Asia’s position as the largest payments market in the world. Further, digitized, networked, and intelligent information and communications technologies (ICT) enable modern economic activities to be more flexible, agile, and smart.

While Asia continues to benefit from this digital transformation, understanding the digital economy remains a challenge because of its complexity. Digital transformation is about not only big data and digital platforms but also how those advanced technologies can be utilized to maximize opportunities for innovation, new business models and processes, and smart products and services. Further, the digital economy is allowing regional businesses to move away from the local and into the global, in keeping with the long-term trends toward market liberalization and reduced trade barriers.

The digital economy has the potential to radically change the social environment and economic activities of Asia. It is already experiencing high growth, rapid innovation, and broad application to other economic sectors. However, despite the vast opportunities presented by the digital economy, Asia has not yet fully realized the potential of harnessing digital technology for sustainable development, due to poor ICT infrastructure, inadequate skills development, and socioeconomic barriers that prevent much of Asia’s population from engaging in the digital economy.

By digitally connecting large, medium and small size companies through a horizontal trade platform, we can create an ecosystem that harnesses the huge volume of big data within the global B2B arena. This provides the seamless flow of validated, real-time high-quality information required by trade participants to make the right business decisions at the right time in the 21st century era. Digital trade opens new markets and enhances opportunities to all businesses, especially for SME, in global value chains.

The creation of high-quality information will allow trade participants to reduce operating costs and de-risk doing business between the high, mid and low-income countries. This de-risking effect will ease access to finance and insurance as well as create new market opportunities. Such a platform must also be provided free of cost to all trade participants through a new business model that incentivises their participation, yet is able to sustain the deployment activities and handsomely reward the technology industry for their innovations.

The immense market potential for IT services companies offered by a horizontal platform secures the ability to provide what their vertical systems customers have demanded for years, point-to-world integration. This increases the ability for IT services companies to sell more vertical system modules to their customers. In addition, the IT services companies can generate a significant source of new revenues, through a unique business model, by delivering thousands of applications for free, much like the apps provided through our smart phones today.

This approach will benefit all industries involved in trade — commerce, finance, insurance and technology — driving greater returns for their shareholders as well as rebalancing the global economy. Considering the interdependency of our global economy we must all strive to create productive communities by committing to business excellence setting the foundation for a prosperous tomorrow.

https://digital.thecatcompanyinc.com/g20magazine/may-2017

Section 3. FURTHER TRANSLATION PRACTICE

Insights into the Economy Trends

Translate the following passages. Pay attention to the expressions in bold print.

1. Economists have been derided for failing to foresee major shifts in the financial landscape and missing clues that pointed to a sudden stock market catastrophe. But now, in the early years of the third millennium, more fundamental questions have been raised about the foundations of the subject — these ones too difficult to dismiss.

First is the fact that its key doctrines, laid down first by John Maynard Keynes and then Milton Friedman, were tried in the 20th century, often with unhappy results.

Second is a more fundamental failing. Since the subject’s very early days, economics has more or less relied on the idea that humans act rationally: that they always act in their own self-interest, and that such actions, in a fully functioning market, will make society better off.

However, this does not explain why people frequently take decisions that are ostensibly not in their own interests. It is in no one’s self-interest to send themselves to an early grave, but despite wide-spread knowledge about the dangers of lung cancer and obesity, people still smoke and eat fatty foods. Similar arguments have been levied against climate change and man-made pollution.

New disciplines such as behavioural economics have revealed that much of the time people take decisions based not on what would be best for them but on so-called heuristics — rules of thumb from their own experience — or by coping others.

A pick and mix approach

In the light of realization that people do not always act rationally, regulators are likely to become more paternalistic in the future. There are, for example, already attempts to regulate the mortgage market more stringently so that it is less easy for consumers to make choices against their best long-term interest.

Economics is evolving from a subject that placed an almost limitless amount of faith in the ability of markets to determine outcomes to one that questions whether markets always come up with the preferred outcome. Rather like the modern novel, which picks and chooses from a variety of different styles instead of limiting itself to one discourse, 21st-century economics will pick and choose widely from Keynesianism, monetarism, rational market theory and behavioural economics to come up with a new fusion.

https://bibliotecaia.ism.edu.ec/Repo-book/123.../50_Economics_Ideas_You_Really_Need_to_Know.pdf

2. “If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!” said John Maynard Keynes, a British economist. Despite their collective failure to predict the financial crisis, let alone follow Keynes’s injunction, economists are still very influential. They write newspaper columns, advise politicians and offer expensive consulting services to business-folk far more than other academics. A new paper tries to explain why.

One reason, say the authors, is that economists have come to believe that they are superior. A survey in 1985 found that just 9% of graduate students in economics at Harvard strongly believed that economics was “the most scientific of the social sciences”. But as economics became ever more mathematical, its practitioners grew in self-confidence. By 2003 54% of the graduate economists studying at Harvard strongly agreed with the statement. A glance at a popular blog for doctoral students in economics, econjobrumors.com, gives a taste of the contempt in which its users hold other disciplines. Sociologists “play around with big important ideas without too much effort or rigour”, one econo-nerd asserts.

The authors point out that economists demonstrate their self-belief in subtler ways too. Articles in the American Economic Review cite the top 25 political-science journals one-fifth as often as the articles in the American Political Science Review cite the top 25 economics journals. Another study found that American economics professors were less likely than their peers in other subjects to agree with the notion that “interdisciplinary knowledge is better than knowledge obtained by a single discipline”.

The odd thing, the authors argue, is that we believe in economists almost as much as they believe in themselves. Journalists and politicians seek strong arguments and clear answers. Most academics are reticent types: historians, for instance, question whether you can learn anything from history. “For a moderate fee”, jokes Deirdre McCloskey, an economic historian, “an economist will tell you with all the confidence of a witch doctor that interest rates will rise 56 basis points next month or that dropping agricultural subsidies will increase Swiss national income by 14.8%.

http://www.economist.com/news/finance-and-economics/21635524-new-paper-looks-how-economists-became-so-influential-power-self-belief

3. People’s behaviors often deviate from rationality, a fact not accounted for in many economic models. Taxi drivers, for example, work more on slow days and less on busy ones, contradicting the logic of maximising income. Similarly, we treat windfall gains differently from regular salary and have biased perceptions of fairness based on how issues are framed. Traditional economic models assume individuals are constantly optimising utility akin to Vulcan inhabitants.

Richard Thaler’s book, “Misbehaving: The Making of Behavioural Economics”, discusses these discrepancies. Despite initial dismissals, he demonstrated professionals also make consistent errors, as seen in American football team owners’ flawed drafting strategies. Although the behavioural research faced criticism for its empirical nature, politicians recognised its implications. The British government even employed behavioural insights to improve policies, exploiting the “nudge” approach.

Microeconomics has started to integrate behavioural economics, yet its influence on macroeconomics remains limited. Thaler suggests adopting behavioural insights at a macro level, such as disbursing tax rebates incrementally to encourage spending. Despite the scarcity of data and difficulty of making falsifiable predictions, it’s a promising field for the future.

Based on http://www.economist.com/news/finance-and-economics/21650588-behavioural-economics-has-made-headway-still-has-long-way-go-more-kirk

4. Ecological economics

Cowboy or spaceman? a dilemma for a children’s party, perhaps. But also a question for economists, argued Kenneth Boulding, a British economist, in an essay published in 1966. We have run our economies, he warned, like cowboys on the open prairie: taking and using the world’s resources, confident that more lies over the horizon. But the Earth is less a prairie than a spaceship — a closed system, alone in space, carrying finite supplies. We need, said Boulding, an economics that takes seriously the idea of environmental limits. In the half century since his essay, a new movement has responded to his challenge. “Ecological economists”, as they call themselves, do not want to fiddle at the margins of economics, but to revolutionise its aims and assumptions. What do they say — and will their ideas achieve lift-off?

To its practitioners, ecological economics is neither ecology nor economics, but a fusion of both. Their starting point is to recognise that the human economy is part of the natural world. Our environment, they note, is both a source of resources and a sink for wastes. But it is ignored in conventional textbooks, where neat diagrams trace the flows between firms, households and the government as though nature did not exist. That is a mistake, say ecological economists. The “natural capital” of the Earth provides important services, from water supply to pollination: in a landmark paper from 1997, researchers valued the annual supply of such “ecosystem services” at $33 trillion or 1.8 times global GDP at the time.

https://www.economist.com/the-economist-explains/ecological-economics

5. There are two ways our economies can grow, ecological economists point out: through technological change, or through more intensive use of resources. Only the former, they say, is worth having. They are suspicious of GDP, a crude measure which does not take account of resource depletion, unpaid work, and countless other factors. In its place they advocate more holistic approaches, such as the Genuine Progress Indicator (GPI), a composite index that includes things like the cost of pollution, deforestation and car accidents. While GDP has kept growing, global GPI per person peaked in 1978: by destroying our environment we are making ourselves poorer, not richer. The solution, says Herman Daly, a former World Bank economist and eco-guru, is a “steady-state” economy, where the use of materials and energy is held constant.

Mainstream economists are unimpressed. The GPI, they point out, is a subjective measure. And talk of limits to growth has had a bad press since the days of Thomas Malthus, a gloomy 18th century cleric who predicted, wrongly, that overpopulation would lead to famine (similar warnings in the 1970s by the Club of Rome, a think tank, proved equally misguided). Human ingenuity finds solutions to some of the most vexing problems. But ecological economists warn against complacency. In 2009 a paper in Nature, a scientific journal, argued that human activity is already overstepping safe planetary boundaries on issues such as biodiversity and climate change. That suggests that ecological economists are at least asking some important questions, even if their answers turn out to be wrong. It may be no bad thing if economics became a little more Neil Armstrong, and a little less Jesse James.

https://www.economist.com/the-economist-explains/ecological-economics

6. In the heyday of monetarism in the early 1980s, economists and traders pounced eagerly on every new money-supply statistic. Most central banks then set formal monetary targets, and so every wiggle in the data was scrutinised for clues to the next move in interest rates. Since then, monetarism — the notion that faster money-supply growth automatically causes higher inflation — has fallen out of favour. As the link between money and inflation appeared to crack, most central banks long ago abandoned monetary targets.

The money supply is useful as a policy target only if the relationship between money and nominal GDP — and hence inflation — is stable and predictable. The way the money supply affects prices and output depends on how fast it circulates through the economy. Annoyingly, its speed — which economists call “the velocity of circulation” — can suddenly change, as has happened in most economies over the past decade or so as a result of financial innovation and deregulation. For instance, after behaving in a fairly predictable way during the 1980s, the velocity of America’s broad money supply increased sharply in the early 1990s, sending such monetary measures out of fashion as compasses by which to steer policy.

https://www.economist.com/finance-and-economics/follow-the-money

7. The rapid technological change is transforming many aspects of modern economies. There is much to celebrate in the processes of innovation, from new consumer goods, to new ways of doing business. But there are significant challenges too. The development of automation technologies, particularly artificial intelligence, is changing both the numbers and kinds of jobs our economies generate and the ways they are organised, leading to widespread concerns about the “future of work”. In a variety of sectors, major multinational companies, including digital platforms, have grown to positions of market dominance unrivalled in the modern era, raising questions about both their economic and social impact and the implications for public policy. In many countries there is increasing debate about the impact of new technologies on issues ranging from democracy to mental health.

New patterns of globalisation are also emerging. Investment and trade continue to shift to the south and east of the world, as large transnational corporations form complex global production networks and supply chains. The “financialization” of most advanced economies continues, with higher levels of private debt than in the past, higher returns to holders of share capital, and in some cases larger financial sectors relative to the rest of the economy. National financial regulation is made harder by the combination of a globalised financial system and new financial technologies. Underpinning each of these trends is demographic change. Many developed countries are significantly ageing, raising questions about the ability of those of working age to support non-working age populations, and all are experiencing the pressures as well as the benefits of increased migration.

https://one.oecd.org/document/SG/NAEC(2019)3/En/pdf

8. In the face of the challenges world economies now face, we do not believe shifts in various fields have yet gone far enough. For within the fields of economics and political economy the last decade has seen the flowering new and profound forms of rethinking. New economic theories, evidence and techniques have been developed which offer richer ways of understanding how economies work, and how they can be made to work better.

Analytical methods and models based on the new powers of data collection and computing, for example, have opened up insights not available to previous generations. Taken together, a 21st century economics has begun to come into view which looks more able to help policymakers find solutions to the 21st century economic problems they now confront. Since 2012 the OECD’s New Approaches to Economic Challenges initiative has attempted to bring together much of this new thinking, and many parts of the OECD and member states have engaged strongly with it. It has benefited from the ideas of a wide community of researchers and institutions around the world. The debates have been deep and much has been learned. In 2021 it is now possible to see how many of these critiques and explorations can be brought together to create a ‘new economic narrative’. Broadly speaking, this consists of three elements:

A new conception of economic progress — a deeper understanding of the relationship between growth, human wellbeing, a reduction in inequalities and environmental sustainability, which can inform economic policymaking and politics;

New frameworks of economic theory and analysis — a richer basis of understanding and evidence on how economies work, and new tools and techniques to help policymakers devise policy;

New approaches to economic policy — a wider set of policy and institutional reforms, based on the new frameworks and analysis, to achieve the new social and economic goals.

https://one.oecd.org/document/SG/NAEC(2019)3/En/pdf

9. The new world economy holds plenty of opportunities for smart minds. Today it is usually not the lack of capital that prevents people from realising ideas. Entrepreneurs have the power to create new markets and often doing so requires very little in the way of investment. New markets are being created all the time — a lot of entrepreneurial activity is about creating markets that didn’t previously exist. Thus, Amazon created a global market for book deliveries, Facebook created a market for social media that was not there before. At the same time, obstacles to business are being removed. Improved communications and transportation, the internet, new global payment systems and the dismantling of trade barriers all make it easier to engage in international business. The world is becoming more interconnected.

Companies need to understand the implications of the new world economy for their own operations. No matter what your production processes are, the chances are that the same capabilities exist elsewhere. Be informed where such services are located. Analyse how accessible they are, look for ways to outsource your production or reshape business to cut costs. Bear in mind there is often a trade-off between the desire to control production and the interests of efficiency.

International success is no longer limited to big business. Small firms can be just as international. The democratising effect of the new world economy means that opportunities are not limited to those in science and technology. While there is potential to develop things, it’s also about making better use of things, doing things in a different way that can give firms a competitive advantage. Similarly, the developed economies are no longer the bastion of all things innovative — bright ideas can come from anywhere in the world.

https://one.oecd.org/document/SG/NAEC(2019)3/En/pdf

10. Since listing and delayed profitability timelines are common features of sharing or gig economy, businesses such as ride hailing, food delivery and renting of space have triggered a lot of frenzy during their IPO and on listing globally. However, these stocks have a shared history of sub-par returns post listing, with clear path to profitability missing. Most of them have faced delays in reaching breakeven and reporting of profits, and are still loss making at the operating level.

There is no reason why Indian companies should be any different. Investors should hence look before they leap. Out of 7 big global listed names in this space, two that had a bumper listing like Zomato — Airbnb and Door Dash — have not given any returns since listing. Worse still, US-listed Uber and UK-listed Deliveroo, fell 7.5 per cent and 26 per cent, respectively, on their listing day. Though these two stocks managed to eke out marginal gains since then, this does not count for much as they have been big underperformers vis-a-vis the markets.

While Uber has managed to give 14 per cent returns since its closing price on listing day in May 2019, the tech-heavy Nasdaq Composite index has delivered returns of 87 per cent during the same period. While one could argue that the Covid outbreak impacted these companies, this may not be entirely true. Food delivery company Door Dash in the US, for instance, saw its business sky rocket during the pandemic. Uber, too, benefitted largely as its food delivery business Uber Eats rakes in as much revenue for the company now as its ride hailing business. This apart, the underperformance in these stocks was playing out even before the pandemic. Of all the global sharing economy stocks, only the Chinese company Meituan has bucked the trend.

https://www.thehindubusinessline.com/markets/stock-markets/shared-pain-in-sharing-economy-stocks/article35514454.ece

Unit 2
CORPORATE GOVERNANCE

Section 1. CORPORATE GOVERNANCE BASICS

Lead-in

“A corporation without a system of corporate governance is often regarded as a body without a soul or conscience”.

Warren Buffett

1. Read and translate the text. Answer the following questions.

1) What is the definition of corporate governance provided in the text below? What other definitions can you remember from your theoretical university courses?

2) What does the corporate governance policy/model of a particular business entity depend on?

3) What doubts may stand in the way of implementing an elaborate corporate governance practice?

4) What are the major benefits of adhering to good corporate policies? Why is good governance important for all companies, regardless of size or ownership?

5) How does corporate governance contribute to long-term shareholder value?

Corporate governance is a system of rules, practices, and processes by which companies are governed. Its purpose is to help build an environment of trust, transparency and accountability necessary to foster long-term investment, financial stability and business integrity, thereby supporting stronger growth and more inclusive societies. Thus, corporate governance of a specific company is the distribution of rights and responsibilities among all participants in the organization securing the above mentioned.

Proper corporate governance policies make a company more resilient and ensure that everyone in an organization follows appropriate and transparent decision-making processes that serve to:

• deliver corporate long-term success and economic growth;

• give guidance to the owners and managers about company strategy goals;

• protect the interests of all stakeholders: shareholders, managers, employees, suppliers, customers, etc.;

• produce a positive impact on share prices by improving market trust;

• minimise waste, corruption, risks, and mismanagement;

• provide for a stronger brand reputation.

Corporate governance models are numerous, and there is no universal best choice. The choice depends not only on company goals, mission and business context but also its economic, legal, political and social frameworks. The right model ‘rests on’ the nature of the business, the company’s size and stage of development, availability of resources, shareholder expectations, and to a great extent to legal and regulatory requirements. Thus, corporate governance is a matter of law based on corporate legislation, securities laws and policies, and decisions of the courts and securities regulators. As a rule, directors owe a duty of loyalty to the companies they serve, and have a fiduciary duty to act honestly, in good faith and in the company’s best interests. Corporate governance is also shaped by other sources, like stock exchanges, the media, shareholders and interest groups.

Many believe that only public companies or large, established companies with many shareholders need to be concerned about, or can benefit from, implementing corporate governance practices. The reality is that all companies — big and small, private and public, early stage or established — compete in an environment where good governance is a business imperative. One size doesn’t fit all, but right-sized governance practices will positively impact the performance and long-term viability of every company.

If in doubt or believing that corporate governance does not impact the bottom line or performance, is too theoretical and costly to implement, or is too “bureaucratic” (and slows decision-making) and can’t be tailored to a company’s size and stage of development — rest assured — it is not. In reality, all companies compete in an environment where good governance is a business imperative in relation to raising capital, securing debt, attracting and maintaining talented, qualified directors as well as preparing for potential merger/acquisition or next phase of growth.

Proponents of corporate governance say there’s a direct correlation between good corporate governance practices and long-term shareholder value. An elaborate corporate governance policy boosts overall Board of Directors’ performance, holds management and internal controls fully accountable to all stakeholders, increases shareholder engagement, allows for better managed risk and helps to effectively monitor and measure company performance.

https://www.mcinnescooper.com/publications/the-top-5-corporate-governance-best-practices-that-benefit-every-company/

2. Translate the following sentences from English into Russian.

1. Good corporate governance is imperative for delivering efficient performance, it fosters capital attraction and boosts investor engagement. Arguably, companies with a good corporate governance record will attract more investors than those with the weak one.

2. For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate governance through environmental awareness, ethical behavior, and sound corporate governance practices.

3. Since corporate governance provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

4. The rule of law means boards should be fair and impartial in their collaborations and in their decision-making. Certain circumstances may require boards to seek outside counsel, guidance or expertise from outside, third-party experts. Good corporate governance requires boards to act ethically, honestly and with the utmost integrity.

5. Companies that have either a deficient or inadequate accounting systems or poor financial reporting systems fail to evaluate performance accurately and have difficulties with future forecasting and cash flow planning.

6. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Proxy advisors and shareholders are important stakeholders who indirectly affect governance, but these are not examples of governance itself. It is the Board of directors that is pivotal in governance.

7. Companies that have poor corporate governance standards tend to borrow more than they are able to service, which puts them at risk of being unable to make the repayments when they are required. This can cast doubt on the ability of companies to achieve future sustainability; actually, one major impact of poor corporate governance is the failure of businesses to develop in a sustainable way.

8. A company’s corporate governance is important to investors since it shows a company’s direction and business integrity. Good corporate governance helps companies build trust with investors and the community. As a result, corporate governance helps promote financial viability by creating a long-term investment opportunity for market participants.

9. A number of key indicators signal “poor corporate governance practices”. Weak management is one strong sign. Weak bank governance is a lack of effective governance and can happen when the Board of Directors fails in its responsibility to ensure that its institution has “proper procedures to monitor and control risk and to provide the necessary check on the executive”. In this situation, the board of directors lacks the knowledge to make informed decisions; even where the accounting systems produce accurate reporting, the board does not have the financial literacy to understand the nature of what is being reported.

10. Following the 2008 financial crisis, there has been increasing pressure on institutional investors to ensure issuers are doing all they can to cut their corporate governance risk. As we head into the jaws of another financial crisis, this pressure will only grow. If an organisation can prove it is willing to enter into dialogue, increase shareholder engagement and improve shareholder transparency, it is much more attractive from an investment point of view.

3. Translate the following sentences from Russian into English:

1. Корпоративное управление — это система руководства и контроля, определяющая то, как исполнительный орган (единоличный или коллегиальный) управляет компанией и контролирует ее. Эта система включает в себя определенные правила, на которые опирается руководство при принятии официальных решений и управлении компанией.

2. Эффективное/рациональное корпоративное управление помогает укрепить доверие между компаниями и акционерами, их работниками, окружающей средой и сообществами. Плохое корпоративное управление вызывает сомнения в способности компании работать добросовестно и, следовательно, угрожает ее прибыльности. Корпоративное управление должно демонстрироваться в том числе через экологическую ответственность, этичное поведение, управление рисками и другими методами, которые делают его устойчивым.

3. Становление и развитие корпоративного управления связано с появлением на рынке корпораций как особых форм организации предпринимательской деятельности. Корпорация представляет собой особую форму организации бизнеса, основанную на долевой собственности ее участников и передаче управленческих функций специализированным менеджерам.

4. В России корпорации чаще всего находят свое воплощение в виде соответствующей организационно-правовой формы хозяйствования, а именно акционерных обществах. Их уставный капитал разделен на определенное число акций, закрепляющих за их владельцами права на прибыль в виде дивидендов и выбор высшего органа управления.

5. Характерной особенностью корпоративного бизнеса выступает наличие множества заинтересованных сторон. К ним относятся: акционеры (собственники); наемный менеджмент; персонал корпорации; внешние инвесторы; потребители и поставщики; государство; общество. Зачастую интересы заинтересованных сторон не совпадают. Основным инструментом обеспечения их сбалансированности выступает корпоративное управление.

6. Под корпоративным управлением понимают особую форму взаимоотношений между его участниками, основанную на обеспечении подотчетности и защите прав акционеров. Эффективность корпоративного управления определяется степенью защиты и равного обеспечения прав и интересов всех акционеров (мажоритарных и миноритарных), независимостью состава совета директоров и прозрачностью акционерного общества.

7. Эффективность корпоративного управления может быть определена как степень его соответствия принципам и нормам, закрепленным в соответствующих кодексах, а также определяемая уровнем социальной ответственности бизнеса перед всеми заинтересованными сторонами (внешними и внутренними).

8. Высокая эффективность корпоративного управления повышает степень удовлетворенности участников корпоративных отношений и благотворно сказывается на рыночной репутации корпорации. Зачастую практика корпоративного управления включается в число ключевых критериев принятия инвестиционных решений, поэтому чем выше его уровень, тем легче для компании доступ к рынку капиталов.

9. К числу наиболее общих критериев, характеризующих эффективность корпоративного управления, принято относить четкость построения системы управления корпорацией и взаимоотношениями с ее стейкхолдерами; снижение стоимости капитала, рост стоимости активов корпорации; доступность по отношению к рынкам капитала, уровень раскрытия информации и степень развития корпоративной социальной ответственности бизнеса.

10. Если раньше для принятия решения о том, куда инвестировать, было достаточно изучить финансовые показатели компании, сейчас необходимо учитывать долгосрочную перспективу, так как рынок стал более динамичным и текущие цифры не дают объективной картины. Перспективы компании зависят от эффективности корпоративного управления финансами и проектами. Этот критерий многие инвесторы признают более значимым, чем текущие показатели.

4. Read and translate the text. Answer the following questions.

1) Why does the author draw parallels between Ms. Von Teese and corporate bosses?

2) Why are most bosses so unwilling to reveal their companies’ financials?

3) What are key characteristics of “open-book management”?

4) What makes many companies share information during hard times?

5) Comment on the statement “Creative disrobing has its attractions”

Corporate Burlesque

The case for stripping away the secrecy surrounding firms’ finances

Dita Von Teese may seem an unlikely source of inspiration for corporate bosses. Described on her website as “the undisputed international queen of burlesque”, Ms. Von Teese has made a career out of shedding haute-couture clothes in shows such as “Burlesque: Strip Strip Hooray!” Her signature act culminates with her posing in a giant Martini glass.

Chief executives can learn from Ms. Von Teese. Schumpeter is not suggesting, of course, that they expose their less-than-buff bodies to the public gaze. But there is a case for shedding the veils that currently conceal a great deal of financial information.

Most bosses are shy about revealing their companies’ vital statistics. Listed firms must follow strict rules, publishing quarterly results but otherwise being cagey, since no individual investor may receive important information before the general public. Privately owned companies tend to be even more bashful. Bosses keep their numbers hidden from everyone but an elite coterie of managers. Their reasons for doing so range from a desire to keep their profits under wraps to a fear that disgruntled employees could hop to rivals with sensitive data.

However, a school of thought dubbed “open-book management”1 advocates sharing all or most of a firm’s financial data with employees on a monthly, weekly or even daily basis. Widely promoted since the mid-1990s by the likes of Jack Stack, then the boss of Springfield Remanufacturing Corporation, a firm that refurbished diesel engines, and John Case, a management writer, open-book management doesn’t just require bosses to shed their inhibitions when it comes to revealing numbers. It also involves teaching workers to read company accounts. Open-book managers devise scorecards and other tools that show staff how their individual efforts contribute to the bottom line. They also adopt profit-sharing schemes that let workers share some of the wealth they create. The aim is to persuade employees to behave like owners rather than drones.

The Great Game of Business, a training firm that provides advice on open-book techniques, estimates that at least 4,000 firms worldwide have embraced all or most of these ideas, while many others are flirting with them. One or two big companies, such as Southwest Airlines and Harley-Davidson, have dabbled with open-book management. Its most fervent adopters, however, are smaller private firms.

Since small firms are the most vulnerable during downturns, some observers expect to see books that were opened in good times slammed shut, as bosses try to stop workers from seeing just how bad things are. There is no scientific survey to determine whether this is true. But anecdotal evidence from the companies contacted for this column suggests that many have kept on sharing information during hard times. Some have given workers yet more data to chew on, for two reasons.

One is that transparency can calm jitters. For example, during the recent crisis King Arthur Flour, a Vermont-based flour company, drew up a contingency plan with four stages, the last of which involved lay-offs. At each stage, the plan spelled out clearly what King Arthur had to do to get back on track if it missed its financial targets. By sharing this with workers, King Arthur curbed wild and ill-informed speculation about the company’s future. Jenkins Diesel, a truck dealer in Missouri, started giving staff more details about its financial health after it lost two of its four vehicle franchises when suppliers axed production. Although Jenkins had to make cuts, it was able to demonstrate to staff that it could weather the storm by expanding its service and spare-parts business.

Another reason to keep the numbers flowing is that they can inspire fresh thinking. Mr Stack, whose firm is now called SRC Holdings and employs 1,200 people in various businesses (of which The Great Game of Business is one), says one employee noticed the company had built up a big pile of cash that was earning a paltry rate of interest. The worker suggested that SRC should stockpile copper and other metals it was recovering from its refurbishment work, rather than selling them for cash straight away. If the global economy recovers, this stockpile could command a premium that would far outstrip the amount SRC is getting from banks. Mr Stack gave the proposal a green light.

Creative disrobing

This is the big promise of open-book management: that it lets workers see the bigger picture. Some enthusiasts want to take it further. For instance, Srijan, a small Indian software company, keeps a Google spreadsheet that employees can check to see what each of their colleagues, including Rahul Dewan, the firm’s founder, is being paid. Dane Atkinson, the boss of SumAll, an American software start-up, wants to do even more. His firm has crafted a corporate “constitution” that lets employees get involved in all kinds of decision-making.

There are plenty of objections to all this. Corporate democracy might work at a tiny firm, but it would probably paralyse a big one. Transparency on pay could be horribly disruptive, especially at talent-heavy firms where output is hard to measure. At such firms, most staff typically believe that they perform better than average. Many would be furious to discover that a co-worker they deem less able is better paid. Mr. Dewan insists that secrecy is pointless: people soon learn what other folk earn via an internal grapevine. Really? Schumpeter has no idea what Bagehot earns. Far too much, probably.

A company need not be radically transparent to succeed: Apple is as chatty as a clam. And open-book management will not work if workers do not trust the boss. But still, this is an experiment to watch. Creative disrobing has its attractions.

http://www.economist.com/news/business/21565610-case-stripping-away-secrecy-surrounding-firms-finances-corporate-burlesque

5. Read and translate the text. Answer the following questions.

1) What negative and positive aspects associated with power are discussed in the article?

2) How does power influence decision-making?

3) How do industries like aviation try to counteract the negative effects of power?

4) What role does empathy play in effective leadership according to the article?

How do effective managers navigate their own power and make decisions that balance humility and assertiveness?

The Dark and Bright Sides of Power

Bosses cannot afford to be oblivious to the effects of authority

Power is a fact of corporate life. It also affects behaviour. Research suggests power makes people less likely to take the advice of others, even if those others are experts in their fields. It makes them more likely to gratify their physical needs. In a test conducted by Ana Guinote of University College London, powerful people were likelier than less powerful folk to choose tempting food, like chocolate, and ignore worthier snacks like radishes. In conversations, the powerful are bewitched by themselves: they rate their own stories as more inspiring than interlocutors’.

They struggle to see things from the perspective of others. In one famous experiment, some people were asked to recall a time they held power over someone else and others a time when another person was in a more powerful position than them; both groups were then asked to draw a capital “E” on their own foreheads. Subjects primed to think of themselves as powerful were three times more likely to draw the “E” as though they were looking at it themselves, making it appear backwards to anyone else.

Cause and effect are hard to unravel here: the dominant types who snaffle the chocolate and leave the radishes may also be more likely to climb the ladder. But possessing power seems itself to put a thumb on the scales, towards more entitled and self-serving behaviour.

Power is out of sync with the times. High-performing teams depend on collaboration and candour, not cringing and compliance. Humility is increasingly prized as an attribute of senior executives. In hiring processes some interviewers will look for use of the word “I” rather than “we” as a small marker of how egocentric people really are.

Entire industries are feted for the way they try to counteract the effects of power. The aviation industry is celebrated for a training technique called “crew resource management” that is designed to encourage a less hierarchical set of interactions in the cockpit. Similar kinds of thinking are visible in other workplaces that have especially clear chains of command, from the army to hospitals.

Still, power can also get a bad press. Hierarchies emerge organically, and with good reason: precious little gets done when everyone is in charge. Research published this year by Ozgecan Kocak of Emory University and her colleagues found that flatter organisations are likelier to spend too much time exploring options than ones where someone is clearly in charge. It doesn’t particularly matter if the boss knows what they are talking about; the mere fact that authority is being wielded means a team converges more quickly on a decision.

Power is an instrument for achieving noble ends as well as selfish ones: it is no use having brilliant ideas without the means to put them into practice. One of the most popular classes at Stanford Graduate School of Business is a refreshingly functional one called “Paths to Power”. It is taught by Jeffrey Pfeffer, a charming man who preaches the value of rule-breaking, displays of anger, “strategic misrepresentation” (ie, lying) and many other countercultural qualities in order to get to the top.

You don’t have to believe that to appreciate the importance of power. Companies like the idea of humility and teamwork but they are also feudal structures that depend on ambition, impatience and gallons of unwarranted self-confidence. The best managers are well aware of how their own power sends ripples across the organisation. They take care not to signal their opinions too early in meetings; they admit when they don’t know the answer to something. But they also know when to stop consulting and start commanding. Up to a certain point, saying “I don’t know” sends a signal of low-ego inclusivity; beyond it, it is just a signal of not knowing.

https://www.economist.com/business/2023/07/27/the-dark-and-bright-sides-of-power

6. Translate the sentences from English into Russian. Pay attention to the underlined word combinations. Remember that “environment” can be translated as «условия деятельности, внешние условия, внешние обстоятельства, правовая база, нормативная база».

e.g. environmental effect — влияние внешних условий

1. London became a hub in areas such as fund management and derivatives trading. These things can be done anywhere, Britain merely offered the best environment.

2. Overtime a favourable global environment encourages more firms to launch new products or enter new markets abroad.

3. Getting people out of the usual business setting and placing them in a congenial environment for four or five hours will improve almost any negotiations.

4. International investment was limited because it was an unreliable business environment.

5. The fall in the country’s ranking reflects an absolute deterioration in the quality of its business environment at a time when microeconomic reforms are improving the business climates of a number of other countries.

6. Before investing takes place, the investor should be familiar with the investment environment, i.e., the way security markets operate, how transactions are made, and the role of brokerage firms in executing transactions.

7. The trouble is, in today’s illiquid trading environment, fair-valued accounting judgments are based as much on educated guesswork as market prices, which leaves plenty of room for error.

8. The comparative attractiveness of America’s investment environment is set to decline over the next five years as a result of mounting financial and macroeconomic risks, increased protectionism, security concerns and strained international relations.

9. Australia has about 1,500 tech start-ups, mostly in Sydney and Melbourne. Vast untapped opportunities await in health care, an industry that will surge as the nation ages. Australia’s regulatory environment for entrepreneurs is friendly, and the country is admirably open to skilled immigration.

10. The strengthening credit environment has immediate benefits for developing countries and from a policy perspective there are more proven policy levers that have been shown to be effective (e.g., setting up credit bureaus and improving their functioning, facilitating the use of collateral and the ability of lenders to seize assets, or reducing government directed lending).

Section 2. ACCOUNTANCY AND ACCOUNTING

Lead-in

1. Read and translate the text. Answer the following questions

1) What is the difference between accountancy and accounting?

2) What are the main tasks involved in accountancy?

3) How does accounting contribute to decision-making in businesses?

4) What is the role of a bookkeeper in relation to an accountant?

5) Why is accounting important for businesses?

Accountancy vs Accounting

When it comes to financial management and record keeping, the terms accountancy and accounting are often used interchangeably. However, there is a subtle difference between the two terms that is worth exploring.

DEFINITION Accounting is the process of recording, classifying, and summarizing financial transactions to provide accurate and timely financial information. It involves the preparation and analysis of financial statements, such as balance sheets and income statements, to help businesses make informed decisions about their financial health. Accounting also includes the management of financial records, ensuring compliance with accounting standards and regulations, and providing advice to clients on financial matters.

DEFINITION Accountancy is the broader field of financial management that includes accounting. It involves the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. Accountancy encompasses a range of activities, including bookkeeping, financial analysis, auditing, and tax preparation. It provides critical information to decision-makers, such as investors, creditors, and regulators, to evaluate the financial performance of an organization and make informed decisions.

Thus, accountancy is the whole field. It includes accounting, bookkeeping, and auditing. Accounting is one of the three principles of accountancy, together with auditing and bookkeeping.

Accountancy is a language you use to communicate the story of your company to people. Typically, the story varies depending on whether they are insiders, outsiders, or the tax authorities. For example, the most common accounting for external people is called GAAP (Generally Accepted Accounting Principles). The US tax authorities, on the other hand, will want to hear your story using the Internal Revenue Code (IRC).

Accountancy specialists are accountants. They are responsible for determining an organization’s overall wealth and profitability. They can also determine its liquidity. In fact, accountants probably know more about a company’s performance than anybody else. Do not confuse accountants with bookkeepers, who are responsible for recording a company’s financial transactions, i.e., bookkeeping.

The line between where a bookkeeper role ends and an accountant’s begins is not set in stone. However, the two either work closely together or one person can end up handling both.

Bookkeeper: In a general sense, bookkeepers keep track of the day-to-day transactions in a business. They record bills paid, sales, payroll, and other expenditures.

Accountant: To complete their work, an accountant relies on the work that has been done by a bookkeeper. As such, accountants review the financial records and statements to make interpretations and use analytics. Accountants are able to pull insights about the company’s overall health based on the statements provided by a bookkeeper.

Without accounting, it would be virtually impossible for businesses to be able to make short-term and long-term decisions. We make most of our commercial decisions after using this type of data. We decide how much to spend on marketing, R&D, and reinvesting profits after examining the company’s accounts. We sometimes refer to accountancy as ‘the language of business.’ It measures the results of a company’s economic activities. Accountants convey this data to a wide range of users, including the company’s management, shareholders, and creditors. They also convey the data to regulators. Furthermore, investors will never consider purchasing shares in a company without first examining its accounts.

Luca Pacioli (1447—1517), an Italian mathematician and Franciscan friar, is referred to today as ‘The Father of Accounting and Bookkeeping.’ He was the first person to publish a work on the double-entry system of bookkeeping.

History of accounting. Accounting has been around for many thousands of years. In fact, it can be traced back to very ancient civilizations. Economic historians say there is evidence it existed approximately five thousand years ago in ancient Mesopotamia. Many say that accounting probably developed alongside our ability to write words, count numbers, and start using money.

There is evidence that basic bookkeeping existed in ancient Iran, while the ancient Egyptians appear to have had an early auditing system. In fact, even the Babylonians, four thousand years ago, had an early auditing system. Roman Emperor Augustus from 27 BC until 14 AD had access to detailed financial data throughout his life. Medieval Europe saw the emergence of double-entry bookkeeping. During this period, accounting split into management and financial accounting. In fact, the two types of accounting coincided with the development of joint-stock companies.

In the 19th century, industrialization and the growth of large corporations led to the need for more sophisticated accounting systems. This led to the development of cost accounting, which focused on determining the costs of producing goods and services.

The 20th century brought significant advancements in accounting with the introduction of computer technology. This allowed for more efficient and accurate record-keeping and financial analysis. The establishment of professional accounting bodies, such as the American Institute of Certified Public Accountants (AICPA) and the International Federation of Accountants (IFAC), also helped to standardize accounting practices and promote ethical standards in the profession.

In recent years, accounting has continued to evolve with the advent of new technologies, such as cloud computing and artificial intelligence. These advancements have made it easier for businesses to manage their financial information and make informed decisions.

Overall, the history of accounting is a testament to its importance in facilitating economic transactions and providing valuable financial information to individuals, businesses, and governments. It has evolved over time to meet the changing needs of society and continues to play a crucial role in today’s global economy.

https://marketbusinessnews.com/financial-glossary/accounting-definition-meaning/

https://www.uopeople.edu/blog/bookkeeper-vs-accountant/

https://thecontentauthority.com/blog/accountancy-vs-accounting

2. Read and translate the text (parts A, B). Answer the following questions:

A. 1) What are the four basic financial statements that represent a company’s financial performance over time?

  2) Why is it important for business owners and stakeholders to review and understand financial statements?

  3) Who are the potential users of financial statements?

  4) What information can be derived from the income statement?

  5) How can understanding balance sheets and cash flow statements benefit employees?

A. Understanding Financial Statements

Business owners start and run their own business in order to generate income or profit. To do this, they spend numerous hours developing their product or services, marketing it, closing a sale, and then deliver it to their customers. Aside from that they also spend time managing their people and their operations. How they manage these activities will either result into profit or loss. It may also determine if the company will grow or eventually closes down. In order to know the result and status of the business, the company must have a periodic review of the financial statements.

The financial statements are written reports created by a company’s management to summarize the business’s financial condition over a certain (quarter, six-monthly, or yearly) period. These statements are prepared in accordance with the accounting standards to ensure that the company’s reporting is consistent. The four basic financial statements representing the company’s financial performance over time are:

• the balance sheet, which provides details of the company’s sources and uses of funds,

• the income statement, which ensures a comprehensive understanding of the company’s revenues and expenses,

• the cash flow statement, which tracks movement of cash in the business,

• and the statement of shareholders’ equity, which summarises shareholders’ accounts for a given period.

Reviewing and understanding these financial documents can provide the business owners, or any stakeholders (i.e.users of the financial statements such as the business owner, employee, auditor, banks, governments, etc) with valuable insights about a company, including:

• its debts and ability to repay them,

• profits and/or losses for a given quarter or year,

• whether profit has increased or decreased compared to similar past accounting periods,

• the level of investment required to maintain or grow the business,

• operational expenses, especially compared to the revenue generated from those expenses.

Accountants, investors, shareholders, and company leadership need to be keenly aware of the financial health of an organization, but employees can also benefit from understanding balance sheets, income statements, cash flow statements, and annual reports.

B. 1) What is the difference between the balance sheet and the income statement?

  2) What are company assets? What are company liabilities?

  3) Why is it that “the less debt the company has, the more conservative the fiscal structure”.

  4) What are the main items reflected on a company’s balance sheet?

  5) What is the difference between the common and the preferred stock?

В. Balance Sheet

The balance sheet is one of the financial statements used for reporting a company’s financial performance over a specific accounting period. It is often referred to as a picture (or a snapshot) of the company’s financial position at one point in time. The income statement, by similar analogy, is referred to as a motion picture of the company’s financial position over time. Financial statements are filed after the end of each quarter of the company’s fiscal year and then combined into an annual report.

Table 1. Traditional Balance sheet organization

The balance sheet is called as such because it balances the total of the company’s assets with the total of the liabilities and equity. It follows the formula “Assets = Liabilities + + Equity”.

The traditional way of organizing the balance sheet is to put the assets on the lefthand side of the page and the liabilities and equity on the righthand side. Today, however we are more apt to see balance sheets organised with assets, liabilities and equity presented vertically on one page.

The sum of liabilities and equity of a company make up its total capitalization. Companies can either borrow capital by issuing bonds or taking out loans (liability) or sell more shares of stock in the company (equity). By looking at the righthand column of the traditional-style balance sheet one can see how the company has chosen to finance its operations. Generally speaking, the less debt the company has, the more conservative the fiscal structure.

Let us have a closer look at the items reflected on a company’s balance sheet.

Assets. A company’s current assets are those assets that can easily be turned into cash, such as cash on hand in bank accounts, marketable securities, accounts receivable, and inventory.

Fixed assets include property, plant, equipment, or other similar assets that are not readily liquid.

Other assets usually include illiquid investments, intangible assets, such as the value of patents or trademarks.

Liabilities. Current liabilities are those debt obligations that are due within the upcoming year after the date of the balance sheet. Long-term liabilities are those debt obligations that will come due in more than one year. Also included in the liabilities section will be any other debt that the company must fund, such as deferred income taxes.

Equity. Preferred stock is carried on the balance sheet as equity, but from an investor’s point of view it is more like a bond than a stock. It is a fixed income investment. A company issues a preferred stock at a stated dividend payment rate. It differs from a bond in that it does not have a maturity date and it is not a loan from an investor. The company is not legally obliged to pay the dividend as they have to with dividends for common stock. However, the dividend rate is fixed by the terms of the preferred issue, and the company cannot pay common stock dividends until they have paid all preferred stock dividends, including those that have been omitted in the past.

Common stock is carried on the balance sheet at “par value” or PV. This is an arbitrary value that is assigned to a share of stock for the purpose of determining an equity value for the stock on the balance sheet. For example, if the common stock has par value of $1 and the company has 1 mln shares outstanding, then the company stock will show the value on the balance sheet of $1 mln. Shares are usually issued with no par value, which allows companies to charge whatever par value it is using on the balance sheet, without having to change the certificates.

Retained earnings is the total of previous quarters when the company had net income after paying its fixed income obligations and dividend requirements.

https://corporatefinanceinstitute.com/resources/accounting/ Financial Statements/

3. Translate the following sentences from English into Russian. Pay attention to the words and word combinations in bold print.

1. If company’s management makes decisions that increase net income each year, the company can either pay a larger cash dividend or retain earnings for use in the business.

2. A company’s earnings per share (EPS) is defined as earnings available to common shareholders divided by common stock shares outstanding, and the ratio is a key indicator of shareholders’ value.

3. Balance Sheets can’t be formed without first setting up the income statement because we need to know the retained earnings from the income statement. Through Income Statement, we can ascertain the net profit. The portion of net profit that is not distributed among the shareholders is called “retained earnings”.

4. The income statement helps business owners decide whether they can generate profit by increasing revenues, by decreasing costs, or both. It also shows the effectiveness of the strategies that the business set at the beginning of a financial period. The business owners can refer to this document to see if the strategies have paid off. Based on their analysis, they can come up with the best solutions to yield more profit.

5. Total assets can be categorized as either current or non-current assets. Current assets are those that can be converted to cash within a year, such as accounts receivable and inventory. Long-term assets are those that cannot be converted to cash or consumed within a year, such as real estate properties, manufacturing plants, equipment, and intangible items like patents.

6. Total liabilities consist of current liabilities and long-term liabilities. Current liabilities are debts that are due for repayment within one year, such as accounts payable and taxes payable. Long-term liabilities are obligations that are due for repayment in periods beyond one year, including bonds payable, leases, and pension obligations.

7. It’s critical to keep track of your accounts receivable balances. With this, you can make sure clients are alerted of payment due dates as they approach, as well as follow up on late payments. Meanwhile, you can run a weekly accounts receivable report if you’re using accounting software to identify which accounts are past due and which will be due soon. This would aid in the collection of past-due accounts.

8. Shareholder’s equity is equal to a firm’s total assets minus its total liabilities. Retained earnings are part of shareholder equity as is any capital invested into the company. This metric allows analysts and investors to determine the value of company-related financial ratios, providing them with the tools to make better, more well-informed investment decisions.

9. Shareholders’ equity can be either negative or positive. If it’s in positive territory, the company has sufficient assets to cover its liabilities. If it’s negative, its liabilities exceed assets, which may deter investors, who view such companies as risky investments. But shareholders’ equity isn’t the sole indicator of a company’s financial health. Hence, it should be paired with other metrics to obtain a more holistic picture of an organization’s standing.

10. Investors are wary of companies with negative shareholder equity since such companies are considered risky to invest in, and shareholders may not get a return on their investment if the condition persists. For example, if the assets are liquidated in a negative shareholder equity situation, all assets will be insufficient to pay all of the debt, and shareholders will walk away with nothing. Shareholders’ equity can help to compare the total amount invested in the company versus the returns generated by the company during a specific period.

4. Read and translate the text. Answer the following questions:

1) What is the goal of fair value accounting?

2) What are some examples of items that historic cost accounting may not adequately reflect?

3) What are the potential benefits of fair value accounting for investors and managers?

4) What are some challenges or criticisms of fair value accounting?

5) How can disclosing the assumptions behind estimates and providing historical cost and fair value information help address the challenges of fair value accounting?

Crooks and Books

How accounting reforms are creating problems as well as solving them

It is every boss’s job to make his firm’s profits look as good as possible. It is every regulator’s job to keep this instinct in check. That’s why accounting bodies the world over are pushing for reforms in the way companies keep their accounts. The thrust of the changes — to give a present, rather than an historical value for assets and liabilities — is broadly a good one, but it makes some sorts of scams easier. The reforms therefore need reforming.

Traditional accounting is based largely on static and objective but often irrelevant historic costs. Fair value accounting, as the system is called, updates items regularly in order to try to capture their current value. Last month America’s Securities and Exchange Commission endorsed the shift to fair value; as a result, companies are likely to move faster towards this system.

This is good news, for the most part, and should be supported. The goal of company accounts, after all, is to reflect economic reality as truthfully as possible. For some items, historic cost is clearly inadequate. Take, for instance, derivatives — options, swaps and the like. The latest figures from the Bank for International Settlements show that the gross market value of outstanding derivatives exceeds an eye-popping $9 trillion. Yet under historic-cost accounting, the rocketing growth of these instruments would not show up in company accounts because many derivatives cost nothing initially. More transparency will help investors to make smarter decisions. Managers, too, are likely to do a better job. Accounting rules put in place in the early 1990s that forced firms to disclose health-care liabilities for retired workers, for example, drew salutary attention to the enormous obligations that corporate America was piling up. More recently, a new rule compelling firms to show employee stock options as a cost in their accounts has prompted many to rethink their pay policies.

Still, fair value does give rise to problems. For one, profits will be more volatile, because any change in a company’s net balance-sheet position or income statement is taken into its profits-and-loss account. Critics argue that much of this volatility is “false”, reflecting market turbulence rather than a change in the underlying economics of the firm.

A second problem is that many items (bank loans, for example) are not traded on deep, liquid markets, and thus lack a verifiable price. Determining their “fair value” may involve complicated models based largely on subjective estimates. At best, these estimates are difficult for investors and auditors to verify or compare across companies. At worst, unscrupulous managers could manipulate models to flatter the bottom line.

Show your working

Both these problems would be mitigated by making firms disclose the assumptions behind their estimates, and how different assumptions would affect profits. They should also reveal whether estimated values had altered over time because market conditions had changed, the underlying business had changed, or they had made a bad guess the first time. Ideally, financial statements would also show, for key items, both the historical cost and the updated fair value, with an explanation of how to get from one to the other. Because companies already track this information, revealing it should not be costly.

More, and more useful, information would both help investors to decide whether estimates are fair or foolhardy, and encourage managers to value things realistically. It will also highlight the difficulty of measuring a firm’s performance — a complex, subjective notion which cannot be captured in a single profit figure. If this prompts investors to think harder about what a business is worth, so much the better.

https://www.economist.com/leaders/crooks-and-books

5. Render the following text from Russian into English.

Финансовый отчет: почему для инвестора это самый важный документ

Ежеквартально инвесторы и аналитики изучают финансовую отчетность компаний. Эти документы влияют на биржевые котировки и становятся решающим фактором в принятии решений об инвестициях. Как выбрать компанию, в акции которой стоит вкладывать деньги? Начать лучше с изучения финансового отчета, который регулярно выпускает любая публичная компания, торгующая акциями на бирже. Финансовый отчет позволяет определить фундаментальные характеристики компании, ее текущее финансовое положение и представить перспективы бизнеса на ближайшее будущее. Такая отчетность отражает любые результаты вне зависимости от того, насколько они могут быть вредны для котировок. Если прибыль компании за квартал превратилась в убыток, долг вырос или операционная деятельность не приносит дохода, все это попадет в отчет.

Не изучив финансовую отчетность компании, не стоит делать долгосрочных вложений в акции. Финансовую устойчивость, как и грядущий крах, можно заметить в годовых отчетах, которые говорят о стратегических задачах и возможных проблемах бизнеса. В финансовом отчете можно проследить постоянный рост затрат и отсутствие прибыли за длительный период времени. Это тревожный знак, даже если у компании есть качественный ассортиментный портфель и налажена работа с покупателями.

Главные пункты финансового отчета. Финансовые отчеты состоят из десятков таблиц с результатами. Далеко не все они обязательны для анализа состояния компании. Как правило, выделяют несколько базовых пунктов: капитал, выручка, чистая прибыль, прибыль на акцию, маржа операционной прибыли (рентабельность продаж), свободный денежный поток, долговые обязательства. В первую очередь, необходимо обратить внимание на капитал компании. Эта информация отражает, сколько собственных средств вложено в бизнес. Другой важный показатель — объем долга и его соотношение с прибыльностью.

Важно следить за эффективностью бизнеса: насколько растет выручка год к году, какая маржинальность бизнеса, то есть сколько прибыли получается в процентах от выручки.

И, наконец, нельзя забывать об основной цели любого бизнеса — зарабатывании денег. Стабильная прибыльность компании — важнейший показатель в оценке кредитного качества любой корпорации.

https://quote.rbc.ru/news/training/5dcd0b0d9a79472a216c74ad

Section 3. MERGERS AND ACQUISITIONS

Lead-in

1. Read and translate the text. Answer the following questions:

1) What is the difference between a merger and an acquisition?

2) How can mergers and acquisitions be grouped based on line of business activity?

3) Why might companies opt for a horizontal merger?

4) Which type of merger involves companies with unrelated business activities or markets?

5) Where does a bailout takeover come into play?

Mergers and acquisitions are one of the major aspects of the corporate finance world which literally involves the process of combining two companies into a single company. In other words it is a process of combining two or more businesses and achieving a single synergy where the new company is greater than the sum of the former two separate entities.

The terms ‘merger’ and ‘acquisition’ refer to the unification of two or more companies, but they have different processes and outcomes.

Merger: Two or more companies — usually similar in power or size — voluntarily combine their assets to create a new business or legal entity

Acquisition: One company gains control over a target company by purchasing the majority of its shares or assets (not always voluntarily). The acquired company usually ceases to exist as an independent business.

Most M&As are driven by one or more of the following factors:

• client base expansion;

• fortified supply chain;

• access to different markets;

• diversification of new products or services;

• increased market share;

• higher shareholder value;

• improved economies of scale;

• tax considerations;

• diversifications of risk.

Types of mergers and acquisitions:

A. grouped based on line of business activity:

• Horizontal

• Vertical

• Conglomerate

B. grouped based on a bid of controlling interest:

• friendly

• hostile

• bailout

A. A horizontal merger is the unification of two or more companies that operate in the same industry. The companies typically produce related products or provide similar services. Commonly, two or more smaller firms will complete a horizontal merger to create a larger, stronger business. Through a horizontal merger, companies gain greater market share while reducing their immediate competition. These companies can also cut costs by utilizing economies of scale and sharing their skills and resources. But the larger a company is, the less flexibility it has and the more scrutiny it must endure. In some markets, a horizontal merger can result in a monopoly, wherein a few players dominate an industry. Monopolies often result in price-fixing, low-quality products, and a lack of innovation.

A vertical merger/acquisition occurs when two or more companies operating at different stages of the production process or supply chain merge. For example, a retailer acquiring a wholesaler. Vertical integration can help companies increase synergies, reduce their costs, and gain more control of the supply chain as they gain more direct access to materials. Retailers often purchase wholesalers or production factories to cut off competitors from certain suppliers or industry knowledge. One of the most significant disadvantages of vertical integration is the cost of maintaining a factory and employing its workers compliantly. Aligning company cultures across a retail company and a manufacturer or factory can also be a challenge in vertical integrations.

A conglomerate merger is when two or more companies with unrelated business activities or markets merge. The companies often operate in entirely different industries and regions. There are two types of conglomerate mergers: a pure conglomerate merger and a mixed conglomerate merger. In a pure conglomerate merger, the two merging companies have no overlapping interests and different products or services. In a mixed conglomerate merger, the two firms have different business operations but try to gain product or market extensions by merging. Companies that complete a conglomerate merger often experience more growth and diversification outside their core industry or customer base. On the other hand, these company mergers can lead to possible culture clashes that result in employee attrition. In some cases, companies that complete these types of acquisitions become less efficient and profitable because their business operations aren’t focused.

B. Friendly acquisitions are most common and occur when the target firm agrees to be acquired; its board of directors and shareholders approve of the acquisition, and these combinations often work for the mutual benefit of the acquiring and target companies. Unfriendly acquisitions, commonly known as hostile takeovers, occur when the target company does not consent to the acquisition. Hostile acquisitions don’t have the same agreement from the target firm, and so the acquiring firm must actively purchase large stakes of the target company to gain a controlling interest, which forces the acquisition. A bailout takeover refers to a scenario where the government or a financially stable company takes over control of a weak company with the goal of helping the latter regain its financial strength. The acquiring entity takes over the weak company, usually by means of purchasing a controlling amount of the company’s stock shares. Share exchange programs may also be used. The goal of the bailout takeover is to help turn around the operations of the company without liquidating its assets. The acquiring entity achieves this by developing a rescue plan and appointing a manager to spearhead the recovery while protecting the interests of the investors and shareholders.

https://www.deel.com/blog/types-of-mergers

https://ilogtekkevin.medium.com/mergers-and-acquisitions-8b779d42c681

2. Comment on the following table.

Mergers vs Acquisitions

While both these terms are used interchangeably, there are noticeable differences. Speak about the differences between mergers and acquisition companies through the comparison below.

3. Read and translate the text. Answer the following questions:

1) What are the different methods that can be used to effect a merger or business combination?

2) How does a tender offer relate to hostile takeovers, and what is its purpose?

3) Define the term “poison pill” and explain how it is used as a defense mechanism against unfriendly takeovers.

4) What is a white knight in the context of corporate takeovers, and how does it differ from other takeover strategies?

5) Can you explain the difference between greenmail and blackmail, and provide examples of how greenmail is utilized in corporate scenarios?

Takeover terminology

There are many different ways to effect a merger, or business combination. Basically, it involves either a stock acquisition, an asset acquisition, or a combination of the two. In a stock acquisition, the acquiring company obtains controlling interest in the voting stock of the acquired company and “absorbs” it. In an asset acquisition, the acquiring company directly purchases the assets of the acquired company. When “takeover” is used in the context of M&As, it implies that the acquired company’s management opposed the acquisition.

Tender offer. A tender offer is an offer to all stockholders of a company to purchase shares. The offer specifies number of shares, price, and time frame in which the offer is good. The offer may come from the company itself or from another company or investor group. A tender offer made to current stockholders by an outsider typically is part of a hostile takeover. Usually the offer to buy is open only for a period of up to several weeks. All stockholders have the option to sell or “tender” any or all shares that they own. The tender offer price usually is substantially above the current price to encourage stockholders to sell. The stock price will increase in response to the tender offer, but will settle at a level slightly below the tender offer price. This gap arises because of a possibility that the takeover will fail.

Takeover mania has spawned a colorful vocabulary used in the financial news. Many of these terms describe the efforts of companies to fend off corporate raiders.

• Poison pill. A tactic used by corporations to defend against unfriendly takeovers by making them more expensive to the acquiring company. For example, preferred stock is sometimes issued to give stockholders the right to redeem it at an extravagant premium after a takeover.

• White knight. A person or corporation that saves a company from a hostile takeover by taking it over on terms more favorable to the acquired company. The white knight is considered more suitable by the target company and often is courted by the target company to make an offer.

• Golden parachute. Executives concerned about their positions guarantee themselves lucrative severance pay or stock allowances in the event of a takeover.

• Greenmail. Greenmail is a concept similar to blackmail, although not illegal. It refers to a corporation buying a block of its own stock owned by a potential acquirer at a price that substantially exceeds the market price. Management thus pays a premium to take the stock out of the hands of an unfriendly corporate raider.

• Shark repellent. A potential takeover target may try to enhance its defenses by the inclusion of corporate bylaws designed to put obstacles in the path of a takeover company.

• Pacman defense. The target company attempts to counteract a takeover bid, which is accomplished by buying the acquirer’s stock as a threat to taking it over.

https://www.livelib.ru/book/1000065239-keys-to-investing-in-common-stocks-barrons-business-keys-nicholas-g-apostolou

4. Translate the sentences from Russian into English.

1. Сделки по слияниям и поглощениям являются одним из важнейших элементов стратегий динамично развивающихся высокотехнологичных компаний. Сегодня, когда окружающий нас мир меняется с огромной скоростью, когда наступила эра системных инноваций, которые стали неотъемлемой частью жизни людей и любых протекающих процессов, хорошо спланированная сделка по слиянию или поглощению — это ключевой момент на пути к успеху, а в некоторых ситуациях и условие выживания динамичной высокотехнологичной компании.

2. Под слиянием понимают процесс объединения двух или более компаний, которые образуют новое юридическое лицо — ему переходят все права и обязанности. При этом самостоятельная деятельность компаний прекращается. При ликвидации самостоятельной деятельности все активы передаются в новое юридическое лицо. В таком случае вместо прежних акций все акционеры получают акции новой объединенной компании.

3. Поглощение в законе называется «присоединением общества» и отличается тем, что одна из компаний получает контроль над активами другой компании или нескольких. Компания,