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Since 1960 the U.S. economy has moved from largely financing the exploitation of natural resources to making the most of talent. The rewards to executives and financiers have skyrocketed as a result. But over the past two decades or so, the author argues, it has become increasingly clear that much of this talent is trading value rather than creating it: The fastest-growing group on the Forbes 400 list is hedge fund managers. What's more, stock-based incentives, which were intended to align the interests of top executives with those of long-term shareholders, are actually encouraging CEOs to serve the interests of short-term traders. The losers in this game are employees engaged in routine work, whose rewards are shrinking or whose jobs are disappearing. This state of affairs has created a growing--and unsustainable--inequality of income. Martin suggests that three things must happen if we are to avoid radical and talent-hostile steps imposed through the ballot box: (1) Talent must exert some self-discipline and lower its expectations. (2) Investors--primarily pension and sovereign wealth funds--must prioritize value creation. That means not voting in support of stock-based compensation and no longer supplying hedge funds with large amounts of capital or lending them stock. (3) Government should regulate the relationship between hedge funds and pension funds (if the latter don't do so voluntarily), tax "carried interest" as ordinary income, tax trades, and revisit the overall tax structure.

The La Ribera case studies depict an innovative low cost/high quality privately financed hospital model struggling to achieve alignment with the Six Factors. It is reimbursed by the public sector in a Spanish environment whose Consumers, Structure, and Public Policy favor public health care. But the Accountability factor shows it to be the highest quality hospital in the region with 25% lower costs and Spain's Financing is weak. The A case (9-315-006) asks: What Business Model elements enabled La Ribera to achieve this level of value? How can it improve on its 1% profit margin and better align itself with the Six Factors? The hospital hired a consulting firm that presented four new options that could potentially increase returns. Which, if any, best fit with the ten elements of its Business Model? The B case (9-318-134) contains the dénouement for La Ribera.

In 2013, democratic Colorado state senators John Morse and Angela Giron were recalled from office in the wake of a successful recall campaign launched by grassroots groups angered by the senators' support for newly-enacted gun control legislation. After Morse and Giron were recalled, Democrats retained a one-seat majority in the Senate. Some critics thought Morse should have anticipated the recall election result and resigned while others expressed concern that Morse's ouster had legitimized the use of recall politics-typically used to unseat politicians over ethical issues-as a way for voters to punish supporters of controversial issues. The case asks students to consider the benefits and drawbacks of recall elections and how they can be used by political activists and interest groups as a tool to manage political representation.

Though corporate profits are high, and the stock market is booming, most Americans are not sharing in the economic recovery. While the top 0.1% of income recipients reap almost all the income gains, good jobs keep disappearing, and new ones tend to be insecure and underpaid. One of the major causes: Instead of investing their profits in growth opportunities, corporations are using them for stock repurchases. Take the 449 firms in the S&P 500 that were publicly listed from 2003 through 2012. During that period, they used 54% of their earnings--a total of $2.4 trillion--to buy back their own stock. Dividends absorbed an extra 37% of their earnings. That left little to fund productive capabilities or better incomes for workers. Why are such massive resources dedicated to stock buybacks? Because stock-based instruments make up the majority of executives' pay, and buybacks drive up short-term stock prices. Buybacks contribute to runaway executive compensation and economic inequality in a major way. Because they extract value rather than create it, their overuse undermines the economy's health. To restore true prosperity to the country, government and business leaders must take steps to rein them in.

This video-based case explores how an impact evaluation for a promising after-school program in New York City went awry. In 2006, New York City's Mayor Michael Bloomberg created the Center for Economic Opportunity (CEO). Designed as an innovation fund, CEO tested anti-poverty programs by applying an evidence-based approach. One of CEO's programs, Teen ACTION, was developed to provide after-school service-learning opportunities to at-risk youth. Teen ACTION's model was based on a rigorously evaluated program which had proven to significantly reduce rates of teen pregnancy and course failure among participants when compared to a control group. But when it came time to evaluate Teen ACTION's impacts, CEO ran into significant hurdles. With rare candor, CEO officials, Kristin Morse and Carson Hicks discuss on video how flaws in the program's evaluation strategy, coupled with random unforeseen events like the Swine Flu, rendered the evaluation results unusable. HKS Case Number 2027.0.

Like many other states at the time, Minnesota found itself facing several serious long-term public health challenges in the mid- and late-2000s, including rapidly rising health care costs and residents' increasing vulnerability to chronic diseases arising from unhealthy behaviors like smoking as well as higher obesity rates. Compounding these challenges, in 2008 a major economic recession took hold across the country, prompting states to target health and human services programs for extensive budget cuts. In Minnesota, even as the recession started to subside, analyses of the state budget indicated that it needed new strategies for slowing the growth rate of health care spending; and in response the state legislature passed a major health reform law that, among other things, aimed to reduce costs. A key component of this law was the establishment of the Statewide Health Improvement Program (SHIP), which sought to reduce smoking and obesity rates - two of the main drivers of a number of chronic diseases and, hence, of higher long-term health costs for the state. In designing and launching SHIP, state health officials decided to focus on developing a close partnership with the private sector. This, they believed, would enable them to combine government's wide ranging authorities and subject matter expertise in public health with the private sector's broad reach and its advanced marketing and communication practices and resources. This case tells the story of how leaders of the SHIP initiative worked with businesses and corporate executives in an effort to have as far-reaching an impact as possible. It highlights the mutual advantages of a public-private partnership while also illustrating challenges the two sides encountered as they worked to develop and implement the program. HKS Case Number 2004.0.

In July 2012, three freshly-minted Harvard Kennedy School graduates bought one-way tickets to Medellin, Colombia, to launch a nonprofit startup they called Instiglio. Their idea: to bring Social Impact Bonds, still experimental even in affluent nations, to Colombia and other low to middle income countries. This public policy case-one of two HKS cases about Instiglio-provides background about the SIB model (a financing mechanism for experimental social programs, with private investors shouldering the financial risk of failure) and tracks the early experience of the HKS graduates in Colombia. The case focuses on two of the most critical decisions the Instiglio group faced: (1) how to pick a project topic, in the midst of competing demands and limited information and (2) with a project topic in hand, how to design a SIB agreement that would satisfy the needs of both investors and government leaders. A second case on this topic, ''Devil in the Details: Designing a Social Impact Bond Agreement in Medellin,'' is a statistics case. It includes much of the same background information as ''Betting Private Capital,'' but hones in on the technical challenges of designing a SIB agreement. HKS Case Number 2026.0.

Given the trend of increasing business globalization, management teams of multinational companies have taken steps to better understand consumers, local business partners, and local governments. Local queueing preferences present managers with additional challenges and opportunities in international markets. The world may be 'flat,' but it is foolish to believe that all cultures perceive lines and waiting through the same lens. As discussed herein, perceptions regarding waiting and management of queues vary greatly; therefore, managers should adopt different policies and procedures when managing waiting lines across natural and cultural borders. Considering queue management in a global context offers benefits. Thinking globally--and acting locally--can prioritize and clarify important decisions any waiting-line manager has to make.

Corporate America began to really take notice of the looming retirement crisis in the wake of the dot-com crash, when companies in major industries went bankrupt in large part because of their inability to meet their pension obligations. The result was an acceleration of America's shift away from employer-sponsored pension plans toward defined-contribution plans--epitomized by the ubiquitous 401(k)--which transfer the investment risk from the company to the employee. With that transfer has come a dangerous shift in investment focus, argues Nobel Laureate Robert C. Merton. Traditional pension plans were conceived and managed to provide members with a guaranteed income. And because that objective filtered right through the scheme, members thought of their benefits in those terms. Ask a member what her pension is worth and she'll reply with an income figure: "two-thirds of my final salary," for example. Most DC schemes, however, are designed and managed as investment accounts with the goal of accumulating the largest possible pot of savings. Communication with savers is framed entirely in terms of assets and returns. Ask a saver what his 401(k) is worth and you'll hear a cash amount and perhaps a lament to the value lost in the financial crisis. The trouble is that investment value and asset volatility are simply the wrong measures if your goal is to secure a particular future income. In this article, Merton explains a liability-driven investment strategy whose aim is to improve the probability of achieving a desired retirement income rather than to maximize the capital value of the savings.

This background note explores the basic themes surrounding the government's approach to providing housing: namely its shift from a supplier and builder of affordable housing to an approach that focuses on demand-side solutions and indirect subsidies to private developers. In addition to a shift from supply-based to demand-based solutions, there is an on-going debate about whether to provide people-based or place-based solutions. The above shift and debate reflects the troubles encountered in the original urban renewal efforts, and the desire today to provide affordable housing that is close to jobs and transportation, that is mixed-income, and contextual to its surrounding development.

Sixty months after the 2008 recession ended, the economy was still sputtering, producing disappointing growth and job numbers. Corporations seemed stuck: Despite low interest rates, they were sitting on massive piles of cash and failing to invest in new initiatives. In this article, a leading innovation expert and his HBS colleague explore the reasons for this sluggishness. The crux of the problem, they say, is that investments in different types of innovation have different effects on growth but are all evaluated using the same (flawed) metrics. "Performance-improving innovations," which replace old products with better models, and "efficiency innovations," which lower costs, don't produce many jobs. (Indeed, efficiency innovations eliminate them.) "Market-creating innovations," which transform products so radically they create a new class of consumer, do generate jobs for their originators and for the economy. But the assessment metrics that financial markets--and companies--use always show efficiency and performance-improving innovations to be better opportunities. This is the capitalist's dilemma: Doing the right thing for long-term prosperity is the wrong thing for investors, according to the tools that guide investments. Those tools, however, are based on an unexamined assumption: that capital is scarce, and that performance should be assessed by how efficiently companies use it. The truth is, capital is no longer scarce, and our tools need to catch up to that reality.

Over and over again, executives make decisions that aren't in their companies' best interests, in response to pressure from Wall Street. Though many believe this happens because firms have a "fiduciary duty" to maximize shareholder returns, U.S. executives do not, as a matter of law, have any such obligation. Yet it's hard for them to resist demands from a quarter that has amassed such a huge and disproportionate share of power. In the past few decades, as legislation that put controls on Wall Street was largely undone, the size and profits of the financial sector grew enormously. That increased its influence, particularly its ability to sway the government by spending billions of dollars on lobbyists and political contributions. Even after the financial crisis, Wall Street was able to slow down and weaken new regulations meant to rein in its risky practices. This "financialization" of the economy has serious downsides: It increases volatility, inhibits growth, and misallocates resources, such as talent and capital, away from wealth creation and toward wealth distribution. It distorts thinking. Restoring the balance of power is critical to the competitiveness and the health of the rest of the economy. Limits on the size and leverage of banks and changes to the tax code could promote better equilibrium--but courage will be needed to put such reforms in place.

Sasol, the world's largest producer of synthetic oil from coal and gas, has announced plans to build a huge Catalytic cracker and gas-to-liquids plant in Lake Charles, Louisiana. This $21 billion venture will be the single largest foreign direct investment in US manufacturing history. The plants, on 1,600 acres adjacent to the company's existing cracker, will liquefy 98,000 barrels daily, converting ethane to ethylene and then into various specialty chemicals. The entire project depends on low gas prices engendered by the shale revolution and relatively high oil prices. The risks are copious, as is the promise.

This case describes the factors that led to the passage of the American Recovery and Reinvestment Act of 2009 (ARRA) and the impact the financial stimulus had on the US economy. Providing perspectives of those both in favor and opposed to the act, the case asks students to consider whether ARRA was a success.

By the mid-2000s, Washington State's Department of Health (DOH) had earned a national reputation as an innovative and effective agency. But beginning in 2005, when newly elected Governor Christine Gregoire introduced a state-level performance management system - Government Management Accountability and Performance (GMAP) - DOH and other state entities found themselves having to regularly explain and justify their work through the newly established forum. Based on two similar, but smaller-scale programs - CompStat (created by the New York Police Department in 1994) and CitiStat (used by the City of Baltimore) - GMAP challenged public officials to analyze data in new ways and to rethink the kinds of results that they were accountable for delivering. This case provides background on GMAP's origins and on the general ways in which the initiative was managed, but it focuses primarily on DOH's efforts to comply with the new performance measurement requirements and to meet the expectations of the governor, her staff, and GMAP leadership. In exploring the benefits and challenges of the department's experience with GMAP, the case also raises questions about the applicability and usefulness of such a system for public health, which tends to address complex issues with objectives that are often difficult to quantify. Case number 1994.0

This case has two parts, a text-based case and a supplemental PowerPoint presentation. The case traces the evolution of an evidence-based research study on the education sector in Pakistan. In 2003, Atish (fictionalized character), a Pakistan-born, Harvard educated economist returns to his native Pakistan to help reform a lagging education system. But Atish unearths conflicting information on the state of education in his country. Despite large investments, government-run schools are failing to provide quality education. And international media coverage asserts that the educational void in Pakistan is rapidly being filled by madrassas, or religious schools, that are designed to train children in extremism. Upon closer scrutiny, Atish finds holes in the madrassa enrollment numbers. Similarly, Atish learns that affordable private schools have sprung up across the country, yet no nationwide analysis on the quality of education they provide exists. In rural Pakistan, he also learns to suspect conventional wisdom regarding parental involvement and interest in educating their children. Before he can develop policy recommendations, Atish will have to separate fact from anecdotal information to understand the education landscape in Pakistan. Case number 2003.0

The December 26, 2004, Indian Ocean tsunami caused tremendous damage and suffering on several continents, with Indonesia's Aceh Province (located on the far northern tip of Sumatra Island) experiencing the very worst. In the tsunami's wake - and with offers of billions of dollars of aid coming from all corners of the globe- the Indonesian government faced the daunting task of implementing a massive recovery effort that could meet the expectations of donors and survivors alike. With this in mind, Indonesia's president established in April 2005 a national-level, ad hoc agency -- known by its acronym, BRR -- to coordinate reconstruction activities across the province. This case examines some of the core challenges BRR's leaders encountered as they moved to set up the agency and then proceeded to coordinate and execute a recovery process involving hundreds of domestic and international partner organizations and thousands of independent reconstruction projects. Case Number 2010.0

Supplement for HKS785.

In June, 2013, the U.S. Supreme Court determined that the federal Defense of Marriage Act violated the U.S. Constitution's Fifth Amendment protection of equal liberty, effectively overturning the law. Pennsylvania, however, banned same-sex marriage. Despite the state law, D. Bruce Hanes, a register of wills in Pennsylvania, agreed to honor a request from two women seeking a same-sex marriage license-an act of official disobedience that immediately threw Hanes under a national spotlight. Citing his oath to uphold both the Pennsylvania and U.S. constitutions and noting that the two were "diametrically opposed" on the issue, Hanes said: "I decided to come down on the right side of history and the law." Officials in Texas were also struggling with the ruling. Soon after the ruling, the Department of Defense (DOD) instructed federal military facilities to begin enrolling same-sex spouses of military service members in military benefits programs. In Texas, however, where state law prohibited same-sex marriage, Texas Military Forces (TMF) indicated it would not comply with the DOD directive. Because TMF was a state agency, the commanding general said the agency would be unable to process benefits for same-sex couples. TMF members took an oath to defend both the U.S. and Texas constitutions, setting the stage for the conflict. Using the context of contemporary same-sex marriage laws, the case explores two sides of the same coin: in states where same-sex marriage is illegal, one official decides to defy the law while another chooses to refuse to comply with a federal directive to do so. The case asks students to consider if and when official disobedience-the refusal by a public official, acting in an official capacity, to follow the law-is justified. Case Number 2014.0