Chapter 1 An Overview of Financial Management and the Financial E.docx

Chapter 1: An Overview of Financial Management and the
Financial Environment Mini Case
Book Title: Financial Management: Theory and Practice
Printed By:) © 2017 Cengage Learning, Cengage
LearningChapter Review
Mini Case
Assume that you recently graduated and have just reported to
work as an investment advisor at the brokerage firm of Balik
and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre,
a professional tennis player who has just come to the United
States from Chile. DellaTorre is a highly ranked tennis player
who would like to start a company to produce and market
apparel she designs. She also expects to invest substantial
amounts of money through Balik and Kiefer. DellaTorre is very
bright, and she would like to understand in general terms what
will happen to her money. Your boss has developed the
following set of questions you must answer to explain the U.S.
financial system to DellaTorre.
a. Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it
evolves from a start-up to a major corporation. List the
advantages and disadvantages of each form.
c. How do corporations go public and continue to grow? What
are agency problems? What is corporate governance?
d. What should be the primary objective of managers?
1. Do firms have any responsibilities to society at large?
2. Is stock price maximization good or bad for society?
3. Should firms behave ethically?
e. What three aspects of cash flows affect the value of any
investment?
f. What are free cash flows?
g. What is the weighted average cost of capital?
h. How do free cash flows and the weighted average cost of

capital interact to determine a firm’s value?
i. Who are the providers (savers) and users (borrowers) of
capital? How is capital transferred between savers and
borrowers?
j. What do we call the cost that a borrower must pay to use debt
capital? What two components make up the cost of using equity
capital? What are the four most fundamental factors that affect
the cost of money, or the general level of interest rates, in the
economy?
k. What are some economic conditions that affect the cost of
money?
l. What are financial securities? Describe some financial
instruments.
m. List some financial institutions.
n. What are some different types of markets?
o. Along what two dimensions can we classify trading
procedures?
p. What are the differences between market orders and limit
orders?
q. Explain the differences among dealer-broker networks,
alternative trading systems, and registered stock exchanges.
r. Briefly explain mortgage securitization and how it
contributed to the global economic crisis.
Chapter 1: An Overview of Financial Management and the
Financial Environment Mini Case
Book Title: Financial Management: Theory and Practice
Printed By: Kristina Mack (km[email protected]) © 2017
Cengage Learning, Cengage Learning
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GOVERNMENTS AS MARKET PLAYERS:
STATE INNOVATION IN THE GLOBAL
ECONOMY
Giselle Datz
Financial innovation emanating from the public sector is not a
new phenomenon.The literature and practice of financial
regulation is filled with instances in which
the public sector understood and tried to contain financial
excesses and attempted to
maximize opportunities for economic growth via private
investment. Hardly studied,
however, have been cases of financial innovation that are not
primarily related to
regulation of private or public financial flows. This paper
focuses on how govern-
ments in emerging markets are acting increasingly as financial
market players,
enacting strategies that are not simply those of a risk-averse
welfare maximizer (in a
formal modeling description), but that of a high(er) yield
seeking investor.
The public realm in which states operate is symbiotic. It
encompasses two dual-
ities: one between public and private activity and authority, and
the other between
demand and supply for financial innovation. In continuing with
its transformative
process, the state in emerging markets is undergoing a process
of further hybridiza-
tion, applying private methodologies to serve public goals
(however politically

insulated) and engaging as both a supplier and consumer of
financial innovation in
more aggressive ways. This hybridization shapes a new
relationship between states
and financial risk. However, the extent to which sovereigns can
act as private players
is limited by the understanding that they are inescapably tied to
strategic public
"interests that will take precedence over profit maximization."'
The ability to grasp the broadened investment room to move
emerging market
governments, as well as the new constraints they face,
ultimately requires an under-
standing of the state as a heterogeneous category. In other
words, the heterogeneity
that exists within financial markets in terms of strategies used
and instruments
available, can be found within the state with its diverse time
horizons, functions and
strategies.2 Therefore, understanding the role of states demands
unpacking various
layers of public and private mechanisms that manipulates them,
which together
determine their clout in the global economy.
Journal of International Affairs, Fall/Winter 2008, Vol. 62, No.
1. F A L L / W INTER 2008 | 35
© The Trustees of Columbia University in the City of New York
Giselle Datz
T H E PUBLIC AS A SYMBIOTIC ENTITY

The public realm encompasses a symbiotic relationship in
financial innovation
that is not simply concerned with regulating private activity,
sponsoring privatiza-
tions or leaving room for private authority to emerge. Instead, it
is actually assuming
"private-like behavior" through risk management activities
regarding liability (debt)
management and asset (reserves) diversiflcation.3 This is
translated in the work of
relatively new and autonomous debt-management offices and of
sovereign wealth
funds (SWFs). Within these can be detected a pervasive private
strategy in actions
ranging from the hiring of uniquely qualified financial
professionals at market-
competitive rates to the expansion of return-related operations.''
A second symbiosis is also at play. Governments that have
always behaved as
suppliers of financial assets—most notably sovereign bonds—by
catering to the
needs of institutional investors, are now playing a different role
by providing
demand for financial innovation and financial assets.
Increasingly, states in emerg-
ing markets are becoming net exporters of capital rather than
importers. Emerging
market governments, especially in the Persian Gulf and Asia-
Pacific regions, are less
content to leave large volumes of excess foreign reserves to be
invested in risk-free
assets with low return. More and more, there is a flight to risk
through more auda-
cious investments made by sovereign wealth funds—relatively
autonomous and,

thus far, secretive institutions.
Indeed, since the late 1990s, the globalization literature has
been keen on
parceling out the role of the state. Studies that claimed that the
state was withering
away gave way to more focused analyses of states as negotiators
trying to intersect
national law with foreign actors, especially through competitive
deregulation or
reregulation linked to the preferences or imperatives of foreign
capital.5 A key para-
doxical relationship between states and global capital was
identified. Although the
scope of states' autonomy to control monetary and fiscal
policies was constrained by
economic globalization, in order to realize the material gain
from this process, as
James Mittelman suggested, the state increasingly facilitated its
development acting
as its agent. 6 This facilitation operated not only at the level of
political infrastruc-
ture, but particularly at the level of legal infrastructure. For Leo
Panitch, states
authored a regime that defined and guaranteed the global and
domestic rights of
capital through international treaties with constitutional effect.''
Hence, the role of
states was not only one of internalizing, but especially of
mediating adherence to
international capitalist competition.
Eric Helleiner's analysis of the Bretton Woods system provided
a historical
understanding of how states were indeed proactive in the
development of financial

globalization, initially restricted by the pervasiveness of the
embedded liberalism
compromise, e.g. economic liberalization accompanied by
domestic welfare policies.8
36 I JOURNAL OF INTERNATIONAL AFFAIRS
Governments as Market Players
Incrementally, however, the tenants of neoliberalisn: as both a
political project and
a set of ambitious economic reforms, promoted the abolition—
even if not univer-
sally—of capital controls in favor of freer international
financial flows.^
Governments recognize the importance of international
coordination in monetary
policy. Furthermore, central bank independence remains an
important tool for signaling
credibility to markets. However, transforming key
administrative functions within states
and financial innovations lay beyond both pillars.lo States
endured internal changes as
a consequence of their renewed engagement with global capital.
Saslda Sassen suggests
that the "internal structuration of states" is in fact an element of

analyses of the state
and globalization that has been neglected." In her view, state
participation in imple-
menting its global economic agenda entailed the ascendance of
what became strategic
agencies within the government apparatus that were most
directly connected to this
agenda, namely central banl«, treasuries and regulatory
agencies. 12
This discussion leads to an analysis of what Sassen calls the
"restructuring of the
private-public divide," where "forms of authority once exclusive
to the public
domain are now shifting to or being constituted in the private
sphere of markets
with the corresponding normative recording."'3 More
specifically, Sassen refers to
cases of expansion of the private sphere, particularly through
privatization and
marketization processes launched in the 1980s. In other words,
she sees economic
actors seeking to privatize public regulatory functions in a way
that increases their
authority over matters once exclusive to the public domain,

such as commercial arbi-
tration, property rights and the regulation of trade and capital
markets.
This analysis of the privatization of forms of authority, however
insightful, still
does not fully account for a parallel process marking a different
trend. Privatization
often means that public functions and authority cease to be
exercised solely by a
public entity and become a private venture undertaken by
private agents who
usually follow efficiency-maximization criteria and remain far
from any mandate to
provide public goods. In this sense, what is privatized is no
longer publicly managed.
Nevertheless, these processes do not fit this kind of
transformation: Sovereign debt
and asset management are not functions that have become
privatized. The private
in this discussion has to do with how, not who. These functions
are still a responsi-
bility of the state, yet are conducted almost as private-
investment operations insofar
as they: (a) count on highly specialized professionals with

private experience or
outsource some services to the private sector in serving a public
purpose; (b) involve,
in the case of asset management by SWFs, a mix of "opaque
operations and invest-
ments" such as acquisition equity (making sovereign states
shareholders in private
businesses abroad); and (c) utilize models of risk management
through hedging akin
to that of private financial players. Together such functions
entail competitive strate-
gies among different sovereign debt and asset managers for the
most lucrative deals,
FALLAVINTER 2008 I 37
Giselle Datz
taldng the understanding of a "competitive state" to yet another
level of specializa-
tion and interaction. 14 In all of these areas, we see a
rearticulation ofthe relationship
between states and financial risk. At stake is a more welcoming
engagement with the
motto, "no risk, no reward."
Sassen aptly suggests that understanding the global economy
may entail the

blurring, rather than the neat segmentation, of "longstanding
dualities in state schol-
arship, notably those concerning the distinctive
QlStinCtlOn spheres of influence of respectively the national
and
l i c ^^ global, of state and non-state actors, and of the
orirl -rkfixT-o+o i o private and the public."'^ In this sense, my
argument
«mu. p r i v a t e IS ., o , , . . .
j ^ , merges with Sassen s notion that globalization is
QcLerinineQ Oy producing within states a form of authority
that is a
tlie kinds of hybrid, "neither fully private nor fully public,
neither
constraints that ^"'̂ ^ national nor fully global."'^ I argue that
the
. , t" . 1 distinction between public and private is then not
states as rinancial
determined by passive versus active investment and
y p e t and
players risk management, but by the ldnds of constraints that
subject to. states as financial market players are subjected to.
More than a hybrid, the state is a heterogeneous cate-
gory that entails a symbiotic relationship between private and
public strategies,
obstacles and methodologies.
For Geoffrey Underhill, a neat separation of state and market is

not realistic as
there is a latent interdependence between the two, one which is
evidently not new,
but rather endogenous to governance and the process of
economic competition.!''
Such interdependence is not welcoming of a market and
government conceptual
dichotomy (seeing markets as exchange and governance as
coercion), but rather
more conducive to the idea of a "state-market condominium."
Under this condo-
minium, public regulation and supervision of market forces is
more than the result
of an antagonistic relationship between the public and the
private. Instead, "it is
systematic evidence of the ways in which market interests and
state policy processes
are integrated."is In this view, the transformation of markets
goes hand-in-hand with
the transformation of the state. Yet more than a reciprocal
relationship, a symbiotic
interaction between public and private in the heart of the state
is apparent. The case
of SWFs that purchase stakes in important Western firms has
led to a series of reac-
tions by official sectors in developed countries. The complexity
of the situation is
well illustrated by U.S. Securities and Exchange Commission
Chairman Christopher
Cox, to whom the increasing involvement of governments as
both owners of compa-
nies and investors in securities can be seen to challenge the
classical (liberal)
understanding of states as proposed by Adam Smith and Milton
Friedman, who

Governments as Market Flayers
emphasize minimal intervention at a fundamental level.'^
Underlining this unfolding policy confusion is the reality of
"embedded neolib-
eralism," which is, as Philip Cerny suggests, a system of
production and
private-public interaction—not simply via state, but also via
civil society networks—
multifaceted and impressively fungible.20 That is, the current
phase of capitalism,
based on a combination of tenants from neoclassical economic
theory targeting
global economic integration, has become increasingly "what
actors make of it."
What states have been making of it goes beyond setting up
firewalls; it now involves
a closer understanding of risk and how some exposure to it may
be worth the ride.
DEBT MANAGEMENT
Sovereign debt management has gone through important
changes in both devel-

oped and developing countries. In the European Union (EU),
political integration
was a product of an important process of economic
harmonization, which entailed,
among other initiatives, balancing budgets along the lines of
accountable and trans-
parent debt management. From this emphasis came the initiative
to make debt
management a more autonomous function of entities located
inside the Ministry of
Finance, yet behaved separately from it in a more specialized
fashion. For example,
the Ministry of Finance defines the medium-term strategy for
debt management
according to its risk preferences and the macroeconomic
constraints of the country,
while the Debt Management Office (DMO) implements that
strategy and adminis-
ters the issuance of domestic and foreign-currency debt.2 '
At the macroeconomic level, the logic for this separation of
tasks is analogous to
investor-signaling arguments made by students of central bank
independence.22

Sovereign debt management that is independent of monetary
policy would signal to
financial markets and domestic constituencies that governments
are indeed commit-
ted to the transparent and accountable management of debt
policy. That could lower
the government's borrowing costs, indicating that the country is
much less likely to
engage in risky strategies, such as irresponsible indebtedness, in
order to suit
political goals.
At the microeconomic level, an autonomous debt agency
functions much like
private fund administrators in the sense that it tries to attract
professionals who are
knowledgeable in the intricacies of global financial markets. In
an International
Monetary Fund (IMF) report. Marcel Cassard and David
Folkerts-Landau explain
that a great advantage of an autonomous DMO is that it "can be
given a clearly
defined objective, without being hampered by either the
management of structure or
pay scale of the public sector. "23 A flexible pay structure is

seen as an important mech-
anism to attract qualified staff. Translated into practice,
performance criteria was
developed for debt managers, which made their daily work,
accountability structures
Giselle Datz
set aside, a risk management operation of liabilities. If they
were in charge of manag-
ing assets, their work would not differentiate much from that of
private mutual or
pension fund managers. After all, the logic goes that "debt
management could be
significantly improved if it was entrusted to portfolio managers
with knowledge and
experience in modern risk management techniques, and if their
performance was
measured against a set of criteria defined by the Ministry of
Finance."24
Indeed, the perceived necessity to attract these kinds of
professionals was a
reason for Ireland, Sweden and Denmark to develop separate
debt management
offices placed outside of the Ministry of Finance and staffed
with financial experts
with experience in portfolio risk management. It was then
assumed that funding
operations would be carried out more aptly because those in

charge "followed private
sector, market-oriented principles and that, since they did not
have to comply with
bureaucratic procedures, they would create an environment
appropriate for quick
decision making. "25 Philip Anderson stresses the fact that
recruitment and retention
of staff with appropriate skills is often a challenge in the public
sector.26 Yet, creative
solutions are increasingly being discovered, such as providing
staff with training
opportunities, contracting skilled and experienced staff on
fixed-term assignments
and allowing for placements of private sector personnel in the
debt management
unit or for the use of long-term advisors with specialist skills.27
Furthermore, bench-
marks for debt management are set in accordance with the risk
tolerance of each
government, which is, in turn, a function of the size of the
public debt, its currency
composition and maturity.28 Sovereign debt managers, like
private pension and
hedge or mutual funds managers, are held accountable for their
actions if they
perform below benchmark targets set in terms of the foreign
currency market.
Increased competitiveness is another goal of DMOs, further
linking public poli-
cies to private methodologies. For example, France's Debt
Management
Office—^Agence France Tresor—was created to reduce the cost
of debt for the French
taxpayer and "to help investors better identify French debt
securities within the range

of sovereign debt products available in European and world
markets."29 Catering to
investors' demands and preferences is an effective way to gain
terrain among competi-
tors. In this effort, sovereign debt management institutions are
increasingly issuing
inflation-indexed bonds as well as long-maturity bonds that
appeal to investors inter-
ested in cushioning growing inflationary pressures
worldwide.^o
W^hat we see then are two important transformations having
taken place. Not
only was more autonomy given to DMOs and equivalent
agencies, but also a private
rationale for conducting business was inserted in the system via
increased competi-
tion among these agencies. The Financial Times reported in
2002 that, although
"European finance ministers are not usually at the forefront of
innovation in capital
markets," the picture is definitely changing. The newspaper
went on to report that,
as "competition for funding from investors intensifies in the
wake of the euro, newly-
styled and aggressive debt management agencies are getting
more creative and more
opportunistic in meeting their governments' borrowing
requirements." If, in the

past, the supply of European sovereign bonds was relatively
predictable, now supply
for bonds is a major mover of financial markets. So much so
that "some of the
elements of the corporate bond market are beginning to
influence the shape of the
government market. "31
Since 2001, the World Bank and the IMF have been advocating
for the estab-
lishment of quasi-independent agencies to manage the public
debt of emerging
market countries, emphasize the benefits of lower cost for
public credit, create trans-
parency and accountability, especially regarding the
development of accurate and
comprehensive debt data, implement of cost effective cash
management policies that
"minimize government liquidity and repayment risks"; and
provide consistency in
the development of governments' securities market.32 The
crucial difference between
emerging market economies and Organisation for Economic Go-
operation and
Development (OECD) economies is not the level of
indebtedness, which has been
positively altered by high levels of reserve accumulation in the
developing countries,
but how governments' balance sheets are exposed to external
shocks, given their low
level of investment diversification and amount of debt issued in
foreign currency.33
The Nigerian Debt Management Office, for example, was
established in 2000 in
order to consolidate the management of public debt in a semi-

autonomous agency.
Its goals were to reduce debt stock and cost, link debt
management to effective fiscal
and monetary policies and to project and promote the "good
image of Nigeria as a
disciplined and organized nation, capable of managing its assets
and liabilities."34
The Nigerian DMO has been able to deliver on its mandate to
reduce the debt stock
and, perhaps more importantly, lead the way in the much needed
development of
Africa's debt markets. A crucial achievement of Nigeria's DMO
has been the
country's exit from the Paris and London clubs through effective
negotiations and
debt buybacks.35
Autonomous DMOs operating in developing countries are still
relatively rare,
even if the notion of increased strategic debt management has
been prevalent since
the 1990s. Where no major institutional change was carried out,
evident moves have
been made in most countries in terms of methodological
assessments and updates in
risk management practices. In countries where the central bank
is responsible for
domestic debt, it has been hard to transform this responsibility
to a different agency,
as in the cases of Costa Rica, Nicaragua and Sri Lanka. Pakistan
has set up a coor-
dination office and Gosta Rica a coordination committee. These
are layers of
"complex arrangements" politically and financially when it
comes to debt manage-
ment in a context of volatile financial flows.36 In addition,

developing countries have
Giselle Datz
focused on creating domestic public debt markets. For example,
in Brazil these debt
markets have been a component of the country's debt
management strategy^?
With varying degrees of depth, more private-like approaches to
public debt
management are changing in important ways the channels
through which govern-
ments do business with public and private financial players,
both as demand for high
yield and supply of new investment tools.
SOVEREIGN WEALTH FUNDS
After decades of severe indebtedness, many developing
countries are now able
to accumulate foreign reserves, make early repayments of their
debts to the IMF
and buy back foreign-currency debts. This has to do with
learning curves from the
1997 Asian crisis, which made it evident that reserve
accumulation was an imper-
ative to buffer sudden instability. As Ben Thirkell-White puts
it, "the build up of
reserves in the post-crisis Asia suggests that the need for
finance is not so desper-
ate that countries are prostrate in the face of market

pressure."38 Indeed, the tide
has turned. Developing countries are consolidating their
positions as capital
exporters.39 That is a critical change in the configuration of
capital flows. The
salience is no longer that of the private sector, nor is it that of
the public sector in
developed countries exporting money to developing countries.
Rather, a structural
shift is underway, marking a "dramatic redistribution of
international wealth"
according to which large flows of publicly-owned funds are
moving from countries
that "historically have not been major players in international
finance" to those who
used to play this role. Therefore, governments, not private
players, are in control of
"the new international wealth."40
A large volume of this wealth is held by sovereign wealth funds
(SWFs), govern-
ment investment vehicles funded by foreign reserve exchange
assets that are
managed separately from the official reserves of the central
bank and reserve-related
functions of the finance ministry.^i According to recent
estimates, there are fifty-four
SWFs (pension and non-pension funds) in operation today. They
are linked to
thirty-seven different countries and hold approximately US$5.3
trillion in assets.42
Sources of funding and hence strategies of investment and time
horizons differ
among SWFs. Some are funded through central bank reserves
(as in the case of the
giant funds from China and Singapore). Others are funded

through export revenues
of state-owned resources (Abu Dhabi, Kuwait), taxation from
exports (Russia), fiscal
surpluses (Korea, New Zealand) or privatization receipts
(Malaysia, Australia).
According to the IMF, there are five types of SWFs based on
policy objectives.
There are stabilization funds set up by countries rich in natural
resources to cushion
volatility in commodity prices, savings funds that "transfer non-
renewable assets
into a diversified portfolio of international financial assets to
provide for future
generations," funds that operate as reserve investment
corporations pursuing poli-
cies with higher returns, development funds that allege priority
to socioeconomic
projects and sovereign funds that are, in effect, pension
funds.''^
Having existed for over three decades, SWFs are not new; what
is new is the
number of funds and their sheer current and predicted sizes. In
2007, sovereign
funds invested US$92 billion in equity transactions, compared
to US$3 billion in
2000. Moreover, the trend seems to be accelerating as these
funds' investments

during the first quarter of 2008 alone reached US$58 billion,
which exceeds their
combined total for the years 2000 to 2005.44
Such growth is linked to the accumulation of sovereign reserves
in emerging
markets through trade surpluses "unequalled as a percentage of
the global economy
since the beginning of the 20th century," which have made
official reserves held by
some governments become "astronomically high." The key here
is that SWFs do not
simply represent saving for a rainy day, but strategic investing
for the long term.45
They mark a departure from the trend to invest foreign reserves
in liquid assets such
as short-term U.S. Treasury bills and government securities
issued by other devel-
oped countries to investment in high-return equities. After all,
as Nouriel Roubini
puts it, "Why hold U.S. T-bills with a meager 5 percent return,
German Bunds with
a 4 percent return, or Japanese government bonds with a 0.5
percent return when
you can acquire foreign firms, invest in real assets, stock
markets, or higher-yielding
corporate bonds? "46 Indeed, there is pressure on governments
with surpluses to earn
better returns through different and riskier investment avenues.
One of the key financial developments of the turbulent period of
late 2007 and
early 2008 was the way in which emerging market governments,
through their
SWFs, acted as stabilizers of key commercial and investment
banks plagued by ever-

increasing losses from the sub prime crisis. For example, the
Chinese Investment
Corporation (CIC) invested US$5 billion in Morgan Stanley,
acquiring a 9.9 percent
share in the company. This happened despite CIC's losses in a
previous US$3 billion
deal with Blackstone whose initial public offering price dropped
over 50 percent
after the deal was concluded. The Government of Singapore
Investment
Corporation (GIC) and an undisclosed investor from the Middle
East invested
US$12 billion in the Swiss UBS. Abu Dhabi Investment
Authority injected US$7.5
billion into Citigroup late in 2007.
Sovereign wealth funds are not only investors in large Western
financial institu-
tions, but also clients. Investment banks have been keen on
creating the
infrastructure to attract sovereign investment. For example,
HSBC Investments has
hired a new "global head of sovereign and supranational," and
Morgan Stanley
Investment Management has announced the appointment of a
"managing director
and head of central banks and sovereign wealth funds."
According to the person who
FALL/WINTER 2008 I 43
Giselle Datz
assumed this latter position, his role is to "help improve the

firm's coverage of these
increasingly important clients." In his own words: "It's about
engaging with the
clients to understand their needs and then providing tailored
investment solutions."
Another asset manager in charge of dealing with sovereign
funds states that "one of
the reasons why sovereign funds are important...is because it's
new business, it's new
money."'"' That entails managing funds on behalf of SWFs,
many of which outsource
mandates when in-house expertise is lacking, as in the case of
Abu Dhabi Investment
Authority whose assets—between 70 and 80 percent—are
managed outside the
country. Norway's Government Pension Fund has about 28
precent of its assets
managed by fewer than fifty third-party bond and equity asset
managers. As
expected, competition for the business of SWFs is stiff. Wall
Street firms are increas-
ing their focus on sovereign funds by selling services that range
from advice on
merger and acquisitions to structured services.48
The liaison between Wall Street and some emerging market
governments
should not recall the time Citibank—despite being "too big to
fall"—lent money to
Latin American countries only to witness the default of these
loans en masse in the
1980s. This is a different kind of relationship. It is a private
investment firm
serving the sovereign client, helping it generate higher yield for
public monies, and,
expectedly, collecting handsome fees in return. Not only is the

public-private
symbiosis within the state a case in point, but the renewed ways
in which Wall
Street deals with and in some ways relies on sovereign wealth
from emerging
markets adds more depth to what Richard Gnoddle calls the
"new ecosystem of
global capital."49
Sovereign wealth funds retreated from Wall Street as the U.S.
financial crisis
worsened in the early fall of 2008. Yet, retreating does not
mean that these sover-
eign investors are behaving less like market players. On the
contrary, as all investors
are now engaging in a "flight to quality," or to liquidity,
destined to the U.S. bond
market, SWFs are still behaving akin to most market players as
well as foreign
central banks. These funds are said to be taking their time to see
how the U.S.
government's bailout plan shapes up and whether it helps to
ease the sense of chaos
in the Western banking system. However, risks as well as new
opportunities for
profit lie ahead.5O SWFs are poised to take advantage of the
latter. In addition, it is
likely that Gulf economies in particular may seek to invest more
locally. As long as
oil prices remain high, their fundamentals remain strong, in
sharp contrast to those
of most Western economies.^'
INESCAPABLY PUBLIC: HYBRIDITY AND CONSTRAINTS
The literature on globalization—suggesting that emerging

markets were severely
constrained by ñnancial market expectations—^was apt in its
detection of public
responses to financial preferences and their impact on policy
autonomy. More
recently, the ways in which states in developed countries found
room to move became
clearer, even at the level of international institutions and the
commitments therein.^2
Less attention has been paid to the effort of identifying room
for policy maneuvers in
emerging markets, even at times of economic distress.^^
Increasingly it is important
to consider that the types of constraints imposed on emerging
market governments
will not merely be imposed by international financial investors,
but by new rules at
the public level that limit governments' actions as market
players. Those can be
endogenous and intrinsic to public mandates to foster domestic
economies and

consistent with macroeconomic goals. They can also be related
to accountability
abroad regarding sovereign investment in private markets and
key institutions.
Indeed, public initiatives that use private methodologies for
liability manage-
ment or new and rislder channels for asset investments will still
be circumscribed by
the notion, or fear, that states are not always profit maximizers,
and thus "their
private activity is [always] public in character. "̂ 4 xhis public
character entails legal
restrictions and incipient but potentially restrictive "codes of
conduct" for govern-
ments as foreign investors. How restrictive those will ultimately
be is still history in
the making, yet countries that try to curb the penetration of
foreign public invest-
ment in their domestic economies will pay the price of
potentially losing a financial
tie to limited pockets of wealth in the currently ailing global
economy.
CONCLUSION

In the last two decades, governments have undergone important
transforma-
tions in the constant challenge to compete, adapt and innovate
in a realm of global
economic and financial integration. Focusing on the element of
innovation, particu-
lar autonomy is being given to debt and asset management
agencies within the state,
which increasingly operate as private actors. They engage in
hedging risks, but they
also seek returns. This is not privatization of state activity or
delegation of author-
ity from the public to the private sector. It is something more
symbiotic happening
within the public realm, linking governments' roles as both
supply and demand for
financial assets and innovation. There is a reconfiguration of
public financial goals,
which is strategic, sophisticated and proactive, rather than
purely regulatory.
One important implication has to do with financial complexity
and state behav-
ior. States are less and less capable of fully regulating financial
transactions due to

the fact that, as Alan Greenspan notes in his recent
autobiography, "Markets have
become too huge, complex, and fast moving to be subject to
20th century supervi-
sion and regulation." He adds that it is no wonder that "this
globalized financial
behemoth stretches beyond the full comprehension of even the
most sophisticated
of market participants."55 Nonetheless, this is not a monolithic
phenomenon.
Giselle Datz
Despite this general sense of bewilderment, the state in
emerging markets is far from
retreating. Rather, it is evolving, and in some areas of its
involvement with financial
players, it is taking the role akin to that of an investor or risk
manager—at times
equally secretive and opportunistic despite inescapable
constraints that attach
governments' financial moves to broader public interest goals.
Another implication involves the contours of a new relationship
with risk between
the public and private sectors. If risk indeed drives the demand
for regulation, and
hence underlies the regulatory (defensive) role of the state, so

too does it propel the
active (offensive) role of governments as financial players,
using private sector princi-
ples to manage sovereign assets and liabilities. Governments are
following
methodologies tailored to corporations, creating benchmarks for
risk taking while
keeping an eye on opportunities to generate returns that make
them intensively
competitive, definitively adaptable and increasingly innovative.
As Julie Froud, Adam
Leaver and ICarel Williams posit, what sustains the remaldng of
capitalism today is the
"proliferation of new actors, contradictory agendas and multiple
logics" brought about
by financial dynamics.56 The state is hardly a new actor, but its
role is constantly recon-
figured according to its intrinsic heterogeneity of tasks, tools
and responsibilities. '^
NOTES
*I am grateful to Leslie Armijo, Phil Cerny, Anna Gelpern and
Iain Hardie for their comments.
• Ashby Monk, Scott Moore and Xunyi Xu, "A Review of
Chinese Language Literature on Sovereign
Wealth Funds" (Oxford International Review Working Paper
SWFOOl, 1 July 2008), 3.
2 Javier Santiso, Ttte Political Economy of Emerging Markets:
Actors, Institutions, and Financial Crises
in Latin America (New York: Palgrave, 2003); Iain Hardie,
"Trading the Risk: Financialisation, Loyalty
and Emerging Market Government Policy" (paper presented at
the annual meeting of the International

Studies Association, San Francisco, 26-29 March 2008).
3 Saskia Sassen, Losing Control (New York: Columbia
University Press, 1996).
^ According to the International Monetary Fund-World Bank
Debt Management Guidelines, sovereign
debt management can be defined as "the process of establishing
and executing a strategy for managing
the government's debt in order to raise the required amount of
funding, achieve its risk and cost objec-
tives and to meet any other sovereign debt management goals
the government may have set, such as
developing and maintaining an efficient market for government
securities." "Guidelines for Public Debt
Management," International Monetary Fund and World Bank
(2001).
5 Saskia Sassen, "Embedding the Global in the National:
Implications for the Role of the State," in States
and Sovereignty in the Global Economy, ed. David A. Smith,
Dorothy J. Solinger and Steven C. Topik
(London: Routledge, 1999); Philip Cerny, "The Asian Grisis and
the Gompetition State" (manuscript.
University of Manchester, 2003); Steven Vogel, Freer Markets,
More Rules (Ithaca: Gornell University
Press, 1996); Michael Moran, "Understanding the Regulatory
State," British Journal of Political Science
32, no. 2 (2002), 391-413.
6 James Mittelman, The Globalization Syndrome:
Transformation and Legitimacy (Princeton: Princeton
University Press, 2000).

^ Leo Panitch, "Rethinking the Role of the State," in
Globalization: Critical Reflections, ed. James
Mittelman (Boulder: Lynne Rienner, 1997).
^ Eric Helleiner, States and the Reemergence of Global Finance
(Ithaca: Cornell University Press, 1994);
John Ruggie, "Globalization and the Embedded Liberalism
Compromise: The End of an Era?" (MPIFG
Lecture Series on Economic Globalization and National
Democracy, Cologne, 1996).
9 Philip Cerny, "Embedding Neoliberalism: The Evolution of a
Hegemonic Paradigm," ¡oumal of
International Trade and Diplomacy (forthcoming. Spring 2008);
David Harvey, A Brief History of
Neoliberalism (New York: Oxford University Press, 2005).
'0 Sylvia Maxfield, Gatekeepers of Growth: The International
Political Economy of Central Banking in
Developing Countries (Princeton: Princeton University Press,
1997); According to W. Scott Frame and
Lawrence White financial innovations are characterized by new
products (e.g. adjustable-rate mortgages,
exchange-traded indexed funds); new services (e.g. online

securities trading, internet banking); new
production processes (e.g. a new type of electronic exchange for
trading securities, internet-only banks).
In their review of the economic and financial literature on
financial innovation the authors point out that
empirical studies on financial innovation are surprisingly few.
More revealingly, in listing sources and
actors involved in innovation, the authors never mention the
role states play in it. W Scott Frame and
Lawrence White, "Empirical Studies of Financial Innovation:
Lots of Talk, Little Action?" Journal of
Economic Literature 42 (March 2004), 118.
' ' Saskia Sassen. Territory, Authority, Rights: From Medieval
to Global Assemblages (Princeton:
Princeton University Press, 2006a).
'2 In Territory, Authority, Rights, Sassen extends this argument
to include an expansion of executive
powers in the United States (continued and deepened by the
current Bush administration) in a realm of
heightened security concerns, withering civil privacy and
increased secrecy.
13 Sassen (2006a), 184.
''^ Philip Cerny, "Paradoxes of the Competition State: The

Dynamics of Political Globalization,"
Government and Opposition 32, no. 1 (1997), 251-274.
'^ Saskia Sassen, "When National Territory is Home to the
Global: Old Borders and Novel Borderings,"
in Debates in New Political Economy, ed. Anthony Payne
(London: Routledge, 2006b), 109.
16 Sassen (2006b), 109-110.
•^ Geoffrey Underhill, "States, Markets, and Governance for
Emerging Market Economies: Private
Interests, the Public Good, and the Legitimacy of the
Development Process," International Affairs 79, no.
4 (2003), 755-781; Geoffrey Underhill, "Markets, Institutions,
and Transaction Costs: The Endogeneity
of Governance," (working paper no. WEF0025, World Economy
and Finance Research Programme of the
UK Economic and Social Research Council, 2007).
18 Underhill (2007), 681.
19 Christopher Cox, "The Rise of Sovereign Business," (speech
by the U.S. Securities and Exchange
Commission chairman, Washington, DC, 5 December 2007).
20 Cerny (2008), 10 (page number as in the original
manuscript).

21 While central banks are usually in charge of operations
regarding foreign reserve management.
Ministries of Finance have the authority over liabilities (debt)
management.
22 Central bank independence did not necessarily entail debt
management independence because debt
management was still being used in some countries to achieve
monetary goals; see the case of Sweden
from World War 11 until the mid-1980s; Elizabeth Currie, Jean-
Jacques Dethier and Eriko Togo,
Giselle Datz
"Institutional Arrangements for Public Debt Management,"
(World Bank Policy Research Working Paper
No. 3021,2003).
23 Marcel Cassard and David Folkerts-Landau, "Risk
Management of Sovereign Assets and Liabilities,"
(IMF Working Paper No. 97/166, 1997), 14-15.
24 Ibid., 11.
25 Currie, Dethier and Togo (2003), 16.
26 Philip Anderson, "The Changing Role ofthe Public Debt
Manager," (Washington, DC: World Bank, 2005).

27 The expanded roles of public debt managers would justify
such fiexibility Those can include: conduct-
ing transaction in derivatives markets (such as swaps and
futures), modeling cost and risk of the debt
portfolio, advancing information technology systems and
handling all financial instruments, managing
operational risks (Anderson 2005).
28 Cassard and Landau (1997).
29 Agence France Tresor, "The Best ofthe Euro," (Paris: Agence
France Tresor, 2007).
30 In February 2005, France recorded a "groundbreaking" sale
of 50-year maturity bonds in response to
a notable demand by institutional investors, including pension
and insurance funds, which need longer-
maturity assets to match their liabilities in a context of ageing
populations {Financial Times, 23 February
2005). These institutional investors accounted for one quarter of
the transaction. Notably, hedge funds
were also interested in the deal. With this operation, France
became the first G-7 country to issue such
a long-maturity bond (way beyond the maximum 30-year bonds
in existence) in modern times; Inflation-
linked bonds are not strangers of emerging market countries in
Latin America and Europe (which made
up 73% of the $46 billion in these bonds). Yet, recently it has
been reported that more countries in the
Asia-Pacific region are likely to also issue these so-called
linkers in order to signal commitment with price
stability. The absence of a substantial number of linkers issued
in the region has to do with the lack of a
large pension fund sector, yet sovereign wealth funds are
making for potentially sizable new demand
{International Herald Tribune, 1 August 2008).

3 ' Financial Times, 1 March 2002.
32 "Strengthening Debt Management Practices: Lessons from
Country Experiences and Issues Going
Forward," (Washington, DC: International Monetary Fund and
World Bank, 2007), 5.
33 Currie, Dethier and Togo (2003).
34 "About DMO," Debt Management Office of Nigeria, 20
September 2008, http://www.dmo.gov.ng/
aboutdmo/about.php.
35 In 2003, Nigeria took advantage of a downtime in debt
markets to repurchase US$601million of its
par bonds and US$288 million of its oil warrants at
considerably discounted prices in a public auction
coordinated by Citigroup. This was done in preparation before
the Paris Club in 2005, when Nigeria
struck a deal that eliminated US$30 billion of debt, combining
forgiveness (US$18 billion was written
off) with two repayments of US$12 billion combined {Financial
Times, 1 July 2005).
36 IMF and World Bank (2007).
37 IMF and World Bank (2007); "Building a Debt Managing
Department: The Brazilian Experience,"
(Brasilia: Tesouro Nacional, 2006).
38 Ben Thirkell-White, "The International Financial
Architecture and the Limits of Neoliberal
Hegemony," New Political Economy 12, no. 1 (2007), 36.
39 Stephany Griffith-Jones, cited in Financial Times, 9

February 2007.
Governments as Market Flayers
'*0 Edwin Truman, "A Blueprint for Sovereign Wealth Fund
Best Practices," (policy brief no. PB08-3,
Peterson Institute for International Economics, 2008), 3.
' ' ' Clay Lowery "Remarks by Acting Under Secretary of
International Affairs, Clay Lowery on Sovereign
Wealth Funds and the International Financial System," (speech.
United States Treasury, Washington,
DC, 2007).
42 Truman (2008).
43 Often these are assets still understood as "reserves"; IMF
and World Bank (2007), 46.
44 Assessing the Risks: The Behaviors of Sovereign Wealth
Funds in the Global Economy (Cambridge,
MA: Monitor Group, 2008).
45 ING Investment Management, "Rich SWF Seek Long
Mutually Fulfilling Relationship(s)," ING
Investment Weekly (May 28, 2007).

46 Nouriel Roubini, "The New Bogeyman of Financial
Capitalism," Project Syndicate, http;//www.project-
syndicate.or^commentary/roubini 1 (2007).
47 Euromoney, December 2007.
48 Financial Times, 27 June 2008.
49 Richard Gnoddle, "New Actors Play a Vital Role in the
Global Economy," Financial Times, 12
November 2007.
50 Roula Khalaf, "Gulf Wealth Funds Poised to Pounce on US
Assets," Financial Times, 27 September
2008.
51 Simeon Kerr, "Local Liquidity Loss Shatters Gulfs Faith,"
Financial Times, 26 September 2008.
52 Layna Mosley, Global Capital and National Governments
(New York: Cambridge University Press, .
2003); Linda Weiss, "Global Governance, National Strategies:
How Industrialized States Make Room to
Move under the WTO," Review of International Political
Economy 12, no. 5 (2005), 723-749.
53 Giselle Datz, "What Life After Default? Time Horizons and
the Outcome of the Argentine Sovereign
Debt Restructuring," Review of International Political Economy
(forthcoming).

54 Larry Cata Becker, "The Private Law of Public Law: Public
Authorities as Shareholders, Golden Shares,
Sovereign Wealth Funds, and the Public Law Element in Private
Choice of Law," Tulane Law Review 82,
no. 1 (2008).
55 Alan Greenspan, The Age of Turbulence (London: Penguin
Books, 2007), 489.
56 Julie Froud, Adam Leaver, and Karel Williams, "New Actors
in a Financialized World," New Political
Economy 12, no. 3 (2007), 339-347.
The Meaning and Role of Entrepreneurship
Education for School Students in
the Global Economy
Christina Wai Mui YU
The Hong Kong Institute of Education, China
Abstract
This paper aims to clarify the meaning and role of

entrepreneurship educa-
tion (EE) from a competence-based perspective in order to
prepare school
students to work and live better in the global economy. After a
critical review
on entrepreneurship and EE, it was found that there is a shift
from a narrow
business-oriented process to a generic competence-driven
process in defin-
ing entrepreneurship. The ultimate roles and goals of EE for
school students
cover both the possession of (1) entrepreneurship for self-
employment and
economic growth, and (2) enterprising skills for individual life
growth. More
importantly, on top of the traditional entrepreneurial
competencies and capa-
bilities, both ethical and social competencies are suggested in
EE in order to
balance individual and public interest.
Key Words: Entrepreneurship Education, Enterprise Education,
Entrepreneur-
ial Competencies/Capacities, School Students, Global Economy
Introduction
Entrepreneurship Education (EE) has drawn an increasing
interest and made
remarkable progress to become a field of academic study over
the past four
decades (Garaven & O’Cineide, 1994; Gibb, 1993 & 2011; Hytti
& O’Gorman,
2004; Jamieson, 1984; Mwasalwiba, 2010; Pittaway & Cope,
2007; Vesper &
Gartner, 1997). EE stakeholders believe that learners are able to

cope with chal-
lenging jobs or start new business ventures (self-employment)
after receiving
EE (Gibb, 1993; Hytti & O’Gorman, 2004; Jack & Anderson,
1999). Policy-
makers can then release their burdens on meeting the needs in
job market
and economic development (Kirby, 2004; Matley, 2005;
McKeown, Millman,
7
8 International Journal of Vocational Education and Training
Vol. 22 No. 2
Sursani, Smith & Martin, 2006; McMullan & Long, 1987; Rae,
2010). Moreover,
academicians are more motivated to invent programs and
activities for the
building of an enterprising society (Mwasalwiba, 2010).
Therefore, EE is one
of the possible key drivers of sustained social development and
economic re-
covery, which draws an increasing interest from multi-
stakeholders in public,
private, academia and non-profit sectors (Volkmann et al.,
2009).
The current movement of EE is becoming ‘a mainstream
education com-
ponent’ across disciplines at university and school levels in
many countries
(Cherwitz & Sullivan, 2002; Gibb, 2011; Mclarty, Highley &
Alderson, 2010;
Volkmann et al., 2009). For example, many entrepreneurship

incubation cen-
tres are being set up at universities (European Commission,
2008) and EE is a
key consensus area for development in Asia-Pacific countries
(United Nations
Educational, Science and Cultural Organisation, Asia-Pacific
Programme of
Educational Innovation for Development, 2013). EE appeals to
all students no
matter what career paths they will have (European Commission,
2008; Gibb,
2002, 2007 & 2011; Mclarty, Highley & Alderson, 2010).
However, EE is facing many challenges including a confusion
of the defi-
nition, and a lack of evidence and empirical study on its impacts
on trans-
forming the graduates to be entrepreneurs, despite EE has
impacted graduates’
intentionality. Moreover, at policy making level, there is no
concrete policy
on how to spread EE to mainstream education, even though EE
is said to be
needed by all students. Gibb (2011) also highlighted some other
challenges EE
has had such as the intra-disciplinary challenge, assessment,
and strategic and
operational capacity building. Yu (2013) shared strategies for
capacity build-
ing to advance EE at individual, institutional and societal
levels. Amongst the
existing challenges in EE, clarifying the meaning and role of EE
for imple-
mentation is most crucial since different understandings of EE
would lead to
different objectives, contents, target audiences, teaching
methods, assessment

indicators and resource implications (Mwasalwiba, 2010). For
example, EE is
mainly understood as a promising way to lower unemployment
rate in Main-
land China when it faces more than one million of college
graduates each year.
Differently, some western countries may view EE as an
individual empower-
ment to meet the ever-changing needs of employment and life.
In such a way,
the purpose of EE can range from covering either a narrow
focus on business
venturing (Volkmann et al., 2009) or a wide range of
enterprising ‘soft’ skills
(Davies, 2002).
Therefore, in this paper, a literature review on the meaning of
entrepre-
neurship and EE as well as a discussion on the significant role
of EE to today’s
school students will be critically shown in the first three
sessions. Afterwards,
a detailed review and discussion on the entrepreneurial
competencies and ca-
pabilities for school students, including those traditional and
neglected ones
The Role of Entrepreneurship Education for Students in the
Global Economy 9
will be presented. Finally, the acquisition of entrepreneurial
competencies and
capacities will be proposed.
Entrepreneurship

Scheumpeter (1934) suggested a classical function which
constitutes entrepre-
neurship concept as ‘innovation’ – carrying out changes through
creation of
new products, new production methods, new markets and new
forms of or-
ganization. Wealth is then created when such innovation exists.
Furthermore,
Drucker (2006) claimed that true entrepreneurs seek to
minimize risk and ex-
ploit change to achieve purposeful innovation. Entrepreneurship
is therefore a
process which involves the creation of an innovative economic
organization for
the purpose of gain or growth under condition of risk and
uncertainty (Doll-
inger, 2001). Entrepreneurship refers to business-oriented
activities that closely
relates to the intersections of creativity, innovation,
management, opportunity
seeking, risk taking and striking for growth (Vanderwerf &
Brush, 1989).
However, Shefsky refers to entrepreneur as someone who is
able to identify
opportunity, take up the opportunity in time and manage the
opportunity to
function as a success (Singer, 1995). It symbolises that an
entrepreneur is not
necessarily referring to someone who is associated with
business, but could
also be referring to those who possess enterprising attributes to
set up and run
a specific task because their psychological characteristics are
basically identi-
cal (Caird & Johnson, 1988; Gibb, 1987). Hence, the

Commission of the Euro-
pean Communities (CEC 2005, p. 4) defined entrepreneurship
as:
… an individual’s ability to turn ideas into action. It includes
creativity, in-
novation and risk taking, as well as the ability to plan and
manage projects
in order to achieve objectives. This supports everyone in day-
to-day life at
home and in society, makes employees more aware of the
context of their
work and better able to seize opportunities, and provides a
foundation for
entrepreneurs establishing a social or commercial activity.
According to the definition of entrepreneurship given by CEC
(2005), entre-
preneurship no longer refers to business-oriented activities
solely but also to
individual’s ability of actualizing his/her own idea through the
same cross-
ings of creativity, innovation, risk taking, management,
opportunity seeking and
striking for sustainable development in different aspects of life.
As can be seen,
there is a shift from a narrow business-oriented process for
economic growth
to a generic competence-driven process for individual growth in
defining en-
trepreneurship. Such a shift not only draws a significant impact
on under-
standing the nature and use of entrepreneurship, but also on EE.

Vol. 22 No. 2
Entrepreneurship Education (EE)
The terms ‘entrepreneurship education’ and ‘enterprise
education’ are used
interchangeably to describe EE in a wide range of programs,
courses and or
initiatives found at varied educational levels. Gibb (1993) has
stated that the
two terms are conceptually identical but contextually different.
Garavan and
O’Cinneide (1994) have further distinguished the two,
explaining that entre-
preneurship education aims to create an attitude of self-reliance,
while enter-
prise education seeks to create opportunity-seeking individuals.
In fact, no
matter what exactly the terms is used, EE covers the aspects of
both entre-
preneurship and enterprising behaviour (Seikkula-Leino,
Ruskovaara, Ika-
valko, Mattila, & Rytkola, 2010). Moreover, EE not only
applies to business
ventures but also more broadly to life (Bridge, Hegarty, &
Porter, 2010; Gibb,
2011). Many authors have suggested that entrepreneurship
education which is
more economic focused, fits advanced students in university,
while enterprise
education which is more generic in nature, suits younger
students in basic
schooling (e.g., Jones & Iredale, 2010; Leffler, 2009; Pepin,
2012). Schools and
universities should prepare young people to work in a dynamic,

rapidly chang-
ing entrepreneurial and global environment. Therefore,
providing an analyti-
cal perspective on the meaning and role of EE for school
students in the global
economy context is needed.
Role of EE to School Students
Education systems have traditionally focused on providing basic
skills and
ensuring individuals can secure future jobs. Meanwhile
globalization has
changed the nature of work, including (1) the relocation of
offices, factories
and staff to countries where operation costs are cheaper, (2) the
rapid tech-
nological development towards labour-saving production and
business pro-
cesses, (3) the lower cost of travel to encourage job mobility
and (4) an advent
of “virtual” companies outsourced to freelancers or offshore
workers (Fien,
Maclean & Park, 2009; Velde, 2009). Amidst highly uncertain
economic and
labour market conditions, employers are likely to be cautious
and hesitant
about expanding their enterprises and hiring new employees,
particularly in-
experienced school students. Even when school students have a
more stable
and secured job, they may only be able to barely sustain their
living and even
live in poor households. The rise of in-work poverty comes to
be the most

dramatic outcomes in industrialized countries over the past 30
years due to
globalization and technological advancements (Hellier &
Chusseau, 2013).
Under such circumstances, traditional education seems no
longer able to help
employment and poverty in today’s global economy.
Contrastingly, EE is in-
Global Economy 11
tended to develop a culture of enterprise among a younger
generation within
the society that emphasizes on the value of competitiveness,
innovation and
creativity (Robertson & Collins, 2003). EE can play a
significant role in em-
powering school students to possess entrepreneurial
competencies and capa-
bilities to meet challenges in employment and or self-
employment. Of course,
life planning education and career counselling should go
alongside with EE
through a concerted effort of stakeholders in the community
too.
Moreover, investment in human capital not only enables
individuals to
increase their future earnings and enhance their experience in
the labour
market, but also enables individuals to become better citizens
on top of being
better workers (Lister, 2003). Schools should strive to make
students become

knowledgeable about contemporary issues, be able to work
independently and
collaborate with others, and possess personal dispositions that
value cultural
diversity (Learning & Teaching Scotland, 2002). They are
critical for school
students to become active citizens regardless of the economic
background they
have had and the career path they are to take (Deuchar, 2008).
For example,
those individuals who are in poverty could be empowered by EE
to regain
their economic and social dignity; while those individuals who
are rich could
be educated by EE to see how they can enjoy their life uniquely
through self-
employment. If every individual respects and cares about others
as well as the
global issues, a more enjoyable life is achievable for everyone.
Erkkila (2000),
on her comparative study between United States, United
Kingdom and Fin-
land, suggested that the belief of having both societal and
individual improve-
ments always supports the provision of EE.
There are two main features of EE to school students: (1)
developing those
personal attributes and transferable generic skills that form the
basis of an
entrepreneurial mind-set and behaviour; (b) raising learners’
awareness of
self-employment and entrepreneurship as possible career
options (European
Commission, 2009). These understandings incorporate both the
know-how
and know-why knowledge and skills as well as an emphasis on

the learning
process of entrepreneurship. However, the achievement of EE
depends very
much on what entrepreneurial competencies and capabilities are
identified for
the learning process.
Entrepreneurial Competencies and Capabilities
for School Students
Entrepreneurs need both entrepreneurial and managerial
competencies to
support the different stages and contexts of business growth
(Capaldo, Ian-
doli & Ponsiglione, 2004; Hayton & McEvoy, 2006).
Entrepreneurial compe-
tence, therefore, encompasses not only behavioural competence
(knowledge
Vol. 22 No. 2
of how to behave) but also cognitive competence (work-related
knowledge
and understanding) and functional competence (job-related
skills, know-
how) (Delamare Le Deist & Winterton, 2005; Lans, Hulsink,
Baert & Mulder,
2008). Moreover, competence-related motivational attitudes like
self-efficacy
and self-confidence should be regarded as important conditions
for entrepre-
neurial competence (Lans et al., 2008). Indeed, many authors
have agreed on

such an integrated view of competence in entrepreneurship (e.g.
Hayton &
Kelley, 2006; Markman, 2007).
Lum (2009) further noted that the possession of skills and
competencies
can lead learners to underestimate the capacities required in the
real world,
necessitating that broader and more concrete learning content
should be pro-
vided to them. Hence, developing individuals’ capacity of
knowing how to seek
for opportunities (Baron & Ensley, 2006), that is ‘be
enterprising’ (enterprise
capacity), may be more important particularly in view of the
need to meet the
ever-changing demands through lifelong learning in today’s
knowledge-based
society. The European Commission (2006) named such
enterprise capabili-
ties as ‘new basic skills’ for school students in order to improve
international
competitiveness. Mclarty, Highley and Alderson (2010, p. 33)
echoed and de-
fined enterprise capability in this way: ‘Enterprise capability
[includes] innova-
tion, creativity, risk-management and risk-taking, a can-do
attitude and the
drive to make things happen’. This concept of enterprise
capability provides a
clear guidance for the nurturing of active citizens to enable
them to develop
a mind-set of ‘you can if you want to’ (Mclarty, Highley &
Alderson, 2010).
Perhaps EE can indeed give school students courage to strive
for excellence in
their pursuit of dreams with a highly optimistic attitude.

However, it may also
possibly encourage young people to do whatever they want
without a concern
of others. ‘Be considerate before you act’ and “you can if you
want” should go
hand-in-hand in developing an enterprising mind-set for school
students.
Pepin (2012) pointed out that there are some negative effects of
entrepre-
neurship on school students such as individualism, marginality
or difficulty
dealing with authority, which have been inadequately addressed
in education.
Also, Caird (1990) indicated that the strong motivation of
entrepreneurs is
governed by a high need for achievement, power and autonomy,
and a low
need for affiliation. It is reasonable to expect that entrepreneurs
who have
confidence in their ability to control the events would be more
motivated to
actively seek new business opportunities (Lee & Tsang, 2001).
Hence, in re-
ality, it is quite true that most entrepreneurs work in isolation,
which may
easily lead them unwilling to listen to others and act
opportunistically and
ruthlessly in their will to succeed. An emphasis of opportunity
seeking may
possibly lead someone to become an opportunist without a
proper concern of
others. Hence, it is necessary to seek for a balance between the
individual and

Global Economy 13
societal interests in the provision of EE in order to protect and
nurture school
students in a healthy and positive development. Therefore,
ethical and social
competencies and capabilities are called upon in EE.
The Need of Ethical and Social Competence in EE
Ethical competence refers to the possession of certain personal
and profes-
sional values that can underpin the moral reasoning, decision
making and ac-
tion taking on specific events (CEC, 2005). Yu and Man (2009)
found that
the desirability for entrepreneurship lies in an attitudinal change
in entre-
preneurial characteristics, where more in-depth conceptual
understanding
of entrepreneurship is recommended. To strengthen individual
participants’
conceptual understanding of entrepreneurship and attitudinal
change, the
advancement of individual character building can be viewed as
a condition
for enabling individuals to engage in the ‘process of learning
and adapting to
change’ properly. As such, displaying an understanding of the
importance of
cultivating strong ethical character development through the
business-run-
ning (learning) process of entrepreneurship is crucial.
In defining key competence for all students, Kennedy (2005)
pointed out

that key competence should include the full range of skills and
competencies
relevant to one’s life span instead of employment solely.
Education should en-
able young people to become local and global citizens. Self-
interest particu-
larly takes priority in an individuals’ life in today’s
increasingly fragmented
world, however it does not mean that we can ignore needs of
others and do
whatever we want from local and/or global citizenship points of
view (Ken-
nedy, 2005). In response to the breakdown of social principles,
values and po-
litical engagement among young people, there has been a
renewed interest
in promoting ethics and moral education in citizenship
(Deuchar, 2006). Ac-
cording to Kennedy (2005, p. 44), “Young citizens must first be
taught to value
values”, it is not to indoctrinate but to allow young local and
global citizens to
distinguish between right and wrong, to recognize it in the
behaviour of others
and to take appropriate action, although it may not be easy to
find a common
value in the 21st century. In order to protect young people from
over-dressed
individualism, we need to educate them in striking a good
balance between
personal and common interest in decision makings throughout
their life. EE
possibly provides a platform to help young people to value
values as a cen-
tral part of the life experience. Deuchar (2006 & 2007) explored
the views of

teachers and students on enterprise and citizenship education in
ten primary
schools and seven secondary schools in Scotland and found that
teachers and
students were increasingly focused more on “enterprise” as
being framed upon
a model of social renewal and civic responsibility within a
global and moral
Vol. 22 No. 2
framework. The teachers recognised the need for rights as well
as responsibili-
ties, ambition as well as tolerance and wealth creation as well
as charity in car-
rying out EE (Deuchar, 2007).
Furthermore, in order to address the societal needs in business
running
instead of profit-making solely, social responsibility should be
highly empha-
sised in EE for school students since democratic citizenship is
not only about
benefits but also responsibilities. The purpose of running a
business is to ben-
efit not only the individual but also society. It is important to
lead school stu-
dents to engage in a wider learning context of social interaction
and help them
to become more aware of other’s concerns and to better
understand the world
around them. This enables school students to address and
respond to the pub-
lic concerns more. Enabling young people to work on social

entrepreneurship
is a possible way to strike a balance between individual and
collective needs.
Social entrepreneurship in here is defined as a business set up
to benefit society
(someone who is enterprising to benefit society) (Young, 1983).
For example,
in Quebec, Canada, school entrepreneurial activities must stem
from and cater
for the needs of the local community (Pelletier, 2007). School
students should
be provided with relevant concepts and knowledge on social
responsibility,
and be guided to create some sort of action taken to demonstrate
their con-
cern for social responsibility. For instance, school students may
also consider
producing some products and donating a certain percent of their
total profit
(if any was made) to a chosen minority or social enterprise.
Deuchar (2008, p.
30) pointed out that one of the key performance indicators of
enterprise and
citizenship education is when school students are able to view
enterprise in a
social sense and enterprising individuals as someone not limited
in business
or academic success but “anyone who could be enterprising in
their response to
community issues if they believed in the need for justice, truth
and honesty”. In
fact, social interaction with various parties plays a significant
role in the learn-
ing process of EE (Yu & Man, 2009). Thus, promoting social
interaction and
collaboration with various stakeholders to sustain individual

and collective
development in EE is highly desirable.
Acquisition of Entrepreneurial Competencies
and Capabilities
Sandberg (1994) argued that competence is constituted by a
worker’s under-
standing of work by drawing on his interpretative findings.
Gerber and Velde
(1996) further highlighted the relational aspect in understanding
competence.
Both context and work relationships play a role in the
embedding of compe-
tence. These arguments shift the concept of competence from a
narrow to a
broader view that draws on three significant implications: first,
learner is the
Global Economy 15
departure point for the acquisition of competence instead of the
competencies
themselves; second, competence is better described as a
combination of core
components that are interdependent; third, competence needs to
be developed
through the enrichment of practical experience that benefits
learners’ holistic
development. Also, the acquisition of competence is subject to
the context, the
situation and the experience of the individual who works.
Entrepreneurship

depends upon generic forms of understanding, which require
theory be put
into real practice in shifting its focus from venture creation to
the seeking of
opportunities and innovation (Lans et al., 2008). In such a way,
EE is no longer
able to teach knowledge and skills without a consideration of
their transfer-
ability across contexts and situations.
Hence, any entrepreneurship program should be led by
‘creativity, infor-
mality, curiosity, emotion and its application to personal and
real-world prob-
lems and opportunities’ (Penaluna & Penaluna, 2008) that takes
place outside
of a formal classroom setting. Moreover, entrepreneurship
programs need to
incorporate active learning elements such as business
simulation, workshops,
counselling and mentoring, study visits, business set-ups, games
and competi-
tions (Hytti & O’Gorman, 2004). Lewis and Massey (2003) and
Jones (2010)
have also argued that student-centred learning should form the
basis of any
entrepreneurship program, with students acting as agents who
are able to learn
and apply their knowledge onto other contexts. EE also depends
on hands-on
practice and social interaction with others, such as
entrepreneurs, throughout
the learning process (Man & Yu, 2007; Yu & Man, 2009). An
ecosystem for
possible collaboration amongst business, education and
community sectors
needs to be built up for enhancing the effectiveness of EE too.

More importantly, in-depth reflection throughout the process of
entre-
preneurship learning should be emphasized (Pepin, 2012)
because reflection
is a pre-condition in becoming aware of the lack of competence
(Korthager
1999, p. 192). Furthermore, the development of the necessary
and appropriate
type of entrepreneurial competencies and capacities requires a
long-term and
comprehensive transformation of education systems and
practices at all levels.
Relevant changes in policy, curriculum development, teaching
and learning,
assessment, teacher education, career counselling, work-based
projects and
internships are considered necessary.
Conclusion and Recommendations
The definition of entrepreneurship shifts from a narrow
business-oriented
process for economic growth to a generic competence-driven
process for indi-
vidual growth, which draws a significant impact on EE for
school students - a
learning process for a possession of entrepreneurship for
employment as an
Vol. 22 No. 2
option and enterprising skills for life. Young people are facing

huge challenges
in the global economy, EE instils an entrepreneurial spirit to
young people and
plays a key role in empowering them to survive better in the
future regardless
of the career and life path to be taken. Hence, entrepreneurial
competencies
and capabilities are suggested to be embedded in the education
system as ‘es-
sential and/or core’ elements. In order to create a more
harmonious global
community for the future, ethical and social competence also
need to be em-
phasized in EE. Cultivating school students to value values,
build ethical char-
acter, balance self and public interest, take up social
responsibility, interact
and collaborate with different people through authentic learning
process are
strongly recommended. Finally, more thorough studies on
policy making and
implementation of EE at all school levels are needed.
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11
Nothing has been more important since the beginning of my
reign
than increasing the prosperity of my people. The introduction of
certain new manufacturing industries … enables thousands of
my people to gain their bread honorably, the raw material stays
in
the country … and my subjects can easily pay their taxes. While
previously money left the country, it now stays within, making
the
country richer and more populated. Leopold I, Emperor of
Austria
(1640–1705)1
We quote Emperor Leopold here because his touching concern
for his
subjects’ welfare (and their ability to pay their taxes)
communicates
a clear message: the government needs to play a big role in
expanding
his country’s economy. Instead of issuing a proclamation
encour-
aging local entrepreneurs to innovate, he instituted an active
policy,
backed by state funds, to create important new industries. The
idea
of depending solely on local entrepreneurs to build such

industries
would not have entered his head.
Leopold was neither the first nor, certainly, the last head of
state to hold such views. Rulers of his era were well aware that
build-
ing a country’s economic prosperity had the desirable side-
effect
of increasing its power in international affairs, and many acted
on that realization. In the late 1600s Sir Walter Raleigh
observed,
“Whosoever commands the sea, commands the trade, whosoever
commands the trade of the world commands the riches of the
world
and consequently the world itself.”2 As a result, the competitive
race
1 Government: Boss, financial
partner, regulator – Entrepreneurs
in mixed economies
1 J. Berenger, Histoire de l’empire des Habsbourg 1273 –1918
(Paris: Librairie
Arthème Fayard, 1990), p. 331.
2 A. Herman, To rule the waves (New York: HarperCollins,
2004), p. 150.

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Chapter 1 An Overview of Financial Management and the Financial E.docx