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Volume VIII Number 3 2014
Review of Social Studies, Law
and Psychology
www.ISISWorld.org
EDITOR-IN-CHIEF
Dr. Anna Nabrirukhina
Institute of Strategic and International Studies
Copyright: © 2008 Institute of Strategic and International Studies™
Review of Social Studies, Law and Psychology
Print
ISSN 2327-7017
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Printed by ISIS Printing House, Florida, The United States of America
Volume VIII Number 3 2014
Review of Social Studies, Law and
Psychology
TABLE OF CONTENTS
THE MIGRATORY SITUATION IN RA AND THE POSSIBLE WAYS OF ITS REGULATION
Diana Minasyan
5
FEATURES OF CHILDREN TRAFFICKING SECTION OF PENAL LAW
Aleks Prifti, Engjellushe Zenelaj
11
VALUATION OF MORTGAGE BACKED SECURITIES
Neslihan Topbas, Ercan Kaya
18
THE ROLE OF GRANT FUNDING IN A GRADUATE PROGRAM’S STUDENT SUCCESS 2010-13: A
LONGITUDINAL STUDY
Lee E. Allen, Louis A. Franceschini
34
IDENTIFYING PURCHASE PERCEPTIONS THAT PROMOTE FREQUENT E-COMMERCE BUYING
WITH SPECIAL REFERENCE TO UAE
Muhannad Khanfar
41
AMERICAN GLOBAL HEGEMONY IN THE 21ST CENTURY AND THE AMERICAN PUBLIC
DISCOURSE
Marcela Ganea
48
SCADA IMPLEMENTATION OF INDUSTRIAL AUTOMATION USING GSM
Haider Ali, Muhammad Baseer, Umar Farid
56
DOMINATING TEACHING STRATEGIES AND THEIR INFLUENCE ON TEACHING
Eliza Avdiu, Nita Bakija Haraqija
64
INSIGHT ON EDUCATION CURRICULA REFORMS
Eliza Avdiu, Nita Bakija Haraqija
69
THE PRINCIPLES OF LEGAL REGULATION OF PARTIES FUNDING
Natalia Platonova
75
ETHICS AND SCIENCE RESEARCH, A FEASIBLE MARRIAGE?
Norma Pivetta
79
Yun Sik Oh, Chul Woo Moon, Sang Kyun Kim, Eun Jung Choi
89
Eun Jung Choi, Chul Woo Moon, Sang Kyun Kim, Yun Sik Oh
94
THE EFFECTS OF EMPOWERING LEADERSHIP ON PERFORMANCE AND SUBJECTIVE WELLBEING OF EMPLOYEES
Mi-jin Sung, Jin-Hee Moon, Dae-ho Kim, Jiseon Shin, Chul-Woo Moon, You-sang Koh
99
EDITOR-IN-CHIEF
Dr. Anna Nabrirukhina
EDITORIAL BOARD
Dean Dr. Faridah Djellal, Lille1 University, Lille, FRANCE
Dean Dr. AbdulReda Assiri, University of Kuwait, Kuwait City, KUWAIT
Dean Dr. Ivan Manev, University of Maine, Orono, Maine, USA
Dean Dr. Paula Rodrigues, Lusiada University, Porto, PORTUGAL
Dean Dr. Agnes P. Ladia, Tarlac State University, Tarlac City, PHILIPPINES
Dr. Cecilia Cheng, The University of Hong Kong, Hong Kong, CHINA
Dr. Tania Casado, University of São Paulo, São Paulo, BRAZIL
Dr. Bolajoko Nkemdinim Dixon-Ogbechi, University of Lagos, Lagos, NIGERIA
Dr. Joana Pimentel Kuntz, University of Canterbury, Christchurch, NEW ZEALAND
Dr. Hui-Sung Kao, Feng Chia University, Taichung, TAIWAN
Dr. Lugkana Worasinchai, Bangkok University, Bangkok, THAILAND
Dr. Jay Liebowitz, University of Maryland University College, Adelphi, Maryland, USA
Dr. Anna Nabirukhina, St. Petersburg State University of Economics, St. Petersburg, RUSSIA
Dr. Teodor Sedlarski, Sofia University, Sofia, BULGARIA
Dr. Charles Wankel, St. John’s University, New York, USA
Dr. Fangfang Tang, Peking University, Beijing, CHINA
Dr. Tom F. Badgett, Angelo State University, San Angelo, Texas, USA
Dr. Sudhir Chawla, Gulf University of Science & Technology, Hawally, KUWAIT
Dr. John S. Crocher, Macquarie University, Sydney, AUSTRALIA
Dr. Mark M. Lennon, Pennsylvania State University, Pennsylvania, USA
Dr. James Thomas Kunnanatt, United Arab Emirates University, Abu Dhabi, UNITED ARAB EMIRATES
Dr. Ekaterina Prasolova-Forland, Norwegian University of Science and Technology, Trondheim, NORWAY
Dr. David Wilemon, Syracuse University, New York, New York, USA
Dr. Kamran Ahsan, Federal Urdu University of Arts, Science and Technology, Karachi, PAKISTAN
Dr. Djamel Eddine Laouisset, Alhosn University, Abu Dhabi, UNITED ARAB EMIRATES
Dr. Hiroyuki Yamaguchi, Kyushu University, Fukuoka, Kyushu, JAPAN
Dr. Stephanie Watts, Boston University School of Management, Boston, Massachusetts, USA
Dr. Arnold Schneider, Georgia Institute of Technology, Atlanta, Georgia, USA
Dr. Javier Rojas, Executive Office of the President of Mexico, Mexico City, MEXICO
Dr. Lawrence G. Boakye, University of Sydney, Sydney, AUSTRALIA
Dr. Divya Rana, King Abdulaziz University, Jeddah, SAUDI ARABIA
Dr. David Cawthorpe, University of Calgary, Calgary, Alberta, CANADA
Dr. Tina Loraas, Auburn University, Auburn, Alabama, USA
Dr. Abdullah Basiouni, Ynabu Industrial College, Yanbu Industrial City, SAUDI ARABIA
Dr. Michael O. Mojekeh, Anambra State University, Uli, NIGERIA
Dr. Alok Chakrawal, Saurashtra University, Gujarat, INDIA
Dr. Terry Power, Royal Roads University, Victoria, BC, CANADA
Dr. Zsuzsanna Szabo, Marist College, Poughkeepsie, New York, USA
Dr. Henrik Egbert, Anhalt University of Applied Sciences, Bernburg, GERMANY
Dr. Michal Kavan, Czech Technical University, Prague, CZECH REPUBLIC
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THE MIGRATORY SITUATION IN RA AND THE POSSIBLE WAYS OF ITS
REGULATION
Diana Minasyan, Armenian State University of Economics, Yerevan, Armenia
ABSTRACT
This paper focuses on necessity to invest a system of migrant’s insurance in Armenia. A huge amount
of Armenian citizens go abroad for working and income and there is s great vulnerability of labor
migrants, particularly the great number of accidents, inadequacy of working conditions with norms and
working trafficking. In the view of migrants' rights protection, important progress would be if state
creates the provision of insurance services, particularly life, disability and health insurance.
Keywords: Labor Migration, Insurance, GDP.
1. INTRODUCTION
The progress of societies is impossible to imagine without migration. Thus migration has become an
object of severe concern. According to UNESCO's assessments, nowadays, 232 million people or 3% of
the world's population are living abroad worldwide and this number is at least doubled when the illegal
labor migrants are taken into account. In EU countries alone, the number of illegal migrants increases by
half a million people every year (UNESCO, 2013, Migration and inclusive societies, www.unesco.org
10.03.2014). Migrants, particularly the labor migrants, play an important role in the process of the
development of countries.
This study draws on a theory of protection of labor migrants using new type of insurance. For example
For a country with a population of nearly 3 million people even the temporary emigration of thousands of
economically active citizens is a serious problem concerning the country's economic security. Most of
them, nearly ¾, have chiefly moved to Russia, as well as to the other CIS countries, while the remaining
¼ have settled in Europe and the USA. There is no exact data about the Armenians working in Russia,
but the ''Gallup'' study showed that at least one member of 31% of Armenian families works in Russia.
2. THEORY AND PRACTICE
At the end of the 20th century Armenia was a country of forced migration. The huge wave of emigration
which began since 1991, became stabilized only in 1996-1997. However, the political situation of 19981999 contributed to the essential rise of emigration. Different evaluations show that during these years
900,000 to 1.5 million Armenians have left the country. Let’s briefly review the NSS RA data about the
gross range of foreign passenger's circulation for 2007-2012 (Statistical yearbook of RA JanuaryDecember 2012. Yerevan 2011,p 48).
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CHART 1. THE GROSS RANGE OF FOREIGN PASSENGER'S CIRCULATION ACCORDING TO
BORDER CROSSING POINTS
Ever since Armenia gained independence the number of people leaving the country has exceeded the
number of entrants, except in 2004-2006 when the number of people entering the country surpassed the
number of those leaving. But since 2007 the reverse process has been taking place. In 2008 the number
of people departing from Armenia exceeded the number of those arriving by 23100 persons. In 2009 it
increased to 25000 and in 2010 the difference increased to 46700 persons. In 2011 it was 43800, in 2012
42800 and in 2013 31,2 (State migration service of the RA Ministry of territorial administration
www.smsmta.am).
For a country with a population of nearly 3 million people even the temporary emigration of thousands
of economically active citizens is a serious problem concerning the country's economic security.
However, the export of economic activity is justified if there are no sufficient conditions for transforming
the relative ''surplus’’ of economic activity to economic growth. In this case it is more expedient to make
this economic activity temporarily available to other countries for an appropriate compensation. Taking
into account the fact that the currency compensation is mainly realized in the form of private transfers’
flow, we can say that migration has a double effect on both the receiving and exporting countries.
Armenia has ‘’additional’’ population, which it cannot provide with knowledge or work and the salary
level of employees is lower than the average consumer basket level.
CHART 2. MAIN REASONS FOR POPULATION’S EMMIGRATION FROM ARMENIA
As we can see on the chart, the main reason of emmigration is the lack of workplaces (59%), but the lack
of supply of sufficient standards of living also makes up a rather large percentage (31%). Everyone needs
to be a self-affirmed, a fully-fledged and a respected member of society, to feel his or her importance and
role in the given sphere of activity. This is the main precondition in the process of forming a healthy
society. Thus, everyone must have merited work with merited payment (chart 2).
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The transfers play a great role in forming the household budgets in Armenia According to data of the
Central Bank of Armenia 35.9% of Armenia’s population receives foreign personal monetary transfers. In
addition 25% receives monetary contributions from migrants and 11% receives it from their relatives who
go abroad in order to earn money (State migration service of the RA Ministry of territorial administration
(www.smsmta.am).
In the international cash flow capacity the migrants’ monetary transfers rank as the second after oil.
Besides, the migrants’ cash flow essentially exceeds the level of international support to developing
countries. According to more modest assessments the yearly flow of private transfers is proportionate to
the total size of foreign direct investments and is nearly twice as more as the revenues of the republic’s
state budget. According to official data in different years, the financial flow volumes in forming the GDP
indexes varies between 18 and 25%. However, if we take into account the fact that an essential part of
people transfers sums to their relatives and acquaintances through non official pipes, we can surely say
that their volumes are actually more.
It is remarkable when we compare Armenia to the leading four countries receiving monetary transfers –
India, China, Philippines and Mexico, as our index of transfers per head is approximately 3 times as much
as that of the above mentioned countries. It means that monetary transfers sent to Armenia have a
central importance in overcoming poverty and raising the standard of living.
In spite of migration’s positive results there is a great number of difficulties and abuses in the form of low
wages, bad working conditions, absence of social protection, breach of the workers’ rights, discrimination
and hate towards foreigners, as well as in the form of their social exception.
There is no exact data about the Armenians working in Russia, but the ''Gallup'' study showed that at
least one member of 31% of Armenian families works in Russia (Gallup research and analytical website:
www.gallup.com).
CHART 3. THE EMIGRATION GOAL ACCORDING THE MIGRANTS' NATIVE REGION (%)
Caucasus – Armenia, Azerbaijan, Georgia
Europe –Belarus, Moldova, Russia, Ukraine
Central Asia- Khazakhstan, Khrkhzstan, Turkmenia, Uzbekistan.
According to ''Gallup'' the wish to study, participate in educational-working programs in another country or
the wish to move to another country for a long term dominates in Armenia, a country which is one of the
nations in the world that has a huge diaspora.
According to the World Bank report, in the section devoted to the Russian economy, it is mentioned that if
the present tendencies continue in the following 20 years, 12 million emigrants will be needed to
compensate the reduction of labor resources. The lack of qualified specialists is a serious problem for the
RF. A migratory mechanism which would create favorable conditions for increasing the number of
migrants having high qualifications hasn’t been developed yet in Russia.
The protection of working migrants' rights begins in their country of origin. The more a migrant is informed
about the above mentioned problems and prepared to work abroad, the more possibility there is that
he/she can protect his/her rights in the receiving country if needed. The migrants often face the following
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problems: high commissions for middlemen, breaches of labor contracts, scarce payment of wages, delay
or non-payment of wages, failure of fees defined by contracts for realization of a comeback, sexual
violence especially towards women, bad working conditions, absence of social protection, barriers for
joining the trade unions, different discriminations and breach of other rights of migrants.
Despite the fact that countries exporting migrants take enough measures to protect the rights of their
citizens abroad they still remain vulnerable, especially women and low-skilled workers. From this point
of view the interstate cooperation is very important to raise the organization of migration.
3. FINDINGS
In the view of migrants' rights protection, an important progress would be the provision of insurance
services, particularly life, disability and health insurance. For example, in the Philippines this system has
been functioning since 1977, particularly the Overseas Workers Welfare Administration in Philippines
(OWWA) (Handbook on Establishing Effective Labor Migration Policies in Countries of Origin and
Destination p. 65, 2006).
Taking into account the fact of vulnerability of labor migrants, particularly the existence of nationalists,
great number of accidents, and inadequacy of working conditions with norms, it is necessary to invest the
system of migrants' insurance in Armenia which will be close to the above mentioned system.
At first sight it may seem that this system will be created to earn money at the expense of migrants, but
it's not the case. In RA it’s necessary to found a structure, an administration, which will be fully created at
the expense of state means or partially owing to state participation. The representatives of foreign
workers and undoubtedly the State employment service (SES) should take part in such structures. The
collection of a definite sum of money of each member could be the financing source of such a structure.
And this sum of money should be equal for all migrants. For example, in the Philippines, in 2010 it made
up $25 per person. The participation of the State Employment Service is sufficient enough and its
function should also include the checking of labor agents to avoid trafficking, misuse and illegal activity.
The SES must demand the agents to hand in information about the employers, as well as their
coordinates. Such steps will help to regulate the migrants’ activities abroad. The SES has also to
determine the minimal wage in case of which it is worth going abroad to work. The Service has to take up
contact with different countries, especially those which are full of Armenian migrants, and come to mutual
agreements with them, as well as check the validity of vacations by existing employers. The SES has to
hold courses for migrants' training. For instance, in the Philippines every citizen leaving the country must
get a permission by the SES to do it so if he/she doesn't want to pay the other touristic fees.
This structure must also deal with providing support to migrants and their families, creating available
credits for them, providing education for their children, realizing various programs to help the migrants
and their families to earn a living for example by means of setting up a small business, getting
professional education etc.
Besides, it's necessary to give the migrants' family members to apply this structure with complaints if a
migrant doesn’t send enough money to his family. In this case the migrant receives a lot of letters and
even threatening that he/she will be deprived of his possibility to work abroad. This structure should also
observe that the working conditions of migrants correspond with the country’s legislation requirements or
the requirements of mutual agreement. A system like that should also regulate the migrants’ movement to
the airport or railway or other stations. At the airport before the flight each migrant should show a contract
signed with their employer and only after this he/she can pass the border crossing control. The other
important role is that this system has to conduct market studies and take marketing measurements to
provide the progress of his own country. In the result of such a systematic approach, the Philippines
“invaded the Middle East''. Besides, the Philippine government tries to increase the quantity of its main
exported product's-the migrants' quality. Qualification raising courses are organized throughout the
country for the main professions having demand abroad. A special certificate is given at the end of the
agreement which makes taking the work abroad easier. For instance, in the Philippines the house
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workers should take a special course during which they are explained how to do their job, as well as how
the requirements of different countries differ.
All labor migrants must be registered in the SES as members of this insurance system for which they
have to pay a disposable fee. This sum ensures them in case of illness, disability and death, as well as
includes the sum for other services provided by SES. Besides, the possibility should be given to the
migrants to get insurance while being abroad if they have once been registered in this system. These
fees should be imposed on every citizen leaving the country, except for those who go abroad as tourists.
These measurements should refer not only to people leaving Armenia for the first time but also to those
who have already left. The fee must be of the same size for all migrants regardless of their age,
probability of death and income loss.
Thus, such a system would ensure the migrants in case of illness, death and disability, it would protect
their rights in the working place, provide financial contribution when returning to their homeland as well as
provide more and controllable transfer flows.
4. CONCLUSIONS
During the last years various programs have been organized in the migratory sphere of RA, but on the
whole the present migratory situation in Armenia is still complex. Its reasons are unemployment and high
level of insufficient income for living, existing problems in realization of human rights (civil, economic,
political etc.), lack of trust and belief in the future, deviation of social-economic development levels and
rates, and evident territorial contradictions etc.
Thus, on the basis of the conducted analysis the following suggestions can be made:
- it's needed to apply an employment oriented policy, to weaken the social tension by means of
creating new working places, to create conditions for decreasing the population's emigration and
contributing to the return of citizens of RA who are abroad illegally.
- the employment oriented policy should also be valid for the activity of state and non-state
structures.
- It is necessary to take steps for motivating the registration of unemployed persons in the State
Employment Service, as nowadays most of the unemployed persons, especially men, do not
believe in SES and do not get registered, therefore the official data on the employment level
does not correspond with the reality.
- for the Republic of Armenia the development of small and medium businesses is to be seen as an
actual problem and favorable conditions are to be created for its development.
- from the perspective of migratory system’s regulation, it is very important to control the licensing
process of employment agencies as well as the use of criminal liability in case of serious
violations in order to shorten the range of illegal migration diapason.
- from the perspective of spreading information it is important to broadcast programs, social
advertisements, documental films concerning migration, as well as to provide informational
letters, pamphlets in which the migrants’ experiences, their stories and difficulties, the possible
problems abroad will be touched upon;
- when struggling against illegal migration, it is important to sign mutual agreements on the return of
citizens who are living abroad illegally, as well as to realize programs focusing on the
reintegration of returning migrants. It's favorable to sign readmission agreements with countries
where a great number of RA citizens reside, being the Russian Federation.
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- to prevent the ‘’brain-drain’’, to keep the mental capital in the country it's needed to create
possibilities for conducting scientific-researches and for creative development, as well as the
protection of intellectual property rights.
REFERENCES
Gallup research and analytical website: http://www.gallup.com/poll/141746/Million-CIS-MigrateTemporarily-Work-Study.aspx
International Organization for Migration, Labour Migration in Asia, 2005
OSCE, 2006, Handbook on Establishing Effective Labor Migration Policies in Countries of Origin and
Destination, p. 65
State
migration
service
of
the
RA
Ministry
of
territorial
administration
http://www.smsmta.am/?menu_id=60).
State
migration
service
of
the
RA
Ministry
of
territorial
administration
http://www.smsmta.am/?menu_id=18
Statistical yearbook of RA January-December 2012., Yerevan 2013, p 48
UNESCO,
2013,
Migration
and
inclusive
societies,
www.unesco.org
http://www.unesco.org/new/en/social-and-human-sciences/themes/international-migration/
10.03.2014
AUTHOR PROFILE
Dr. Diana S. Minasyan (PH.D., Armenian State University of Economics) is a professor of Managerial
Accounting and Auditing Chair at Armenian State University of Economics, Yerevan. Her areas of
research include management, labor migration, and audit. She has published several articles in academic
journals, including Eurasia International University journal, journal of «Gladzor»-20 anniversary
compilation, Armenia Financial and Economics journal.
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FEATURES OF CHILDREN TRAFFICKING SECTION OF PENAL LAW
Aleks Prifti, Ismail Qemali Vlore University, Vlore, Albania
Engjellushe Zenelaj, Ismail Qemali Vlore University, Vlore, Albania
(Erratum)
ABSTRACT
Trafficking in persons in general and of children in particular has taken a very big dimension the last
decades. The adequate protection of trafficking victims is essential to protect the rights enjoyed by
each person, which can be directly affected by these offenses. Due to the importance and the
problematic that this phenomenon represent, different countries have consistently dedicated a special
attention taking a number of measures. In this context, our government has taken a series of
legislative, administrative and material measures to prevent the offenses in the area of trafficking and it
has devoted a great importance of rigorous control of their application. In this paper, we would like to
do an analysis of these criminal as well as the undertaken measures by our legislation to prevent them.
Furthermore, this work will have in his view, not only theoretical treatment of these offenses, but also
the identification of problems and the suggestions for right resolution of the problems.
Keywords: trafficking in persons, trafficking in children, illegal border crossing, national strategy for the
fight against the children trafficking etc.
1. INTRODUCTION
The crime of children for various purposes constitutes a serious criminal phenomenon that violates
fundamental freedoms and human rights, as the most unprotected part of human society. Out of their will,
they are forced to perform different jobs, to be object of lewd sexual pleasures of different persons and
even they forced to give their body parts for organ transplants.
This phenomenon is a growing trend in many countries of the world and it is present and growing in our
country. The analysis of this type of trafficking provides inter alia:
•
The opportunity to highlight this serious and urgent problem for Albanian society.
•
The identification of social-economic causes that stimulate this criminal phenomenon.
•
The specific information obtained from official documents of the country and of the United Nations.
Throughout the world, according to the data of United Nations, the number of children trafficked each
year is 1 million. The annual benefits from the child trafficking are in the amount 1.2 milliard euro.
According to official documents of the country, Albania, that once did not know the phenomenon of
trafficking, nowadays has become one of the countries where trafficking is carried out with considerable
dimensions. There are tens, hundreds of families in Albania, whose children have been disappeared
without trace, the daughters under 18 years, and the majority of them ended up in the trafficking network,
occupying the streets of neighbouring states.
2. THE PHENOMENON OF CHILDREN TRAFFICKING IN ALBANIA
This criminal phenomenon began after 1992, where our country's criminal networks, considering the
profits that offered this criminal activity, established contact with the criminal networks of neighbouring
countries, mostly with Italy and Greece.
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The contacts with criminal networks of these countries make that Albanian element with trend or criminal
precedents to create gradually the opportunity for the development of unlawful activities. These activities
have been in the form of illegal crossing of peoples to migrate willingly and later trafficking in persons to
the purpose of exploitation for prostitution, forced labour, organ transplant and children for forced labor,
paedophilia and other criminal abuses.
Along the trafficking of women, trafficking of children for criminal abuse compete the possibility of
trafficking in arms and drugs trafficking. The so-called "protectors" are predisposed to provide illegal
profits and take all measures making impossible the exit of women and children from the prostitution
exploitation network, from whom are acquired incomes. The severity of their criminal activity exceeds the
limits of a simple crime.
3. THE ANALYSIS OF LEGISLATION ALBANIAN FOR TRAFFICKING IN PERSONS
3.1. The Legal Framework
Initially our penal legislation provides for the first time the term "trafficking in human beings" as a criminal
offense in the Penal Code of RA in 2001, after ratification of the United Nations Convention against
International Organized Crime and its two additional protocols, in 2002.In accordance with these, the RA
Penal Code was changed by the Law no. 9188, dated 12.02.2004 amending Articles 110 / a "Trafficking
in persons", 114 / b "Trafficking in women", 128 / b "Trafficking in children", and 298 "Aid for illegal border
crossing”. With these changes, is recommendable to note that, the content of articles dealing with the
offense of trafficking is in full accordance with Article 3 of the Palermo Protocol. Law no. 9188, dated
12.02.2004, in the Penal Code provides as a criminal offense (Article 128 / b "Trafficking in minors"):
a. "The recruitment, transportation, transfer, hiding or receipt of minors with aim the exploitation of
prostitution or other forms of sexual exploitation, forced labor or services, slavery or forms similar to
slavery, or use transplants of organs and other forms of exploitation, is punishable from 7 to 15
years and with a fine from 4 million to 6 million.
b. b) In the second paragraph of this article is provided that: the organization, lead and financing
of trafficking in minors is punishable by 10 to 20 years and with a fine from 6 million to 8 million ALL
.....”in following, by providing other forms of this crime…
With regard to children protection in the framework of protective and preventive measures against their
exploitation, in March 2007, proposed some additions and changes in the Penal Code, which approved
by Assembly Law no. 9859, dated 21. 01. 2008. More specifically, the articles added are:
The article 124 / b "Maltreatment of Minors", which among other things, condemns the exploitation of
children for forced labour, begging and other forced services;
Some additions in the Article 128 / b "Trafficking in minors" of the Penal Code in which is criminalized not
only the recruitment, hiding, receipt, etc., but the selling of minors.
An important step towards completing the legal framework for the fight against trafficking is the ratification
of the Council Convention of Europe "On Measures against Trafficking in Human Beings" (law no. 9642,
dated 20.11.2006).
3.2. Children Trafficking
Delicate part of the problem of trafficking in human beings is also the trafficking of children for the criminal
purpose such as the obligation to be exploited in illegal activities: thefts, other crimes until the exploitation
for organ trafficking. After the 90th years, the children have become victims of the most serious forms of
crime: trafficking for various criminal purposes, trafficking in children, open or in concealed form of an
adoption, which appeared in the early Albanian transition (Bregu 1999,). Starting from 2001, when the
legislator sanctioned this activity as a separate criminal offense, "the number of cases investigated and
adjudicated is very small compared with the number of trafficked children (Hysi 2000, ). The period
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between 1992-1998 years marks its biggest flourishing of trafficking in children, which continues to
nowadays. According to the International Social Service (SIS), and the National Strategy for children,
counted 4,000 unaccompanied children in emigration, children who may be subject to economic
exploitation and sexual abuse. In aggregate form, the causes of child trafficking in Albania are:
c.
Poverty,
d. Political instability,
e. Unemployment,
f.
Fake marriages, divorces,
g. Domestic violence,
h. Education level and family formation,
i.
The linkages between politics and criminal groups,
j.
The high level of corruption within the justice system,
k.
Loss of value system,
l.
The desire for a better life in Western countries.
It appears obvious that poverty is the main reason, because in our country about 29.6 percent of the
population lives in poverty, while the half of this percentage lives in extreme poverty conditions. Over 46
percent of Albanians live on subsistence minimum level of 2$ per day, while 17.4% of them under the
subsistence minimum level of $ 1 per day. In hopeless condition and extreme poverty, many families
agree that their children under the age of 16 years, to see the possibility of a fair employment in
neighbouring countries.
3.3. Which Children are Most Vulnerable to Trafficking in Albania?
According to studies made by the CRCA (Centre for the Protection and Children Rights), the children the
most vulnerable are:
1. Children aged from 5 to 18 years. .
2. Children coming from families with social problems and low incomes.
3. Children who have dropped out of school or never went to school.
4. Neglected children, or adults without parental care - orphaned children.
5. Children coming from families in which their parents are employed abroad.
6. Children that work or sell.
7. Roma children, or them that come from other marginalized groups of society.
Only in Tirana, more than 800 children live as beggars, ambulant vendors, shoeshine boys, glasswashers of vehicles etc. These children, the majority unprotected or orphaned, a big part of who
eventually dropped out of school, they risk falling prey to trafficking. It should be mentioned here that
Roma children, who live in conditions of extreme poverty, where the whole family has just the profession
of beggar and lives in a tent, by not having a place to go. It should not forget that Albania is a country that
has ratified the Convention 182 of the International Labour Organization, which requires the taking of
immediate and effective measures for the implementation of the fastest stopping and combating of worst
forms of child labour.
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4. BASIC INSTRUMENTS IN THE FIGHT AGAINST CHILDREN TRAFFICKING PHENOMENON. THE
LEGAL AND SUBLEGAL FRAMEWORK
During the last decade with the help of and especially programs funded by the European Community is
created a relatively better legal framework that has given a very good support to law enforcement
structures in the fight against child trafficking. The most important fields in this regard are:
-
Existence of political and government program for the combat against trafficking in persons in
general and child trafficking in particular.
-
It is already worked and made available the national strategy of the fight against trafficking in
persons and the action plan for the combat against trafficking in children.
It is established the assistance of international specialized organizations on the law enforcement field.
There are created the specialized structures of the fight against the trafficking of children.
-
It is realized a collaboration with other states, via coordinators and building in Vlora of an
International Centre where are treated for rehabilitation the trafficking victims.
-
The obligations are continuing under the Stability Pact.
-
It is created our positive and negative experience and diverse analyses in this field there are
made.
5. WHAT ARE THE OPPORTUNITIES, OFFERED IN THE FRAMEWORK TO THE FIGHT AGAINST
THE CHILD TRAFFICKING?
Having regard, the above instruments, its effective implementation in practice, have created many
positive opportunities to make possible the successful management of this criminal phenomenon very
harmful for a democratic society.
Among the most important, we can mention:
ü
ü
ü
ü
ü
ü
Close cooperation obtained not only within the country but also with other countries.
Support of international organizations, foreign specialists.
Staff training for the fight against trafficking in persons.
Fulfilment of material and technical needs.
Creation of rehabilitation waiting centres.
Organization of a public awareness work and development of educational programs in schools
and outside of them.
Continuous effectively control of the territory.
5.1. Observed Deficiencies
The judicial, investigative, policing practice and the activity of non-governmental organizations have
identified a series of deficiencies in regard of the prevention, investigation and punishment of child
trafficking phenomenon (MOI 2007). Some of these deficiencies are listed as follows:
Deficiencies in the Protection and Control of State Border have been observed.
14
§
The existence of corruption and officials’ compromise.
§
The absence of training of the police staff and of the prosecutorial system.
§
Deficiencies of the necessary infrastructure for a qualified and effective fight against traffickers.
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§
Needs for amendments to the Code of Penal Procedure and the Law on the protection of
witnesses.
§
Deficiencies in the public awareness, and absence of educational programs about the risk of
trafficking.
6. THE DYNAMIC OF CRIMINAL OFFENSES RELATED TO CHILDREN TRAFFICKING AND
PREVENTIVE MEASURES
First, this dynamical performance is analyzed by seeing the crime of children trafficking in relation to other
crimes related to persons trafficking. From the study, for the period of 2008 is observed that the
effectiveness in capturing and arresting of offenders implicated in this criminal activity is smaller
compared with the number of cases identified.
The same phenomenon during the interval time of 2007 is also observed, where there is a little
effectiveness in the apprehending of persons involved in women and children trafficking, comparison with
the number of identified cases. Whereas in 2006, two tendencies are observed, there was low efficiency
in cases of arrest of persons involved in the trafficking of women, compared to identified cases, while in
cases of child trafficking that effectiveness has been high.
Trafficking in persons, in minors and women in the years 2001-2005 has been relatively low. Furthermore
in terms of prevention of child trafficking during 2004-2008 were realized a series of projects by state
institutions with the expertise of NPOs and international organizations. Awareness campaigns were
organized, mainly for vulnerable groups (youth, women and girls, families with social problems, with low
education level, Roma children, etc.) in the form of meetings with interested groups. In order to prevent
trafficking at the threatened categories some measures were taken, for its inclusion and integration into
society. Ministry of Education and Science of Albania has taken measures to include in courses
concerning the gender awareness and social education at all of pre-university education levels of topics
on trafficking (ASP, Annual and Statistical 2001-2005 2006).
Regarding the recommendation 71 / c during the period 2004-2008 were signed a series of agreements
and conventions of international and regional cooperation in the field of justice, for the protection and
assistance to child victims of trafficking, parental responsibility and civil aspects of international child
abduction, etc.
In neighboring countries, Albania has signed several cooperation agreements, concretely: In February
2006 the agreement in Tirana between Albania and Greece, "the protection and assistance of children
victims of trafficking" has been signed. The ratification of agreement, by the Greek Parliament, in August
2008, made possible the implementation of agreement and the undertaking of responsibilities from the
Albanian and Greek authorities for the identification, protection, rehabilitation and safe return of Albanian
children exploited in Greece (ASP, Annual and Statistical,2005-2009. 2010). With Macedonia has been
signed the Additional Protocol with the Macedonian Interior Ministry "On the intensification of cooperation
in the fight against Trafficking in Human Beings across the state borders, as well as the intensification of
identification, notification, referral and return of victims, persons suspected as victims of trafficking in
human beings."
7. THE NATIONAL STRATEGY FOR THE FIGHT AGAINST TRAFFICKING IN CHILDREN
The mission of the National Strategy for the fight against trafficking in minors is the determination of
objectives and the implementation of inter-institutional measures for the prevention and interruption of
child trafficking on the exploitation and criminal abuse. This strategy intends to promote and coordinate
the activities of all structures, which can contribute to the fight against trafficking and institutionally to be
engaged in these activities. Their commitment will now be done through the fulfilment of clear objectives
and realization of the obligations imposed in the action plan. It express measures that will be taken
Albanian government for the fulfilment of this mission within a period of 3 years, and in the action plan will
determine the specific tasks for each institution.
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Protocol “For the prevention, prohibition and punishment of trafficking in persons, especially of women
and children” signed in Palermo, December 2001. The notion related to trafficking in human beings, given
by this strategy is defined as below:
"Trafficking in human beings means the recruitment, transportation, transfer, hiding or receipt of persons
through the threat; the use of force or other forms of tightening; the fraud, the coercion, the vulnerable
trick or abuse of power or position; other giving or receiving of payments or benefits to achieve the
consent of a person who controls another person, for the purpose of exploitation”. The exploitation
includes the prostitution or other forms of sexual exploitation, forced labour or other forced services, the
slavery or similar practices to slavery, removal of organs or servitudes".
8. CONCLUSIONS
The fight against trafficking in persons in general and in children in particular is one of the main priorities
of the law enforcement structures in our country. This advantage is conditioned by the consequences of
this criminal activity such as the life and health consequences for victims, increase and growth of criminal
groups, criminal organizations not only within the country but also abroad, in the increase of criminality in
general, especially of the crime of murder, rape, drugs, etc.
Identification of causes, factors that promote trafficking in children and features that has the investigation
of this criminal activity shall constitute a permanent necessity that the law enforcement bodies to be more
effective in the prevention, detection, investigation, versatile and complete judgment of persons
implicated in the crime of trafficking in human beings.
The core of fight against trafficking in children will be:
The measures for the fulfilment of legal framework according to international standards;
The measures for the identification and punishment of traffickers;
The taking of measures for the aid of trafficking victims and their medical and psychological treatment;
The creation of conditions for employment within the country or outside it;
The taking of measures for the awareness and public education especially of minors and young people;
measures to reduce poverty, etc.
The National Strategy for the Fight against Trafficking in Human Beings 2008-2010,and in particular “The
plan of action against trafficking in children”, will constitute the basis document for the treatment of
the phenomenon of trafficking in children by having as a main priority the respect and guarantee of
children rights and freedoms.
REFERENCES
ASP, 2006. Annual and Statistical 2001-2005, Tirana: Trafficking Sector, the General Directorat of
Albanian State Police.
ASP, 2010. Annual and Statistical,2005-2009., Tirana: Trafficking Sector, the General Directorate of the
Albanian State Police.
Bregu, M., 1999. Prostitucioni – skllavëria e viteve 2000. Tiranë,, Permbledhje Kumtesash,“Lufta kundër
krimit të organizuar”.p.36–40.
Hysi, V., 2000, Hyrje në Kriminologji, cikë l leksionesh,. I ed. Tirane, p. 253: “ILAR”, .
MOI, 2007. General Strategy in the fight against trafficking of Human Beings, 2008-2010, Tirana:
moi.gov.al.
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AUTHORS PROFILES
Aleks Prifti (doctoral student at University of Tirana) is Lecturer of Law sciences at Department of
Justice, Faculty of Human Sciences, “Ismail Qemali” Vlora University in Vlora Albania. His areas of
research are crime, human trafficking, and children trafficking. He has published some papers in different
Journal including European Journal of Sustainable Development, International journal of social Sciences,
Mediterranean Journal of social Sciences and Education, Journal of Law, Policy and Globalization,
Academic Journal of Interdisciplinary Sciences, etc.
Engjelushe Zenelaj (doctoral student at University of Tirana) is Lecturer of Geography at the Department
of Education, Faculty of Human Sciences, “Ismail Qemali” Vlora University. Her research areas are
population geography, social geography, and economic and regional geography. She has published
papers in different journal including, European Journal of Sustainable Development, International Journal
of Social Sciences, Mediterranean Journal of social Sciences and Education, Journal of Law, Policy and
Globalization, Academic Journal of Interdisciplinary Sciences, etc.
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VALUATION OF MORTGAGE BACKED SECURITIES
Neslihan Topbas, Atilim University, Ankara, Turkey
Ercan Kaya, Ankara, Turkey
ABSTRACT
The mortgage backed securities constitute a considerable part of fixed income security markets in
many countries beginning from 1980s. In an environment of fluctuating interest rates, valuation of
mortgage backed securities with typical long term and fixed interest rate structure is complex. In order
to reflect prepayment risk to valuation some kind of prepayment model should be proposed in the light
of terms structure of interest rates, historical prepayment experiences and also specific characteristics
of mortgage borrowers such as age, income and default distributions. This study aims to give insight
about valuation of mortgage backed securities under three different approaches.
Keywords: Mortgage, mortgage backed securities, prepayment, option based valuation
1. INTRODUCTION
The outstanding amount of US fixed income market debt is 38.3 trillion US$ and 22,3% of the
outstanding is related with mortgage related securities (8,5 trillion US$). The issuance of mortgage
backed securities (MBS) not only affects the activity level and variety of the financial instruments, but also
general economic conditions by providing the availability of mortgage loans and reducing the interest
rates of mortgages. The ongoing and long-term funding requirements of the real estate sector have been
provided mainly by the MBS issuance by the mortgage originator institutions. The MBS also has served
the lending terms and procedures for the mortgage loans to be standardized. The availability of financing
for mortgage borrowers also provides growth capacity for the construction sector which by turn lead to
stable economic growth.
Turkish financial system was represented similar developments since 2002 when a successful structural
economic program redesigned the financial system as a whole. The gradual withdrawal of public sector
from the financial markets as the major borrower, resulted with the available funds for the real sector and
household. The increased ability of the financial institutions, dominated by banks, of lending with longer
maturities, paved the way to mortgage loans. Figure-1 illustrates the gradual increase of mortgage loans
provided by Turkish financial system dominated by banks since 2002. The share of the mortgage loans in
total loans provided by financial system was around 10% in 2002 and increased above 40% beginning
from 2006 and stagnated at that level until 2013. The graphic also shows the steady increase in the
outstanding amount of total loans and mortgage loans which reached a level of 92.5 billion TL
(approximately 48 billion US$).
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FIGURE 1. MORTGAGE LOANS PROVIDED BY TURKISH FINANCIAL SYSTEM
The factors of increasing population and immigration to cities as well as increasing per capita income
create a prospective potential for a growing real estate demand together with mortgage financing. As
parallel to the examples in many other countries, in order to be able to extend new mortgage loans,
Turkish lenders are required to tap the capital markets by using the already existing mortgage loans as
collateral. Turkish Capital Markets Board has established the legal framework for the issuance of MBS by
a Comminuque No:33 dated August 4, 2007. Additionally, another Comminuque in relation with the rules
governing the Asset and Mortgage Backed Securities is on the agenda of legislation. In such a
framework, a Turkish commercial bank that have a considerable amount of mortgage loan portfolio gave
the mandate to issue a MBS in one or more tranches to be sold to institutional investors.
In this framework, the aim of this study to give insight about the valuation of the MBS which is more
complex than valuing other fixed income securities. In the first section, the basic characteristics of MBS
are explored with special attention to associated risks and types of MBS. The valuation of MBS is
analyzed in the second section under three different models as static, dynamic and option based
valuation. The major contribution of this study will be to initiate studies about the valuation of MBS
specifically in infant Turkish MBS market.
2. BASIC CHARACTERISTICS OF MORTGAGE BACKED SECURITIES
The mortgage structure as a way of financing house procurement of the household with long term loans
necessities the funds of the lenders to be tied to those loans for long terms. In need of financing for new
mortgages or any other kinds of loans, the lenders created mortgage backed securities with an innovative
approach. The mortgage-backed securities (MBS) market became one of the major sectors in the fixed
income securities market by time. The lenders determine a pool of mortgage loans and use them as
collateral to issue MBS, by that way those pools are said to be securitized. Under this structure, the
characteristics of the mortgage loans in the pool have deterministic power for the security and these are
interest rate, term, payment terms whether it is amortizing or bullet. There exist many different structures
however the most widely used is fixed rate, fully amortizing mortgage loans in which the borrower pays
equal installments. As interest component of the total periodic payment is calculated on the remaining
balance as of the beginning of the period, generally month, the beginning of the term of the mortgage the
interest dominates and as the mortgage is aging the principal component dominates.
In real time, the lender provides mortgage loans in different points in time, consequently the applied fixed
interest rate and remaining maturity for the covered loans in the pool differ. The representative
characteristics of the mortgage pool as the collateral are weighted average coupon rate and weighted
average maturity. The weighted average coupon rate is calculated by weighting the mortgage rate of
each mortgage loan in the pool by the percentage of the mortgage outstanding relative to the total pool
amount. Similarly, weighted average maturity is found by weighting the remaining number of months to
maturity for each mortgage loan in the pool by the percentage of the mortgage outstanding relative to the
total pool amount.
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The issuer of MBS can considered as an agency that it collects the periodic payments from the mortgage
borrowers and transfers the predetermined payments to MBS holders. The mortgage borrowers are liable
against the lender/issuer, the collections and related problems are solved by the issuer, so the issuer
receives a servicing fee. Additionally, if there exists a guarantee mechanism under MBS, the issuer also
allocates a guarantee fee. The servicing fee is a portion of the mortgage rate, this means the after
collecting the interest within the periodic payment, the issuer keeps a portion of it then the transfers the
remaining part. Consequently, the weighted average mortgage rate of the pool and the interest to be paid
to the holders of MBS are different.
2.1. Prepayments and Cash Flow Uncertainty
The amortization schedule and the cash flow generated on the basis of the characteristics of the
mortgage loans in the pool fail to consider the prepayments. However, involuntary or voluntary
prepayments are inevitable during the term of MBS. In the case of the default of the mortgage borrowers
in one point in time during the term of the mortgage, the collateral is liquidated. Besides, the interest rates
may level off motivating the mortgage borrowers to refinance the existing mortgage loans. In both cases,
a part of the cash flow is missed, as well as a part of the collateral backed MBS is reduced. This is named
as involuntary prepayment. For nearly all of the mortgage loans, the borrower has the right to prepay
voluntarily the part or whole amount of the loan with or without penalty according to the terms of the loan
agreement. The reasoning of voluntary prepayment generally is sourced by the more favorable interest
rates to refinance the existing mortgage loans.
The possibility of the prepayments creates uncertainty for the whole cash flow as the timing and amount
of the collection differs from the original schedule and this is named as prepayment risk. In this regard,
some kind of prepayment assumption has to be made at the time of the origination of the mortgage pool
in order to address the prepayment risk.
2.2. Basic Types of Mortgage Backed Securities
Although it is possible to create different types of MBS and even, different tranches with a MBS in terms
of payment type, frequency of payments etc., there exist two main types of MBS which are Mortgage
Passthrough Securities (MPS) and Collateralized Mortgage Obligations (CMO).
Mortgage Passthrough Securities (MPS)
In the structure of the MPS, the issuer is also the lender and she forms the pool of mortgage loans to be
used as collateral. The pool may consist thousands or tens of mortgage loans and the cash flow of the
covered loans are combined. The issuer collects the interest and principal, if exists prepayments, and
transfer the payments to the MBS holders under the terms and conditions of the MBS. However, the
monthly cash flow to MBS holders are less than the cash flow of the underlying mortgage pool by an
amount equal to servicing and guarantee fees. In order to let the issuer to collect the proceeds of the
mortgage loans and arrange for the payment to MBS holders, the timings of the cash flows are also
different.
Collateralized Mortgage Obligations (CMO)
The issuer of MBS may prefer to distribute the cash flow, and the collateral as well, of the mortgage pool
or MPS to different tranches according to some distribution rules. CMO are issued in different tranches
and have different exposure to prepayment risk and consequently different rate of returns. The
distribution rules are stated according to the priorities of the issuer and for interest and principal they are
determined separately. The issuer may give priority in payment of principal to some tranches, until the full
amount of the predetermined tranch is fully paid the others can not receive any principal payment but they
receive interest payment for the relevant period. In another structure, one or more of the tranches even
do not receive any interest and accrued interests are periodically added to the principal to be paid later
(named as Z tranch).
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3. VALUATION OF MORTGAGE BACKED SECURITIES
Mortgage backed securities are regarded under fixed income securities, however because of their rather
complex structure as compared to the plain vanilla bonds their valuation impose considerable challenges
because of stochastic and interdependent nature of interest rate, prepayment and other risks. By the
determination of the pool of the mortgage loan to be used as collateral, the proposed cash flow of the
mortgage pool can be determined. However, the cash flows are not certain as they are for the bonds.
Some kind of prepayment model should be incorporated in the valuation in order to address the interest
and prepayment risk.
The yield of any financial instrument is the interest rate that makes the present values of the cash flows to
its market price plus the accrued interest and this principle also applies to MBS. The problem is to
determine possible prepayments as a proportion of the outstanding balance of the pool in order to figure
out the more realistic cash flow. The fact that the prepayment rate is highly affected by the prevailing
interest rate level which makes refinancing of the existing loans more profitable considerably affects the
prepayment rate. There exist two different approach for determining the yield of a MBS both of which
focus on determining the possible prepayments models; the Static Model and Option Adjusted Spread.
3.1. Static Cash Flow Models
Regardless of the interest rate movements and also term structure of interest rates after the issuance of
the MBS, the static model uses a predetermined prepayment assumption for the underlying mortgage
loans. The prepayment assumption produces a single path of cash flows and the present values of the
cash flows are computed using applicable spot rates. The conventions are used as a benchmark for
prepayment rate: Conditional Prepayment Rate, PSA Benchmark Rate and Prospectus Prepayment
Curve.
In order to better visualize the effects of prepayment assumption in valuation of MBS, a hypothetical MBS
in the beginning amount of 100.000TL with 10 years maturity and 8,50% annual coupon rate will be used
as an example. The weighted average interest rate of the mortgage pool is 10%, the remaining 1,50% is
allocated to the issuer as service and guarantee fee. The cash flow of the MBS without any prepayment
assumption is given in Table 1. The present values of all the cash flows will be calculated by arbitrationfree valuation approach in order to fully reflect the term structure of interest rates using Treasury spot
rates. Without any repayment assumption and by using a hypothetical Treasury spot curve, the present
value of the cash flow is calculated as 104.032,84 TL.
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TABLE 1. CASH FLOW OF MBS WITH 10 YEARS MATURITY 8,50% COUPON RATE (POOL WAR
10%) – WITHOUT PREPAYMENT ASSUMPTION
Period
(1)
(2)
(3)
Outstanding Prepayment Periodic Mortgage Rate
Payment
(4)
(5)
(6)
(7)
(8)
Interest Interest for Total of Pool
MBS
Principal Prepayment Principal
(9)
Cash Flow Treasury PV of Cash of MBS
Spot Rates
Flow
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
100.000,00
99.457,19
98.910,71
98.360,53
97.806,62
97.248,96
96.687,52
96.122,29
95.553,23
94.980,31
94.403,51
93.822,81
93.238,18
92.649,59
92.057,01
91.460,43
90.859,80
90.255,10
89.646,32
89.033,40
88.416,34
87.795,11
87.169,66
86.539,98
85.906,04
85.267,80
84.625,24
83.978,34
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
677,08
673,41
669,71
665,98
662,23
658,46
654,66
650,83
646,97
643,10
639,19
635,26
631,30
627,31
623,30
619,26
615,20
611,10
606,98
602,83
598,65
594,45
590,21
585,95
581,66
577,33
572,98
568,60
625,00
621,61
618,19
614,75
611,29
607,81
604,30
600,76
597,21
593,63
590,02
586,39
582,74
579,06
575,36
571,63
567,87
564,09
560,29
556,46
552,60
548,72
544,81
540,87
536,91
532,92
528,91
524,86
542,81
546,48
550,18
553,91
557,66
561,43
565,24
569,06
572,92
576,80
580,70
584,63
588,59
592,58
596,59
600,63
604,69
608,79
612,91
617,06
621,24
625,45
629,68
633,94
638,24
642,56
646,91
651,29
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
542,8
546,5
550,2
553,9
557,7
561,4
565,2
569,1
572,9
576,8
580,7
584,6
588,6
592,58
596,59
600,63
604,69
608,79
612,91
617,06
621,24
625,45
629,68
633,94
638,24
642,56
646,91
651,29
1.167,81
1.168,09
1.168,38
1.168,66
1.168,95
1.169,24
1.169,53
1.169,83
1.170,12
1.170,42
1.170,72
1.171,02
1.171,33
1.171,64
1.171,94
1.172,26
1.172,57
1.172,88
1.173,20
1.173,52
1.173,84
1.174,16
1.174,49
1.174,82
1.175,15
1.175,48
1.175,82
1.176,15
4,2125%
4,2145%
4,2148%
4,2152%
4,2157%
4,2177%
4,2180%
4,2184%
4,2189%
4,2209%
4,2212%
4,2216%
4,2221%
4,2241%
4,2244%
4,2248%
4,2253%
4,2273%
4,2276%
4,2280%
4,2285%
4,2305%
4,2308%
4,2312%
4,2317%
4,2337%
4,2340%
4,2344%
1.163,72
1.159,93
1.156,15
1.152,38
1.148,63
1.144,88
1.141,16
1.137,44
1.133,74
1.130,04
1.126,36
1.122,70
1.119,05
1.115,39
1.111,77
1.108,16
1.104,56
1.100,94
1.097,37
1.093,81
1.090,26
1.086,69
1.083,16
1.079,65
1.076,15
1.072,62
1.069,15
1.065,69
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
83.327,05
82.671,35
82.011,21
81.346,61
80.677,50
80.003,86
79.325,67
78.642,88
77.955,46
77.263,39
76.566,64
75.865,17
75.158,95
74.447,95
73.732,13
73.011,47
72.285,93
71.555,47
70.820,07
70.079,69
69.334,30
68.583,86
67.828,33
67.067,70
66.301,91
65.530,94
64.754,75
63.973,30
63.186,56
62.394,50
61.597,07
60.794,24
59.985,98
59.172,24
58.353,00
57.528,20
56.697,83
55.861,83
55.020,17
54.172,81
53.319,71
52.460,84
51.596,15
50.725,61
49.849,17
48.966,80
48.078,46
47.184,10
46.283,68
45.377,17
44.464,52
43.545,69
42.620,64
41.689,33
40.751,71
39.807,74
38.857,38
37.900,59
36.937,31
35.967,52
34.991,16
34.008,19
33.018,56
32.022,23
31.019,16
30.009,29
28.992,59
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
564,19
559,75
555,28
550,78
546,25
541,69
537,10
532,48
527,82
523,14
518,42
513,67
508,89
504,07
499,23
494,35
489,44
484,49
479,51
474,50
469,45
464,37
459,25
454,10
448,92
443,70
438,44
433,15
427,83
422,46
417,06
411,63
406,16
400,65
395,10
389,51
383,89
378,23
372,53
366,80
361,02
355,20
349,35
343,45
337,52
331,55
325,53
319,48
313,38
307,24
301,06
294,84
288,58
282,27
275,92
269,53
263,10
256,62
250,10
243,53
236,92
230,26
223,56
216,82
210,03
203,19
196,30
520,79
516,70
512,57
508,42
504,23
500,02
495,79
491,52
487,22
482,90
478,54
474,16
469,74
465,30
460,83
456,32
451,79
447,22
442,63
438,00
433,34
428,65
423,93
419,17
414,39
409,57
404,72
399,83
394,92
389,97
384,98
379,96
374,91
369,83
364,71
359,55
354,36
349,14
343,88
338,58
333,25
327,88
322,48
317,04
311,56
306,04
300,49
294,90
289,27
283,61
277,90
272,16
266,38
260,56
254,70
248,80
242,86
236,88
230,86
224,80
218,69
212,55
206,37
200,14
193,87
187,56
181,20
655,70
660,14
664,61
669,11
673,64
678,20
682,79
687,41
692,07
696,75
701,47
706,22
711,00
715,82
720,66
725,54
730,46
735,40
740,38
745,39
750,44
755,52
760,64
765,79
770,97
776,19
781,45
786,74
792,07
797,43
802,83
808,26
813,74
819,25
824,79
830,38
836,00
841,66
847,36
853,10
858,87
864,69
870,54
876,44
882,37
888,34
894,36
900,42
906,51
912,65
918,83
925,05
931,31
937,62
943,97
950,36
956,79
963,27
969,79
976,36
982,97
989,63
996,33
1.003,07
1.009,87
1.016,70
1.023,59
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
655,70
660,14
664,61
669,11
673,64
678,20
682,79
687,41
692,07
696,75
701,47
706,22
711,00
715,82
720,66
725,54
730,46
735,40
740,38
745,39
750,44
755,52
760,64
765,79
770,97
776,19
781,45
786,74
792,07
797,43
802,83
808,26
813,74
819,25
824,79
830,38
836,00
841,66
847,36
853,10
858,87
864,69
870,54
876,44
882,37
888,34
894,36
900,42
906,51
912,65
918,83
925,05
931,31
937,62
943,97
950,36
956,79
963,27
969,79
976,36
982,97
989,63
996,33
1.003,07
1.009,87
1.016,70
1.023,59
1.176,49
1.176,83
1.177,18
1.177,52
1.177,87
1.178,22
1.178,58
1.178,93
1.179,29
1.179,65
1.180,01
1.180,38
1.180,75
1.181,12
1.181,49
1.181,86
1.182,24
1.182,62
1.183,01
1.183,39
1.183,78
1.184,17
1.184,56
1.184,96
1.185,36
1.185,76
1.186,16
1.186,57
1.186,98
1.187,39
1.187,81
1.188,23
1.188,65
1.189,07
1.189,50
1.189,93
1.190,36
1.190,80
1.191,23
1.191,68
1.192,12
1.192,57
1.193,02
1.193,47
1.193,93
1.194,39
1.194,85
1.195,32
1.195,78
1.196,26
1.196,73
1.197,21
1.197,69
1.198,18
1.198,67
1.199,16
1.199,65
1.200,15
1.200,65
1.201,16
1.201,67
1.202,18
1.202,69
1.203,21
1.203,74
1.204,26
1.204,79
4,2844%
4,3344%
4,3844%
4,4344%
4,4844%
4,5344%
4,5844%
4,6344%
4,6844%
4,7344%
4,7844%
4,8344%
4,8844%
4,9344%
4,9844%
5,0344%
5,0844%
5,1344%
5,1844%
5,2344%
5,2844%
5,3344%
5,3844%
5,4344%
5,4844%
5,5344%
5,5844%
5,6344%
5,6844%
5,7344%
5,7844%
5,8344%
5,8844%
5,9344%
5,9844%
6,0344%
6,0844%
6,1344%
6,1844%
6,2344%
6,2844%
6,3344%
6,3844%
6,4344%
6,4844%
6,5344%
6,5844%
6,6344%
6,6844%
6,7344%
6,7844%
6,8344%
6,8844%
6,9344%
6,9844%
7,0344%
7,0844%
7,1344%
7,1844%
7,2344%
7,2844%
7,3344%
7,3844%
7,4344%
7,4844%
7,5344%
7,5844%
1.060,97
1.056,18
1.051,34
1.046,43
1.041,45
1.036,42
1.031,33
1.026,18
1.020,97
1.015,71
1.010,39
1.005,02
999,60
994,13
988,60
983,03
977,41
971,74
966,03
960,27
954,48
948,63
942,75
936,83
930,87
924,88
918,85
912,78
906,69
900,56
894,40
888,21
881,99
875,74
869,47
863,18
856,86
850,52
844,16
837,77
831,37
824,96
818,52
812,07
805,61
799,13
792,65
786,15
779,64
773,12
766,60
760,07
753,54
747,00
740,46
733,92
727,38
720,84
714,30
707,76
701,23
694,70
688,18
681,66
675,16
668,66
662,17
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
27.969,00
26.938,48
25.900,99
24.856,47
23.804,88
22.746,17
21.680,28
20.607,19
19.526,82
18.439,15
17.344,10
16.241,65
15.131,72
14.014,29
12.889,29
11.756,67
10.616,38
9.468,37
8.312,59
7.148,98
5.977,49
4.798,07
3.610,67
2.415,22
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
0,0000
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
1.219,89
189,37
182,40
175,37
168,30
161,18
154,01
146,79
139,53
132,21
124,85
117,43
109,97
102,45
94,89
87,27
79,60
71,88
64,11
56,28
48,40
40,47
32,49
24,45
16,35
174,81
168,37
161,88
155,35
148,78
142,16
135,50
128,79
122,04
115,24
108,40
101,51
94,57
87,59
80,56
73,48
66,35
59,18
51,95
44,68
37,36
29,99
22,57
15,10
1.030,52
1.037,50
1.044,52
1.051,59
1.058,71
1.065,88
1.073,10
1.080,36
1.087,68
1.095,04
1.102,46
1.109,92
1.117,44
1.125,00
1.132,62
1.140,29
1.148,01
1.155,78
1.163,61
1.171,49
1.179,42
1.187,40
1.195,44
1.203,54
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
0,00
1.030,52
1.037,50
1.044,52
1.051,59
1.058,71
1.065,88
1.073,10
1.080,36
1.087,68
1.095,04
1.102,46
1.109,92
1.117,44
1.125,00
1.132,62
1.140,29
1.148,01
1.155,78
1.163,61
1.171,49
1.179,42
1.187,40
1.195,44
1.203,54
1.205,32
1.205,86
1.206,40
1.206,94
1.207,49
1.208,04
1.208,60
1.209,16
1.209,72
1.210,29
1.210,86
1.211,43
1.212,01
1.212,59
1.213,18
1.213,77
1.214,36
1.214,96
1.215,56
1.216,17
1.216,78
1.217,39
1.218,01
1.218,63
7,6344%
7,6844%
7,7344%
7,7844%
7,8344%
7,8844%
7,9344%
7,9844%
8,0344%
8,0844%
8,1344%
8,1844%
8,2344%
8,2844%
8,3344%
8,3844%
8,4344%
8,4844%
8,5344%
8,5844%
8,6344%
8,6844%
8,7344%
8,7844%
655,69
649,22
642,77
636,32
629,90
623,49
617,09
610,71
604,35
598,01
591,68
585,38
579,10
572,84
566,60
560,39
554,20
548,03
541,89
535,78
529,69
523,63
517,60
511,60
120
1.211,69
0,0000
1.219,89
8,20
7,57
1.211,69
0,00
1.211,69
1.219,26
8,8344%
505,63
PRESENT VALUE OF CASH FLOW 104.032,84
Conditional Prepayment Rate (CPR)
Some fraction of the outstanding balance of the mortgage pool is prepaid each month and this rate is
named as conditional prepayment rate (CPR). CPR is determined based on the characteristics of the
pool such as its aging, historical prepayments realized as well as the current and expected future
economic conditions. CPR is determined annually and to be used for the cash flow it should be converted
into a monthly prepayment rate which is known to be single monthly mortality rate (SMM). Given CPR,
the following formula used to calculate SMM:
𝑆𝑀𝑀 = 1 − (1 − 𝐶𝑃𝑅)!/!!
(1)
The monthly prepayment amounts will be calculated by using SMM and the scheduled principal payments
for that month. Assuming that CPR is determined as 6% in the issuance of MBS, the monthly prepayment
1/12
rate is 0,005143 (SMM= 1 – (1-0,06) =0,005143). The cash flow of MBS with this prepayment
assumption is given in Table 2. Referring to Table 2, it is seen that SMM is same for each month
regardless of the interest rate environment. Table 2 also shows that including the conditional prepayment
rate into the cash flow, the present value of the cash flow id 104.699,61TL.
22
RSSLP
ISSN 2327- 7017
10%) – CONDITIONAL PREPAYMENT ASSUMPTION OF 6%
Period
(1)
(2)
(3)
Outstanding Prepayment Periodic Mortgage Rate
Payment
(4)
(5)
(6)
(7)
(8)
Interest Interest for Total of Pool
MBS
(9)
Cash Flow Treasury PV of Cash of MBS
Spot Rates
Flow
1
2
3
4
5
6
7
8
100.000,00
98.945,68
97.895,93
96.850,71
95.810,00
94.773,79
93.742,03
92.714,72
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
1.219,89
1.213,62
1.207,38
1.201,17
1.194,99
1.188,84
1.182,73
1.176,65
677,08
669,94
662,84
655,76
648,71
641,70
634,71
627,76
625,00
618,41
611,85
605,32
598,81
592,34
585,89
579,47
542,81
543,67
544,54
545,41
546,27
547,14
548,02
548,89
511,51
506,08
500,68
495,30
489,94
484,61
479,30
474,01
1.054,3
1.049,8
1.045,2
1.040,7
1.036,2
1.031,8
1.027,3
1.022,9
1.679,32
1.668,17
1.657,07
1.646,02
1.635,03
1.624,09
1.613,20
1.602,37
4,2125%
4,2145%
4,2148%
4,2152%
4,2157%
4,2177%
4,2180%
4,2184%
1.673,44
1.656,51
1.639,73
1.623,10
1.606,61
1.590,26
1.574,06
1.558,01
28
29
30
31
32
33
34
35
36
37
73.064,25
72.124,75
71.189,18
70.257,53
69.329,77
68.405,87
67.485,82
66.569,60
65.657,19
64.748,56
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
1.061,35
1.055,89
1.050,46
1.045,06
1.039,68
1.034,34
1.029,02
1.023,72
1.018,46
1.013,22
494,71
488,34
482,01
475,70
469,42
463,16
456,94
450,73
444,55
438,40
456,65
450,78
444,93
439,11
433,31
427,54
421,79
416,06
410,36
404,68
566,64
567,55
568,45
569,36
570,26
571,17
572,08
572,99
573,91
574,82
372,86
368,02
363,20
358,41
353,63
348,87
344,14
339,42
334,72
330,05
939,50
935,57
931,65
927,76
923,89
920,05
916,22
912,41
908,63
904,87
1.396,15
1.386,35
1.376,59
1.366,87
1.357,21
1.347,58
1.338,01
1.328,47
1.318,99
1.309,55
4,2344%
4,2844%
4,3344%
4,3844%
4,4344%
4,4844%
4,5344%
4,5844%
4,6344%
4,6844%
1.265,02
1.250,22
1.235,46
1.220,75
1.206,10
1.191,51
1.176,98
1.162,50
1.148,09
1.133,74
96
97
98
99
100
101
102
17.137,17
16.420,86
15.707,24
14.996,28
14.287,98
13.582,31
12.879,27
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
0,5143%
747,45
743,61
739,78
735,98
732,19
728,43
724,68
116,03
111,18
106,35
101,54
96,74
91,96
87,20
107,11
102,63
98,17
93,73
89,30
84,89
80,50
631,42
632,42
633,43
634,44
635,45
636,46
637,48
84,89
81,20
77,52
73,86
70,22
66,58
62,96
716,31
713,62
710,96
708,30
705,67
703,04
700,44
823,42
816,26
809,13
802,03
794,97
787,93
780,93
7,6344%
7,6844%
7,7344%
7,7844%
7,8344%
7,8844%
7,9344%
447,93
439,46
431,10
422,85
414,70
406,66
398,73
120
656,01
0,5143%
660,45
4,44
4,10
656,01
71.716,38
0,00
656,01
660,11
8,8344%
273,75
Public Securities Association Benchmark Rate
In the US mortgage market, Public Securities Association (PSA) declares monthly series of prepayment
benchmarks. The assumptions of prepayments are lower for newly originated MBS and higher for the
elder ones. Generally, for 30 years mortgages the following statement is used: A CPR of %0,2 for the first
month, increased by %0,2 for the next 30 months until it reaches %6 per year and %6 is used for the
remaining of the maturity. This is 100 PSA quotations for the prepayment benchmark meaning that the
rates will be used as it is stated. Slower and faster prepayment speeds can be quoted by the issuer of
MBS such as 50 PSA or 200 PSA. In order to determine the monthly prepayment rates, the stated CPR
rate should be converted into SMM by the use of the following formulation:
!
𝐶𝑃𝑅 𝑓𝑜𝑟 𝑀𝑜𝑛𝑡ℎ 𝑛 = 6% (!")
(2)
SMM rate should be calculated in order to determine the monthly prepayment rate by the use of Equation
(1). The cash flow of MBS with PSA 100 assumption is given in Table 3. The monthly prepayment rate
increases each month till month 30 and stabilize at 6% after this month. The monthly prepayment
amounts will be calculated by using SMM and the scheduled principal payments for that month so
although SMM is same after month 30, decreasing amount of beginning balance and increasing amount
of the principal component in the periodic payment, the prepayments differ in each month. The cash flow
and the present value calculation of MBS with PSA 100 prepayment assumption is given in Table 3.
23
RSSLP
ISSN 2327- 7017
10%) – PSA 100 PREPAYMENT ASSUMPTION
Period
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Outstanding Prepayment Periodic Interest Interest for Total Cash Flow Treasury PV of Cash Mortgage Rate
Payment of Pool
MBS
of MBS Spot Rates
Flow
1
2
3
4
5
6
7
8
100.000,00
99.440,60
98.861,18
98.261,98
97.643,25
97.005,25
96.348,24
95.672,51
0,0002
0,0003
0,0005
0,0007
0,0008
0,0010
0,0012
0,0013
1.219,89
1.219,69
1.219,28
1.218,67
1.217,85
1.216,83
1.215,61
1.214,18
677,08
673,30
669,37
665,32
661,13
656,81
652,36
647,78
625,00
621,50
617,88
614,14
610,27
606,28
602,18
597,95
542,81
546,39
549,91
553,35
556,73
560,03
563,25
566,40
16,59
33,03
49,29
65,38
81,28
96,98
112,47
127,75
559,4
579,4
599,2
618,7
638,0
657,0
675,7
694,1
1.184,40
1.200,92
1.217,08
1.232,87
1.248,28
1.263,29
1.277,90
1.292,10
4,2125%
4,2145%
4,2148%
4,2152%
4,2157%
4,2177%
4,2180%
4,2184%
1.180,26
1.192,53
1.204,35
1.215,70
1.226,58
1.236,97
1.246,90
1.256,33
28
29
30
31
32
33
34
35
36
37
78.757,30
77.744,60
76.736,14
75.731,89
74.731,83
73.735,95
72.744,22
71.756,60
70.773,10
69.793,67
0,0051
0,0051
0,0051
0,0051
0,0051
0,0051
0,0051
0,0051
0,0051
0,0051
1.144,05
1.138,17
1.132,31
1.126,49
1.120,69
1.114,93
1.109,20
1.103,49
1.097,82
1.092,17
533,25
526,40
519,57
512,77
506,00
499,25
492,54
485,85
479,19
472,56
492,23
485,90
479,60
473,32
467,07
460,85
454,65
448,48
442,33
436,21
610,80
611,77
612,74
613,72
614,70
615,68
616,66
617,64
618,62
619,61
401,91
396,70
391,50
386,33
381,19
376,06
370,95
365,87
360,81
355,76
1.012,70
1.008,46
1.004,25
1.000,05
995,88
991,74
987,61
983,51
979,43
975,37
1.504,94
1.494,37
1.483,85
1.473,38
1.462,96
1.452,59
1.442,26
1.431,99
1.421,76
1.411,58
4,2344%
4,2844%
4,3344%
4,3844%
4,4344%
4,4844%
4,5344%
4,5844%
4,6344%
4,6844%
1.363,59
1.347,63
1.331,72
1.315,87
1.300,08
1.284,35
1.268,68
1.253,08
1.237,55
1.222,08
96
97
98
99
100
101
102
18.472,47
17.700,35
16.931,12
16.164,77
15.401,27
14.640,62
13.882,80
0,0051
0,0051
0,0051
0,0051
0,0051
0,0051
0,0051
805,69
801,55
797,43
793,32
789,24
785,19
781,15
125,07
119,85
114,64
109,45
104,28
99,13
94,00
115,45
110,63
105,82
101,03
96,26
91,50
86,77
680,62
681,70
682,79
683,88
684,97
686,06
687,15
91,50
87,53
83,57
79,62
75,69
71,77
67,87
772,12
769,23
766,35
763,49
760,65
757,83
755,01
887,57
879,86
872,17
864,52
856,91
849,33
841,78
7,6344%
7,6844%
7,7344%
7,7844%
7,8344%
7,8844%
7,9344%
482,84
473,70
464,69
455,79
447,01
438,35
429,80
120
707,12
0,0051
711,91
4,79
4,42
707,12
0,00
707,12
711,54
8,8344%
295,07
Prospectus Prepayment Curve
The public security agencies may put some restrictions on the prepayment assumptions of MBS.
However, the private issuers of MBS may also determine their own models of prepayment under the
public restrictions. This kind of issuer specific kind of prepayment benchmarks are identified as
Prospectus Prepayment Curve (PPC). For example, instead of PSA 100 mentioned Section 3.2, the
issuer may prefer to use A CPR of %2 for the first month, increased by %0,5 for the next 17 months until
it reaches %10 per year and %10 is used for the remaining of the maturity.
3.2. Dynamic Prepayment Models
Dynamic models, unlike static ones, are designed to work within a pricing model where interest rates vary
over time. The level of interest rates determines the refinancing opportunities of the mortgage borrowers.
If the available refinancing rates drops below the contract rate, prepayments increase and vice versa.
While specific models will use slightly different inputs, there is generally agreement that there are at least
four factors that must be included in any decent model. These are; Refinancing incentive, seasoning,
seasonality and burnout affects. There has also been an increased awareness that credit-quality issues,
and media effects are also having a major affect on prepayments.
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Dynamic models were popular at the beginning of 1990s and the most popular models were belong to
Asay, Guillaume and Matu (1987), Brazil (1988), Carron and Hogan (1988), Chinloy (1989, 1991),
Davidson, Herskovitz and Van Drunen (1988), Giliberto and Thibodeau (1989), Lacey and Milonas
(1989), Richard and Roll (1989) and Schwartz and Torous (1989). The most market-oriented models of
Goldman Sachs Model and Salomon Brothers Prepayment model are explained below.
The Modified Goldman Sachs Model
The Goldman Sachs Model was developed by Richard and Rool (1989) and modified by Office of Thrift
Supervision (OTS) of US. In this model, the prepayments are explained by observing the historical
prepayments and relating them four economic factors which are refinancing incentive, age of the
mortgage (seasoning), the month of the year (seasonality) and premium burn out.
The refinancing incentive is the most critical factor in the model and is defined as monthly sayings that
can be realized by refinancing of the borrower of the existing mortgage loan. The factor is computed as
the difference between or ratio of the mortgage coupon rate and mortgage refinancing rate. In the case of
the interest rates move downward, the refinancing rate also will be lowered then the ratio will be
increased. A ratio which is greater than 1, will motivate the mortgage holders to refinance their existing
loans. The relationship between prepayment and refinancing incentive is described by the arctangent
function which is a convenient nonlinear representation for the shape of the prepayment curve.
The second factor is seasoning and follows the same general principle of PSA repayment approach as in
the early months of the term of the mortgage pool, the repayment are supposed to be realized less and it
increases thereafter. Furthermore, with the observation that the prepayments peak in the summer and
decrease in the winter, the seasonality is included in the model by a multiplier for each month. The last
factor of premium burnout takes also into account the tendency for prepayment to diminish over time
even when the refinancing rates are favorable because of the inadequate home equity to qualify for
refinancing or a negative change in the credit status of the mortgage borrower. In order to quantify the
burnout the measurement of how much the option to prepay has been deep in-the money since the pool
was determined. The burnout ratio is generally calculated as a function of the pool factor which indicates
the proportion of the beginning pool amount still outstanding (Bandic, 2004). The four factors represented
by the calculated multipliers are combined to determine the prepayment rates. Accordingly, the CPR is
calculated as:
CPR = (Refinancing Incentive) x (Age Multiplier) (Month Multiplier)x(Burnout Multiplier)
(3)
The model measures the refinancing incentive as the weighted average of the mortgage rate divided by
the mortgage refinancing rate. In particular, by using Wall Street Models parameters, the model is applied
with the following formulation:
𝐶𝑃 = 0,31234 − 0,20252𝑥𝐴𝑇𝑁 8,157𝑥 −
!!!
!!!
+ 1,20761
(4)
CP indicates the conditional prepayment resulting from the refinancing incentive. ATN is the arctangent
function, C is the MBS average interest rate, S is the loan servicing rate taken out of the pool, P is the
refinancing rate and F is the additional refinancing cost associated with refinancing the mortgage.
Salomon Brothers Prepayment Model
Salomon Brothers initiated its prepayment model in the mid-1980s, it is built up with the basic premise
that the conditions and relationships observed in the past will hold going forward. The Salomon Brothers
Prepayment Model consists of sub-models for each of the sources of prepayments. The first source of the
prepayments is identified as home sales and housing turnover. While the statistics of housing starts or
new home sales also exist, the model uses sales of existing homes statistics for the prepayment analysis
as unless the mortgage is assumed or the home has no mortgage, the sale of an existing home leads to a
prepayment. (Hayre and Rajan 1995)
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The submodel of home sales assumed that there exist two intersecting populations of prospective buyers
or movers: those who desire to buy and those that can afford to buy a house. The size of those two
groups are quantified by two factors respectively; an affordability factor that depends upon the median
income, median home price and mortgage rates and a desirability factor that incorporates the effects of
home price inflation. The model also accounts for pent-up demand, or the lack of demand due to past
interest rates, by carrying forward an affordability deficit or surplus from previous periods. Additionally, a
pronounced but consistent seasonal pattern exists in home sales volume, which obviously passes
through to prepayment speeds, so seasonality factor is also incorporated in the model.
The second sub-model is related with refinancing which is identified as an economic prepayment and can
also be regarded as an exercise of a call option on the existing loan by the mortgagor. However,
traditional option theory is of limited use in analyzing refinancings, because mortgagor behavior
sometimes seems to represent an inefficient exercise of the option. The measure of refinancing incentive
has considered to be the difference, or spread, between the WAC and prevailing mortgage rates
traditionally, but Salomon Brothers model use the following calculation where M is the refinancing rate
and C is the existing mortgage rate, TERM is the original term of the existing loan in months and AGE is
the number of months since origination:
!
Savings Per Dollar = ! x
!!(!!!)!(!"#$!!"#)
!!(!!!)!!"#$
−1
(5)
The model also takes into account different borrower types who have different likelihoods of refinancing
for a given level of refinancing incentive. Additionally, media publicity about refinancing opportunities is
identified as media effect and the Salomon Brothers Prepayment Model uses a comparison of current
mortgage rates to a weighted average of past rates to estimate the media effect.
3.3. Options Based Model
In today’s dynamic interest rate environment, options based models are used to analyze MBS and these
models treat MBS as bonds with embedded options. MBS is considered as having a bond component
that the mortgage borrower makes periodic payments consisting of interest and principal over the term of
the loan and an option component indicating the right to prepay at any time. From another perspective,
the prepayments can be defined as a function of the interest rates and the prepayment risk which can be
valued like a bond option.
In this framework, Options Based Models consist of two components; an interest rate model and a
repayment model. The value of MBS is highly dependent on the expected level and pattern of future
interest rates and cash flows and an interest rate process is required to forecast future interest rate
movements. Options based models requires simulation of many possible interest rate scenarios in order
to accurately determine the future direction of interest rates. Figure-2 indicates an overview for the Option
based valuation models.
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FIGURE 2. THE OVERVIEW OF OPTION BASED VALUATION FRAMEWORK
Source: Guo (2005)
Monte Carlo simulation is a widely used model for valuing interest rate sensitive securities as it involves
simulating large number of potential interest rate paths. Many of the financial instruments are path
dependent meaning that the cash flow in one period is determined not only by the prevailing interest level
in that period, but also by the path that interest took to get to the current level (Fabozzi and friends, 2011
249).
The mortgage based securities are highly path dependent as the prepayment rate of current month
depends on whether there have been prior opportunities to refinance since the origination. When
simulation interest rate paths, typical Monte Carlo models takes prevailing term structure of interest rates
and volatility assumption as the basic assumption. The term structure of interest rates is the theoretical
spot rate (interest rate of zero coupon bonds) curve implied by prevailing Treasury securities and the
volatility assumption defines the dispersion of the future interest rates.
In order for the valuation of MBS, for each month two sets of interest rate path should be simulated, one
interest for discounting the cash flow and one refinancing rate. If the simulated refinancing rate is higher
than the mortgage rate then the mortgagor has less refinancing incentive.
In this framework option based mortgage based securities can be realized with a step-wise approach:
Determination of future market interest rate paths and refinancing rates for large number of (N) scenarios,
by using an interest rate process with Monte carlo simulation
Determination of prepayments by using refinancing rates calculated in Step (i),
Calculation of the cash flows of the MBS for each interest path,
Determination of future spot rates for discounting the cash flows for N scenarios,
Determination of the present values of the MBS for each interest rate path
Determine the theoretical value of the MBS.
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Interest Rate Process
The possible movements of future interest rates influence the cash flows of MBS and their respective
discount rates, so the interest rates produced by the simulations must confirm with the observed interest
rate behavior. In order to produce interest rate paths, equilibrium models are used with the assumption
that security prices are determined by the market expectations about the furture direction of the shortterm interest rates which supposed to have followed a continuous time stochastic) process. The general
form of equilibrium models can be stated by the following equation:
𝑑𝑟! = 𝜅 𝜃 − 𝑟! 𝑑𝑡 + 𝜎𝑟 ! 𝑑𝐵! , 𝑟 0 = 𝑟!
(6)
In the formulation drt represents an infinitesimal change in rt over an infinitesimal time period, dt and dBt
is a standard Wiener process. κ is the speed of mean-reversion, θ is the long-run mean of the interest
rate process, α is the proportional conditional volatility exponent and σ is the instantaneous standard
deviation of changes in rt. Vasicek (1977), Dothan (1978), and Cox-Ingersoll-Ross (1985) modeled the
interest rate process mainly by using Equation (6), the primary difference of their models was related with
α.
Another interest rate model incorporating a mean reversion process that is modified by the shape of
Treasury term belongs to Luytjes (1990). By incorporating the long term (5 years) interest rate, the model
allows the level and slope of the term structure to influence short term dynamics:
𝑙𝑛 𝑟!∗ = 𝛿 𝑙𝑛 𝑖!!! − 𝑙𝑛𝛶 + 1 − 𝛿 𝑙𝑛 𝐿𝑀
(7)
In the formulation 𝑟!∗ is the mean reverting rate at time t, 𝑖!!! the five-year zero coupon bond interest
rate, 𝛶 is the long run equilibrium ratio of the long term rate to the short term rate, 𝐿𝑀 is the long run
equilibrium rate to which short term rate 𝑟!∗ , 𝛿 is a parameter between 0 and 1 allowing the level and
slope of the last month’s yield curve to affect 𝑟!∗ .
Whatever the model of interest rate process used the final outcome of Monte Carlo simulation is to
produce large number of (N) scenarios for each period in the term of MBS. The refinancing rates are also
derived from those interest rate forecasts for each period in the term of MBS. The outcomes of process
are illustrated in Figure-3 for each interest rate paths. The illustrations are sourced by Fabozzi and friends
(2011).
FIGURE 3. INTEREST RATE PATHS BY USING MONTE CARLO SIMULATION
Interest Rate Path Number
3
n
f1(3)
…
f1(n)
Month
1
1
f1(1)
2
f1(2)
…
N
f1(N)
2
f2(1)
f2(2)
f2(3)
…
f2(n)
…
f2(N)
3
f3(1)
f3(2)
f3(3)
…
f3(n)
…
f3(N)
t
ft(1)
ft(2)
ft(3)
…
ft(n)
…
ft(N)
118
f118(1)
f118(2)
f118(3)
…
f118(n)
…
f118(N)
119
f119(1)
f119(2)
f119(3)
…
f119(n)
…
f119(N)
120
f120(1)
f120(2)
f120(3)
…
f120(n)
…
f120(N)
ft(n): 1-‐month future i nterest r ate for month t on path n
N: Total number of i neterest r ate paths
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Refinancing Model
Instead of the standard prepayment assumption used in static valuation such Conditional Prepayment
(CPA) or Prospectus Prepayment Assumption (PPA), more deterministic models of refinancing are used
in option based valuation of MBS. One of the most update models is developed by Kalotay, Yang and
Fabozzi (2004). The prepayments are distinguished according to their dependence to interest rate
movements. The prepayments due to turnover and curtailment are named as baseline prepayments and
are incorporated in the model using a vector of prepayment speeds. On the other hand, the refinancing
are modeled using an option based approach in which the mortgage borrowers are classified under three
groups: the financial engineers are the borrowers who refinance at the right time, the leapers who
refinance too early and laggards are the ones waiting too long to refinance. In the model, firstly the
leapers convey away the mortgage pool initially originated and then financial engineers and finally
laggards. The mortgage pool has become dominated by laggards over time. The refinancing rates are
given in Figure-4 for each interest rate path.
FIGURE 4. MORTGAGE REFINANCING RATES BY USING MONTE CARLO SIMULATION
3
n
r1(3)
…
r1(n)
Month
1
1
r1(1)
2
r1(2)
…
N
r1(N)
2
r2(1)
r2(2)
r2(3)
…
3
r3(1)
r3(2)
r3(3)
…
r2(n)
…
r2(N)
r3(n)
…
r3(N)
t
rt(1)
rt(2)
rt(3)
…
rt(n)
…
rt(N)
118
r118(1)
r118(2)
r118(3)
…
r118(n)
…
r118(N)
119
r119(1)
r119(2)
r119(3)
…
r119(n)
…
r119(N)
120
r120(1)
r120(2)
r120(3)
…
r120(n)
…
r120(N)
r t(n): mortgage r efinancing r ate for month t on path n
Having determined the prepayments under the refinancing rates simulated, then the cash flow of each
interest path can be calculated as illustrated in Figure-5.
FIGURE 5. CASH FLOWS BY USING THE OUTPUTS OF MONTE CARLO SIMULATION
Month
1
1
C1(1)
2
C1(2)
3
n
C1(3)
…
C1(n)
…
N
C1(N)
2
C2(1)
C2(2)
C2(3)
…
C2(n)
…
C2(N)
3
C3(1)
C3(2)
C3(3)
…
C3(n)
…
C3(N)
t
Ct(1)
Ct(2)
Ct(3)
…
Ct(n)
…
Ct(N)
118
C118(1)
C118(2)
C118(3)
…
C118(n)
…
C118(N)
119
C119(1)
C119(2)
C119(3)
…
C119(n)
…
C119(N)
120
C120(1)
C120(2)
C120(3)
…
C120(n)
…
C120(N)
Ct(n): c ash flow for month t on path n
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In order to calculate the present value of the cash flows the 1 month interest rates simulated should be
converted to spot rates for the relevant period in the interest rate path by the use of following formulation:
𝑧! (𝑛) =
1 + 𝑓! (𝑛) 𝑥 1 + 𝑓! (𝑛) + ⋯ + 1 + 𝑓! (𝑛)
!/!
−1
(8)
𝑧! (𝑛) Identifies simulated spot rate for month T on path n and 𝑓! (𝑛) is the simulated future 1 month rate
for month T on path n. Applying the formulation to the 1 month interest rates simulated, thespot rates for
each periodic payment for all the scenarios.
The last step for valuation of MBS is to calculate the present values of each interest rate path given the
cash flows and spot rates. The theoretical value of MBS is determined as the average of the present
values of N interest rate path by using the following equation:
𝑇ℎ𝑒𝑜𝑟𝑒𝑡𝑖𝑐𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
!"#$##%& !"#$% !"#! ! !!"#! ! !⋯.!!"(!)
!
(9)
Option Adjusted Spread (OAS)
The option adjusted spread can be calculated as the spread that when added to the spot rates in all
interest rate paths, equalize the total of the present values of the interest paths (theoretical value)to the
market value of MBS plus the accrued interest. The mathematical formulation of OAS calculation can be
simplified as the following:
𝑇ℎ𝑒𝑜𝑟𝑒𝑡𝑖𝑐𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
𝑃𝑉[𝐶! (𝑛)] =
!! (!)
!!!! ! !! !/!
= 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒
(10)
In the formulation for month T on path n; CT represents the cash flow, zT(n) represents the spot rate and K
represents the Option Adjusted Spread. OAS is a widely used yield measure especially for the securities
with embedded options such as MBS and measures the yield spread of a security not attributable to the
option itself. In this framework it measures other security specific risk factors such as credit risk, liquidity
risk and allows direct comparisons among MBS and all other types of fixed income securities.
For comparison purposes, the yield calculated by using static valuation models has to be modified by the
following formulation and the calculated yield is named as Bond Equivalent Yield (BEY):
𝐵𝑜𝑛𝑑 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡 𝑌𝑖𝑒𝑙𝑑 = 2 (1 + 𝑖! )! − 1
In the formulation, iM is the interest rate that will equate the present value of the projected monthly cash
flows calculated with static valuation approach to the market price plus accrued interest. BEY has similar
shortcoming with other static yield measures such as it fails to recognize the reinvestment risk as well as
interest rate risk which is defined as the risk associated with having to sell the security prior to the
maturity.
4. CONCLUSION
Since 2002, Turkish financial system, dominated by commercial banks, has secured mortgage loans
steadily, the outstanding balance of mortgage loans has reached to 48 billion US$ as of June 2013. The
legal framework of mortgage backed security issuance has also been established and the first such issue
has already been mandated to be sold to institutional investors only.
There are two basic sources of risks for MBS which are prepayment risk and refinancing risk both have
been highly affected by the interest rate movements. The mortgage borrowers have the right to prepay
the whole or part of the outstanding balance during the term of the loan. The lowering of the interest rates
after the origination of the mortgage loan may cause many of the borrowers collectively prepay that
causes the mortgage pool, which is the collateral of MBS, to diminish in outstanding balance. In
Comminuque No:33 of Turkish Capital Markets Board, special attention is devoted to the sufficiency of
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the collateral in backing the MBS, even independent auditors is ruled to be assigned to manage the
collateral
In Comminuque No:33, the prepayment risk is also addressed on the basis of the difference between the
interest rate of the mortgage loan and the prevailing market interest rates, as well as historical
prepayment ratios. Historical prepayment statistics for each of mortgage loan lender has to be evaluated
in light of the interest rate environment as well as the characteristics of the mortgage loan and borrower.
There exist many models in relation with prepayments in mortgage loans developed by taking into
account the specifics of US financial markets and borrower characteristics. However, developing a
repayment model on the basis of the dynamics of Turkish financial markets especially interest rate
environment, as well as characteristics of mortgage borrowers such as age, income level, availability of
equity is supposed to be the next step for the development of an active MBS market.
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Some Hedging Implications from a Prepayment Linked Present Value Model” in Fabozzi F.
(Eds),Mortgage Backed Securities (pp.289-325) Chicago: Probus Publishing.
Bandic, I. 2004. “Pricing Mortgage-backed Securities and Collateralized Mortgage Obligations”,
Mathematics of Finance, vol. 351, pp.171 - 185.
Brazil, A.J. 1988. “Citicorp’s Mortgage Valuation Model: Option-Adjusted Spreads and Options-Based
Durations”, Journal of Real Estate Finance and Economics, vol.1(2), 151-162.
Carron, A.S. and Hogan M. 1988. “Option Valuation Approach to Mortgage Pricing”. Journal of Real
Estate Finance and Economics, vol.1(2), pp.131-149.
Chinloy, P. 1989. “The Probability of Prepayment”, Journal of Real Estate Finance and Economics, vol.
2(3), pp.267-283.
Chinloy, P. 1991. “The Option Structure of a Mortgage Contract”. Journal of Housing Research, vol.2(1),
pp.21-38.
Cox, J., Ingersoll, J. and Ross, S. 1985. “A Theory of the Term Structure of Interest Rates”,
Econometrica, vol. 53, pp.385-408
Davidson, A.S., Herskovitz, M.D. and Van Drunen, L.D. 1988. “The Refunding Threshold Pricing Model:
An Economic Approach to Valuing MBS”, Journal of Real Estate Finance and Economics, vol.1 (2),
pp.117-130.
Dothan, L.1978. “On the Term Structure of Interest Rates”, Journal of Financial Economics, vol.6, pp.5969
Fabozzi, .F J. Bhattacharya, A.K. and Berliner, W.S. 2011. Frank J. Fabozzi Series: Mortgage-Backed
Securities : Products, Structuring, and Analytical Techniques (2nd Edition), Wiley.
Giliberto, S.M. and Thibodeau, T.G. 1989. “Modeling Conventional Residential Mortgage Refinancings”,
Journal of Real Estate Finance and Economics, vol.2 (4), pp.285-299.
Guo, J. H. 2005. Option-Adjusted Spreads of Mortgage-Backed Securities: a Client/Server System based
on Java and C++, Thesis, Department of Computer Science and Information Engineering, National
Taiwan University.
Hayre L. and Rajan, A. 1995. Anatomy of Prepayments: The Salomon Brothers Prepayment Model.
http://www.bnet.fordham.edu/rchen/smithbarneyattach.pdf
Kalotay A., Yang, D. and Fabozzi F.J. 2004. “An Option-Theoretic Prepayment Model for Mortgages and
Mortgage-Backed Securities”, International Journal of Theoretical and Applied Finance, vol.7(8),
pp.949-978.
Luytjes, J. 1990. Fixed Rate Prepayment Function. Memo to Office of Thrift Supervision.
Lacey, N.J. and Milonas, N.T. 1989. “The Determinants of GNMA Prepayments: a Pool-by-Pool Analysis”,
Journal of Real Estate Research, vol.36(1), pp.41-58.
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Richard, S., and Roll, R. 1989. “Prepayment on fixed-rate mortgage-backed securities”, Journal of
Portfolio Management, vol.15, pp.73-82.
Schwartz, E.S. and Torous, W.N. 1989. “Prepayment and the Valuation of Mortgage Backed Securities”,
Journal of Finance, vol. 44(2), pp.375-392.
Vasicek, O. 1977. “An Equilibrium Characterization of the Term Structure”, Journal of Financial
Economics, Vol. 5, pp.177-188.
AUTHOR PROFILE
Dr. Neslihan Topbas (Ph.D, Atilim University) is an Associate.Professor of Finance at Atılım University,
Ankara. Her areas of research include finance, financial markets and financial instruments. She has
published a book and book chapters as well as several articles in academic journals, including Journal of
International Trade and Economical Development and Journal of Applied Finance and Banking.
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APPENDIX
FORMULATIONS OF CASH FLOWS WITH REPAYMENT ASSUMPTION
Projected Monthly Payments (PMPt)
𝑃𝑀𝑃! = 𝑃𝑀𝐵!!!
𝑖((1 + 𝑖)!!!!!
(1 + 𝑖)!!!!! − 1
where
i
= Mortgage rate
PMBt
= Projected balance at the end of month t-1 after prepayments
Projected Monthly Interest (PIt)
𝑃𝐼! = 𝑖 𝑃𝑀𝐵!!!
where
i
= Mortgage rate
PMBt-1 = Projected balance at the end of month t-1 after prepayments
Projected Monthly Scheduled Principal (PSPt)
𝑃𝑆𝑃! = 𝑃𝑀𝑃! − 𝑃𝐼!
where
PMPt
=Projected Monthly Payment for month t
PIt
=Projected Monthly Interest for month t
Projected Monthly Principal Prepayment (PMPPt)
𝑃𝑃𝑅! = 𝑆𝑀𝑀! 𝑃𝑀𝐵!!! − 𝑃𝑆𝑃!
where
SMMt = Assumed single monthly mortality rate for month t
PMBt-1 = Projected balance at the end of month t-1 after prepayments
PSPt
=Projected Monthly Scheduled Principal for month t
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THE ROLE OF GRANT FUNDING IN A GRADUATE PROGRAM’S STUDENT
SUCCESS 2010-13: A LONGITUDINAL STUDY
Lee E. Allen, University of Memphis, Tennessee, USA
Louis A. Franceschini, University of Memphis, Tennessee, USA
ABSTRACT
Federal grant funds were provided for three cohorts of graduate-level students enrolled in an online
School Library Information Specialist (SLIS) program from 2010-2013; simultaneously, identical online
coursework was provided for non-grant funded students during the same period. The purpose of this
comparative assessment was to determine what, if any, differences existed in student success rates
between the grant-funded and non-grant-funded based on the following criteria:
•
Students’ course final grades
•
Students’ achievement of course “A” grade
•
Students’ course failure rate based on “F” grades and mid-course withdrawals
Keywords: Online graduate programs; graduate student achievement; role of grant funding.
1. INTRODUCTION
In June, 2010 the Institute of Museum and Library Services (IMLS), an independent U.S. federal funding
agency supporting “libraries and museums to advance innovation, lifelong learning, and cultural and civic
engagement” (IMLS.gov), provided funds to a major public university and three public school districts in
the mid-South to increase the number of fully qualified school library information specialists (SLIS) to fill
positions in the selected school districts, which were identified in the grant proposal as being of high-need
in the prescribed area.
The grant-funded project initially consisted of two cohorts; after selection by means of a competitive
application and evaluation process, the participants in the two cohorts enrolled in the graduate-level
online SLIS program at the university. The first cohort consisted of selected students committed to
completing the required credit hours for the SLIS program with coursework beginning in August, 2010; the
second cohort began coursework in August, 2011. Each of the first two cohorts initially consisted of 15
selected participants. Nine of fifteen participants in the first cohort completed all coursework (other than
the clinical practicum) in June, 2011; eleven of fifteen participants in the second cohort completed the
coursework (other than the clinical practicum) in June, 2012. The third and final cohort was added due to
the continued availability of the grant funding; eight participants were recruited for the last cohort whose
course work (other than the clinical practicum) was completed between January and December of 2013.
All data gathering and analyses were completed by May, 2014.
The control group consisted of students participating in the identical online courses, with all coursework,
syllabi, and schedules (including assignment and discussion due dates), during the same time period
(August, 2010 to December, 2013). However, these students paid for all tuition, fees, and textbooks
without the grant-funded scholarships, i.e. using their own funding sources and/or loans. These students
were not members of a cohort group, i.e., taking all courses together as an identifiable group, but were in
various stages of the SLIS program completion who took the same courses as the two grant-funded
cohorts during the semesters documented.
This study analyzed student performance in a school library information specialist graduate program that
was delivered 100% online between August 2010 and December 2013, and assessing the differences in
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student performance according to students’ having received grant-funded scholarships for all tuition, fees,
and textbooks, with students who did not receive the grant-funded scholarships.
2. LITERATURE
There is a somewhat significant body of recent research analyzing to what extent providing tuition for
students (via grants, scholarships, etc.) affects student performance in the coursework when compared to
coursework completed by students who financed tuition with their own, personal funds (or via student
loans, etc.) (McPherson & Schapiro, 1998; Woodhall, 2002; Cornell, Mustard & Sridhar, 2003; Mundel,
2008; Smith, 2008).
However, while some studies indicated that students whose tuition was paid for by grants or scholarships
with no requirement for repayment performed less successfully academically for various reasons (Patel &
Rudd, 2012), other research studies were inconclusive when comparing grant or scholarship funded
students with students who funded their own courses (Cornell, Mustard & Sridhar, 2003; Mundel, 2008;
Smith, 2008). One study (Ganem & Manasse, 2011) concluded that “(i)nstitutional scholarships, needbased aid, and estimated family contribution seem to be variables of high impact, while other traditional
variables play little to no role in predicting persistence, progression, and graduation (of college students)”
(p.7).
McPherson and Schapiro (1998) state that “from the standpoint of equal opportunity, there is little point to
devoting scholarship funds to students whose aptitudes and inclinations make them unlikely to benefit
from higher education” (p.6). However, when comparing the program completion rate between students
whose tuition was paid by grants or scholarships and those students who paid for their own tuition, the
research is somewhat more revealing and some studies link the source of funding as one important
variable in the student’s motivation for successful program completion, or, alternately, program attrition
(Mackie, 2001; Woodhall, 2002; Bennett, 2003).
A study of undergraduate Science, Technology, Engineering, and Mathematics (STEM) programs
(Navarra-Madsen, Bales & Hinds, 2010) concluded that a positive correlation existed between tuitionfunding via scholarships and “shows that given the financial and academic support, GPAs, retention and
graduation rates of STEM scholars are higher compared to STEM majors who are not funded” (p.463).
Another potential variable in the study presented is the nature of the coursework and program delivery,
which was 100% online. Some research has supported the premise that those students attempting to
complete coursework and entire programs entirely via online courseware are more likely to either fail the
courses or drop out of the programs prior to completion (Harrell, 2008; Nash, 2005). While studies can be
identified to support or negate the premise that programs delivered online are more prone to failed
coursework and/or a higher level of student attrition (Tyler-Smith, 2006), definitive attributes in predicting
student success or lack thereof in online programs are often difficult to identify (Willging & Johnson,
2004).
A potential factor in successful academic performance and program completion may be in the differences
between undergraduate and graduate degree programs (Mann, 2001). Because graduate programs can
be completed between 18 mos. and two years as compared with typical undergraduate degree programs
which can take four or more years to complete, graduate programs should show higher rates of
completion whether or not the tuition is grant-funded or not, and whether all the coursework is completed
online or not (Wilson & Allen, 2011; Paquin, 2012).
Pyke and Sheridan (1993) discussed the variables involved in the successful completion of a graduate
degree program, and the relevance of financial means:
The prediction of retention is of considerable importance. Costs to the individual, the
program, and the university are substantial, especially since decisions to drop out (or
decisions on the part of the university to dismiss a student) often come after several
years of study at the graduate level. The results of this investigation suggest that
curriculum choices…and rigorous attempts at securing adequate financial resources for
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students be given careful consideration by individual programs as well as by the
university administration. (p. 61)
Consideration of the multiple variables that may influence students’ performance in a graduate program,
including the sources of funding as well as program delivery (online, traditional in-classroom, or “hybrid”
coursework), are essential in coming to terms with students’ overall success in completing all coursework,
maintaining the required GPA, and program completion.
3. METHODOLOGY
This study identified and compared students’ academic performance and completion rate for five required
SLIS courses per academic year (Fall, Spring, and Summer semesters) during the period beginning
August 2010 and ending in December 2013, for a total of ten courses for each identified group. The grantfunded students consisted of three cohorts, identified as Cohorts 1, 2, and 3, who entered the SLIS
program in Fall 2010 and 2011, and Spring 2013, respectively; the non-grant-funded students took the
same courses as the two grant-funded cohorts during the semesters documented, but were not
participants in the SLIS program as an identifiable cohort or group. While the researcher conducted the
coursework and served as the instructor for the grant-funded cohorts, another faculty member was
responsible for the non-grant funded students’ instruction and grading.
To determine whether course outcomes differed significantly among grant-funded and not grant-funded
students, students’ grades were classified as being either an “A”, or another result (earned “B” to “F”
letter grade), and an “F” grade or official withdrawal from a course in mid-semester).
The comparison of academic performance between those identified as Grant-funded and Not Grantfunded for each course taken, along with comparison of the overall failure/withdrawal rates between the
identified groupings in the program overall, are provided in Table 1.
4. LIMITATIONS
The primary potentially limiting variable presented in the study is that of the instructor; while the
researcher was the program advisor for all students in all of the courses studied, a second instructor was
responsible for teaching the non-grant funded courses taught in parallel succession during the six
semesters the study was conducted. The courses were, however, identical in structure and content, and
used the same syllabi and course schedules with due dates for assignments and online discussions.
Therefore, while variability caused by personal teaching style can be considered to a certain extent when
comparing student academic performance and attrition rates between like courses taught by different
instructors, the tendency of “leveling” of instructor personality traits in 100% online course delivery
somewhat mitigates the variable which, in face-to-face classrooms, can play a significant role (TylerSmith, 2006).
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5. RESULTS ANALYSES
TABLE 1.
PERCENTAGES OF GRANT-FUNDED AND NOT GRANT-FUNDED STUDENTS’ COURSE
OUTCOMES COMPARED
Course
Not Grant Funded
A Grade
Other Outcome
n
%
n
%
Grant-Funded
A Grade
Other Outcome
n
%
n
%
2010 intro f
2011 intro f
2013 intro f
8
7
11
47.1
43.8
73.3
9
9
4
52.9
56.3
26.7
5
7
7
35.7
46.7
46.7
9
8
8
2010 sla f
2011 sla f
2013 sla f
12
8
6
52.2
50.0
42.9
11
8
8
47.8
50.0
57.1
8
10
6
57.1
66.7
75.0
2011 cc sp
2012 cc sp
2013 cc sp
6
10
15
46.2
62.5
71.4
7
6
6
53.8
37.5
28.6
9
10
4
2011 lit sp
2012 lit sp
2013 lit sp
11
11
15
68.8
64.7
68.2
5
6
7
31.3
35.3
31.8
2011 fl sum
2012 fl sum
2013 fl sum
13
12
12
65.0
60.0
66.7
7
8
6
All
157
59.5
107
Failure Rate
Not Grant Funded
F or W Grade
Other Outcome
n
%
n
%
Grant-Funded
F or W Grade
Other Outcome
n
%
n
%
Totals
36
13
13.6
228
φ
d
64.3
53.3
53.3
-0.11
0.03
-0.27
-0.22
0.06
-0.50*
6
5
2
42.9
33.3
25.0
0.05
0.17
0.31
0.10
0.35*
0.46*
75.0
76.9
50.0
3
3
4
25.0
23.1
50.0
0.29
0.16
-0.20
0.61*
0.32*
-0.22
8
7
7
66.7
58.3
87.5
4
5
1
33.3
41.7
12.5
-0.02
-0.06
0.19
-0.04
-0.12
0.20
35.0
40.0
33.3
8
9
6
80.0
75.0
75.0
2
3
2
20.0
25.0
25.0
0.15
0.15
0.08
0.30*
0.30*
0.04
40.5
111
63.1
65
36.9
0.04
0.02
φ
d
-0.10
-0.20
86.3
7.4
163
92.6
*Note: Value exceeds "What Works Clearinghouse" standard for a "substantively important" effect size.
To determine whether course outcomes significantly differed among participating students who were
grant-funded and not grant-funded, students’ grades were dichotomously classified as being either an “A”
or some other result (either a “B” to “F” letter grade or a course withdrawal). For each of the resulting 2 x
2 cross-tabulations, phi coefficients (f) were computed, along with equivalent values of Cohen’s d. Across
three years and fifteen course administrations, ten effects favoring the grant-funded students were
observed, with six of the ten exceeding “What Works Clearinghouse” standards for a “substantively
important” result (Institute of Education Sciences, U.S. Department of Education, February 2013, p .21).
Outcomes of this magnitude were observed for the “cataloging and classification” courses taken by the
grant-funded students in 2011 (d = 0.61) and 2012 (d = 0.32); for two “foundations” courses taken by
grant-funded students in 2011 (d = 0.30) and 2012 (d = 0.30); and for two “library administration” courses
taken by grant-funded students in 2011 (d = 0.35) and 2013 (d = 0.46). In contrast, only five of the fifteen
course administrations demonstrated effects favoring the non-grant funded students, and only one these
effects met WWC criteria for substantive importance: specifically, the advantage demonstrated in the
2013 course in “introduction to bibliography” (d = -.50)
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In addition to analyses concerning the comparative level of success that the two groups of students
achieved, their overall failure rate was examined by combining the total number of “F” grades and midcourse withdrawals (“Ws”) observed among those in the grant-funded group (n = 13/176 or 7.4%) and
those in the group that was not grant-funded (n = 36/264 or 13.6%). For this comparison, the resulting phi
coefficient that was computed proved to be small (φ = -.07) and by “What Works Clearinghouse”
standards, substantively unimportant (d = -0.14). At the same time, it should be noted that the
failure/withdrawal rate seen for the not-granted group was nearly twice that observed for the grant-funded
group.
6. CONCLUSIONS
The results’ analyses for each group, Not Grant-funded and Grant-funded, indicated a more positive
relation between overall higher course grade achievement and less failing grade or mid-course
withdrawal for the grant-funded students than for the non-grant-funded students. Because the students
participating in the courses during this study were not surveyed to determine specific reasons for either
academic achievement or academic failure/withdrawal, it was not within the scope of our research to
identify the factors that may have contributed to either outcome. As the effect size indicating the level of
significance for the academic achievement was relatively small (with the exception of five specific courses
where there was a “substantively important” difference between the Grant-funded and Not Grant-funded
groups), it also cannot be determined by this study that providing funding/scholarships for students
enrolled in a graduate-level online program has a significant effect on academic outcomes, either
positively or negatively.
However, although the comparison between the overall failure rate observed in the Grant-funded group
(7.4%) and those in the Not Grant-funded group (13.6%) provided a comparatively small, and
“substantively unimportant” difference between the two groups in terms of coefficients, an observer might
note that the difference between failure rates between the two groups is 6.2%, with the group that
received financial assistance via the grant-funded scholarships having a higher rate of successful
completion of the coursework and program retention (ca. 92%).
7. SUMMARY
During these times of worldwide economic crises, questions often arise as to whether governmentsponsored financial assistance for education provides a beneficial return-on-investment (ROI) for the
taxpayers funding such possibly risky endeavors. The many who oppose government intervention in any
aspect of citizens’ lives view efforts at improving individual education, health, or employment, along with
such benefits as grants, scholarships, or even low-interest loans, as tantamount to “handouts”, and argue
that there is no determinable ROI on such governmental funding. Others taking an opposing view would
counter that such intervention amounts to enhancing the overall well-being of the general populace, and
that such financial assistance is required of a government that views the stewardship of its citizenry as a
fundamental responsibility of a modern nation.
While this relatively small research study does not provide overwhelming evidence to support either side
of the argument over views in regards to governmental investment in its citizens versus taxpayersupported welfare distribution, its results contribute to the growing body of research that can attribute
academic success – even if at a modest level – to those students who were the beneficiaries of
government-sponsored grant funding.
REFERENCES
Bennett, R. (2003). Determinants of undergraduate student drop out rates in a university business studies
department. Journal of Further and Higher Education 27(2): 123-41.
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Cornwell, C.M., Mustard, D.B. & Sridhar, D.J. (2003). The enrollment effects of merit-based financial aid:
Evidence from Georgia's Hope Scholarship. University of Georgia Economics Working Paper No.
00-480: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=277313
Ganem, N.M. & Manasse, M. (2011). The relationship between scholarships and student success: An art
and design case study. Education Research International, vol. 2011, Article ID 743120, 1-8.
doi:10.1155/2011/743120
Harrell, I.L. (2008) Increasing the success of online students. Inquiry, 13(1), 36-44.
Mackie, S (2001). Jumping the hurdles: Undergraduate student withdrawal behavior. Innovations in
Education and Training International, 38 (3): 265-75
Mann, S. (2001). Alternative perspectives on the student experience: Alienation and engagement. Studies
in Higher Education, 26(1): 7-19
McPherson, M.S. & Schapiro, M.O. (1998). The student aid game. Princeton, NJ: Princeton University
Press.
Mundel, D. S. (2008). What do we know about the impact of grants to college students? In S.
Baum, M. McPherson & P. Steele (Eds.), The effectiveness of student aid policies: What the research
tells us, 9-38. New York: The College Board.
Nash, R.D. (2005). Course completion rates among distance learners: Identifying possible methods to
improve retention. Online Journal of Distance Learning Administration, 8(4). Retrieved August 31,
2012 from http://www.westga.edu/~distance/ojdla/winter84/Nash84.htm
Navarra-Madsen J., Bales R.A. and Hynds D.L. (2010). Role of Scholarships in Improving Success Rates
of Undergraduate Science, Technology, Engineering and Mathematics (STEM) Majors. Procedia
Social and Behavioral Sciences, 8(2010): 458-64.
Paquin, K. (2012) A comparison of hybrid/online and lecture college courses. Honors Projects Overview,
Paper 67: http://digitalcommons.ric.edu/honors_projects/67
Patel, R. & Rudd, T. (2012). Can scholarships alone help students succeed? MDRC report. Available at
Social Science Research Network (SSRN): http://dx.doi.org/10.2139/ssrn.2188758
Pyke, S.W. & Sheridan, P.M. (1993). Logistic regression analysis of graduate student retention. Canadian
Journal of Higher Education, XXIII (2), 44-64.
Smith, L.C. (2008). From Foundation to federal funding: The impact of grants on education for library and
information science. In Danuta A. Nitecki & Eileen G. Abels (eds.) Influence of Funding on
Advances in Librarianship (Advances in Librarianship, Volume 31). Bingley, UK: Emerald. 141-165
Tyler-Smith, K. (2006). Early attrition among first time e-learners: A review of factors that contribute to
drop-out, withdrawal and non-completion rates of adult learners undertaking e-learning programs.
MERLOT Journal Online Learning and Teaching, 2(2), 73-85.
U.S. Department of Education (2013). Institute of Education Sciences, National Center for Education
Evaluation and Regional Assistance, What Works Clearinghouse: Procedures and standards
workbook
(Version
3.0),
21.
Retrieved
May
30,
2013
from:
http://ies.ed.gov/ncee/wwc/pdf/reference_resources/wwc_procedures_v3_0_draft_standards_handb
ook.pdf
Willging, P. & Johnson, S. (2004). Factors that influence students' decision to dropout of online courses.
Journal of Asynchronous Learning Networks, 8(4), 105-118
Wilson, D. & Allen, D. (2011). Success rates of online versus traditional college students. Research in
Higher Education, 14(1), 55-62.
Woodhall, M. (2002). Paying for learning: The debate on student fees, grants and loans in international
perspective. Welsh Journal of Education, 11(1), 1–9.
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AUTHOR PROFILES
Dr. Lee E. Allen (Ed.D, Pepperdine University) is an Associate Professor and Program Coordinator for
the School Library Information Specialist program in the Department of Instruction and Curriculum
Leadership. Dr. Allen has served as technology consultant on numerous federal and state grants, and is
the Principal Investigator for the Institute of Library & Museum Services' Laura Bush 21st Century
Librarian grant in partnership with urban and rural school districts in Tennessee. He is currently the online
course development director for the West Tennessee Regional STEM Innovation Collaboratory grant. Dr.
Allen's research focuses on the integration of information technologies in the development and use of
knowledge and skills in the classroom, libraries, and everyday learning opportunities and environments.
Dr. Louis A. Franceschini (Ph.D, University of Memphis) is the Senior Research Associate at the Center
for Research in Educational Policy (CREP) and an adjunct faculty member in the Departments of
Educational Leadership and Instruction and Curriculum Leadership in the College of Education at the
University of Memphis.
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IDENTIFYING PURCHASE PERCEPTIONS THAT PROMOTE FREQUENT ECOMMERCE BUYING WITH SPECIAL REFERENCE TO UAE
Muhannad Khanfar, AL Ghurair University, Dubai, UAE
ABSTRACT
The research paper deals with the perception of the people in UAE on the e-commerce purchasing
process. However, the perception of consumers on e-commerce purchasing process used to differ from
an individual to an individual to another individual due to several positive and negative aspects of ecommerce. It is clear from both primary and secondary data analysis process that the demand for
online marketing activities is increasing significantly, but some individuals are concerned about the
account hacking threats during online payment process.
1. INTRODUCTION
Business environment in UAE is becoming highly competitive and saturated. It is true that B2C ecommerce purchasing activities is increasing significantly in UAE as several leading multinational or
domestic organizations are trying to market their products through online. In addition to this demand for
online buying and selling activities is significantly increasing among the people in UAE. Day-by-day, the
number of internet and social media network users is increasing significantly around the globe. UAE is
achieving significant economic growth as the business environment of this part in the world is improving
constantly. UAE is enriched with natural oil and gas resources. In addition to this, the government has
developed and implemented some effective policies in order to attract the leading multinational
organizations to enter in this part of the world. Favourable economic environment of UAE is motivating
several leading multinational organizations to enter in UAE. In addition to this, high purchasing power and
high disposable income of people is motivating several domestic and multinational firms to start business
operation activities in UAE. However, implementation e-commerce in the business operation activities has
become one of the important upcoming trends for the business organizations in the industry. Adoption
and implementation of e-commerce business operation activities can benefit both the organizations and
customers. Organizations can reduce business operation cost through the adoption and implementation
of this strategy. In addition to this, the organizations can bring efficiency in the overall business operation
process as it helps to\ reduce the overall business operation lead time. On the other hand, customers can
save their valuable consumption time and cost through online purchasing and payment process that are
offered by the e-commerce organizations. On the other hand, some people try to avoid online purchasing
and payment process due to some issues. However, it is true that several organizations are trying to
overcome these issues in order to maintain their brand image and constant business growth rate. The
perception about e-commerce buying used to vary from an individual to another individual due to some
individual experiences and thoughts of other people. Now-a-days, several organizations are trying to shift
from the concept of bricks-and-mortar stores to online e-commerce stores in order to meet current market
demand.
1.1. Research Objective
The objective of this research is to determine the e-commerce buying perception of the people in UAE.
2. LITERATURE REVIEW
There are numerous benefits of e-commerce. It is considered as that aspect of e-business which is
related to sales. It provides option to the consumers to select among a wide range of products especially
in situations when the product or service is not available in local and international markets. It also helps
consumers to save time and money. The use of online shopping has developed a lot at the national level
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as compared to cross-border sales. Due to this fragmentation, consumers may fail to take the advantages
of e-commerce such as cheaper prices and a wide range of choices for products. The retail sector in the
U.A.E. needs a better understanding of these situations such as the experience of consumers with
respect to online shopping and the related internet selling and marketing strategies. The main question
that is to be answered in this regard by UAE is whether e-commerce is delivering to its full potential in
respect of welfare of consumer such as choice, price, adequate protection and quality. If not, then U.A.E.
has to look into the matter and find out the size of missing potential, the main barriers in this regard and
the remedies. The missing potential could be the choices that are available online to consumers
regarding their products and the cheap prices.
The introduction of e-retail in the U.A.E. was done in the year 2009. It has been found that U.A.E. is one
of the five countries in the world in respect of the purchasing power of consumers of luxury accessories
and clothes. U.A.E. has a population which is estimated at 8.2 million. 13.3% of the population are
Emiratis, 23% non-Emiratis and the rest are from India. There are numerous companies such as
Tejari.com, Souq.com, BurjMall.com, and Brownbag.ae, which have designed strategies so as to fit the
needs of online consumers in the online market at U.A.E. The purchase of products online by the
consumers of U.A.E. rose to 42% in the year 2010 against 29% in the year 2009. According to Siddiqui
(2008), ten factors that are interrelated which contribute to online shopping behaviours and attitudes in
the U.A.E (Siddiqui, 2008, p.53). The factors are identified as external environment, personal
characteristics, demographics, product characteristics, quality of website, attitudes adopted towards
shopping online, intention for online shopping, decision making, online purchasing, and customer
satisfaction. External environment refers to the factors that are contextual and have a significant effect on
the online shopping behaviour and attitudes of consumers. It is a three dimensional system. The legal
framework is the first which protects the online buyers from any loss that may result on account of an
online transaction. The second is the recognition of third party which basically deals with the
trustworthiness of vendors that operate online. The third factor refers to the number of organizations that
are competing with each other. The factor demographics reveal that the online shopping market in U.A.E.
is led by the age group of 25- 44. Young women in the U.A.E. are resorting to internet to purchase goods.
Personal characteristics factor comprises internet knowledge of consumers, their need specifications,
cultural climate, trust disposition, involvement with the product, and the extent of sharing information and
values with others. Product characteristics provide information regarding the characteristics of online
stores, the products that are sold by them and the support services provided to support the transactions.
Website quality refers to the content of information on the company’s website, its presentation, searching
mechanism, navigation, security, technical features of the site, and media richness. Online shopping
attitudes reflect the attitudes of consumers which affect their intention to shop online and decide whether
there is a transaction ultimately. According to Ayass (2008), the intent to shop online refers to the
willingness of consumers to make purchases online (Ayass, 2008, p.48). It also refers to the fact whether
the consumer is making repeated purchases over the net and so it is also a representation of customer
loyalty. The decision to shop online refers to the seeking of information, comparison of alternatives, and
making choices by the consumers. Purchasing online refers to the actions of placing orders by the
consumers and also paying for it. Customer satisfaction refers to the extent to which perceptions of
consumers are confirmed by a favourable experience of online shopping. When the expectations of
consumers are met, a high degree of satisfaction is achieved by consumers and this influences their
attitudes, decisions, intentions, and the decision to shop online.
Numerous people in the U.A.E. are using their mobile phones more than their personal computers to
shop online. 29% of the people who uses internet in the U.A.E. have purchased products using their
smart phones compared to 26% people who have resorted to personal computers to do so. Moreover to
provide more security to consumers while transacting online, UAE based Emirates NBD has entered into
a partnership with Visa to use the system of Verified by Visa which will provide additional protection to
online consumers of UAE. This partnership has lead to the launch of Double Secure service. Online
bookings such as booking airline tickets over the net have proved to be very popular in the UAE. The ebanking concept has gained significant recognition in the UAE and this has resulted in increasing the trust
of people while handling their money online. This has also opened up growth opportunities in the region.
The most popular product that is bought online in UAE is clothing. According to Smith (2004) UAE has
seen a constant growth in sales after the introduction of e-commerce (Smith, 2004, p.11). As the
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consumers find a wide range of products to choose from and they also save time and money, it is very
beneficial for them to buy products online. There are many companies in the UAE which have designed
their strategies to suit the needs of online consumers. Every organization has to focus on e-commerce to
achieve more business (Darby, 1998, pp. 241-243). It became a standardised tool for every organization
to implement business. The monitoring of the e-commerce system requires an organization to measure
current values against the values that are expected i.e. planned values. To achieve efficiency in this
regard, the subsystems of the e-commerce system must be efficient as well. According to Paua (2003),
there are three measurement systems within the system of e-commerce such as performance
measurement, success measurement, and the testing of usability (Paua, 2003, p.28). Performance
measurement refers to the technical parameters which are to be measured such as loading time of the
web page, the time taken to process user commands, and the speed of reporting, etc. Success
measurement should provide a link between the e-commerce system and the company objectives.
Testing of usability is done in a laboratory. The companies in UAE that are focusing on e-commerce as a
means to increase profitability must also understand that there are negative aspects of e-commerce.
There is a lack in security while transacting online as well as the inability of consumers to test the product
before buying it can be considered as drawbacks of the e-commerce system. According to Blythe (2011)
the organizations that are considering e-commerce as a basis for increasing their profitability must take
note of the drawbacks of the e-commerce system and design their strategies accordingly (Blythe, 2011,
p.32). The consumers should feel free while purchasing products online. If this is achieved, the
organizations will be in a much better position to take advantage of e-commerce.
3. RESEARCH METHODOLOGY AND DATA COLLECTION
An appropriate and effective research is required in order to determine the fundamental principles of
several important positive incidents of a research work. It is highly important for an organization or a
researcher to adopt an appropriate research method in a research work in order to get positive research
outcome. Research methodology can be categorized into two parts, such as qualitative research
methodology and quantitative research methodology, these two research methodologies have own
advantages and disadvantages that need to be considered by the researchers during the application of
these methodologies in the research work. Generally qualitative research methodology used to deal with
inner feelings, emotions, attitudes, gestures, thoughts and behaviours of people towards the research
topic. On the other hand, quantitative research objective used to deal with the analysis and evaluation of
sourced and gathered data and information. It can be considered by several organizations to adopt and
implement effective and appropriate research methodology based on the nature of the study (Maylor and
Blackmon, 2005, p.21). This particular research work is exploratory in nature in which the feelings,
opinions, thoughts, behaviours and attitudes of people can be considered as the source of data and
information. On the other hand, qualitative research deals with the feelings, emotion, views and thoughts
of people. Therefore, it can be stated that the adoption and implementation of qualitative research will be
effective in this research due to the exploratory nature of the study. It is true that the qualitative research
methodology used to focus on describing the system or process of defining and measuring several
important variables.
Qualitative research methodology can be categorized into several important approaches under three
major orientations. Theory building approach, interpretative approach and language orientated approach
can be considered as three different approaches in the qualitative research methodology. However,
researchers generally implement language oriented approach in the research method in order to execute
language and meaning of the words. Interpretative approach can be considered as throughout description
and interpretation of several important social phenomena that are centrally focused (Kolb, 2008, p.17).
Lastly, theory building approach generally evaluates the connection between several important several
important social phenomena. However, qualitative research methodology can be implemented in this
study due to the interpretative orientation of the research.
Data analysis can be considered as an important aspect in a research work. Data collection process can
be categorized into two parts, such as primary data collection process and secondary data collection
process. Primary data collection process can be defined as the process of sourcing and collection of raw
and live data from several practical field works. On the other hand, secondary data collection process can
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be considered as the sourcing and collection of data from several existing databases. There are several
advantages and disadvantages of these two data collection processes. Primary data collection process
can be considered as most important data collection process that helps the researchers to source current
and up-to-date data and information that can help the researchers to enhance effective and positive
research outcome. In terms of disadvantages, primary data collection process is highly cost and time
consuming that can increase the research cost and research time. It can affect overall research outcome.
On the other hand, a research can source effective and large number of data and information in limited
time and cost that can bring efficiency in overall research process. In terms of disadvantages, validity and
appropriateness of the collected data through secondary data collection process cannot be determined.
Looking into the advantages and disadvantages of both the data collection process, it can be stated that
the adoption of both primary and secondary data collection process will be effective. Several academic
text books and the views of several authors have been considered as the effective secondary data
collection sources (Lyons and Coyle, 2007, p.11). In terms of primary data collection process, the
researcher has incorporated an open ended interview process to source and gather effective data.
It is true that the researchers generally adopt different types of primary data collection processes apart
from the interview process. Focus group interview process also can be incorporated in this research work.
In addition to this, focus group interview process can be considered as both time and cost effective data
collection process. But, it is highly difficult for the researchers to accumulate the individuals of a large
group. So the monitoring and controlling each and every interview can become more challenging and
difficult. Therefore, it will be effective for the researcher to incorporate the simple open ended interview
process for the purpose of the study.
Interview process can be considered as much more flexible data collection process comparing to other
primary data collection processes. Interview process can be divided into three categories, such as
structured interview process, semi structured interview process and unstructured interview process. 50
customers of UAE have been selected as the respondents in this data collection process. The responses
and answers of these respondents have been effectively gathered during the open ended semi structured
interview process in order to enhance effective and positive research outcome. The questionnaire for this
open ended semi structured interview process has been developed in the appendix part.
4. DATA ANALYSIS AND FINDINGS
37 respondents out of 50 have replied that they used to buy products through online. These 37
respondents have replied that the people can save consumption cost and time through the online
consumption and payment activities. They have replied that daily busy work schedule force them to buy
products and services through online. On the other hand, rest of the 13 respondents have replied that
they are not comfortable with the online consumption process and purchasing activities due to several
associated risk factors. 36 out of 50 respondents have replied that they are quite happy with the
organization’s e-commerce business process as it helps them to gain products and services in quick
period of time comparing to the traditional shopping and consumption activities. On the other hand, 12
respondents out of the 50 respondents have responded that they faced problems during the online
payment process due to the systems breakdown. On the other hand, rest of the 2 respondents have
replied that they have negative perceptions on the e-commerce business activities. Each and every
respondent has stated that the organizations should try to ensure effective quality control in the online
marketing activities. 2 respondents have experienced inadequate service quality as the organizations
failed to maintain efficiency in the online order processing and online payment procedure. Adequacy and
efficiency are the major aspects that need to be integrated in the e-commerce business operation process
in order to enhance effective business performance. All the 50 respondents have replied that the
organizations should try to hire or appoint expert technological professionals who can fix the issues and
problems and ensure effective online business operation process. Order processing, order delivery and
online transaction are the major characteristics of an e-commerce business operation. Therefore, it is
highly important for the organizations to ensure security of the personal information of the users or
business clients during the online payment process to maintain its strong brand image in the competitive
market place.
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In terms of economic stability, all the 50 respondents have replied that e-commerce purchasing activity
can help the people to maintain their economic stability. They have replied that organizations are
adopting online business operation activities due to growing market demand. In addition to this, the
organizations can reduce their overall business operation cost by the adoption and implementation of ecommerce business operation strategy. Therefore, it will help the organizations to offer products at
competitive and economic price level. Apart from online hacking of personal details and security issues,
each and every respondent has replied that the cost reduction process will help the e-commerce
organizations to offer products at economic price to grab the market share of other existing organizations
(Alrawi and Sabry, 2009, pp. 509-526).
It has been discussed earlier that some respondents are unhappy with the e-commerce services of some
organizations. Those unhappy respondents have replied that the e-commerce organizations should
consider the customer feedback regarding the online product delivery or payment services to improve
efficiency in the business operation process. Last but not the least; each and every respondent has
agreed the upcoming social trend of e-commerce purchasing activity can reduce the demand of traditional
shopping and consumption activities. Each and every respondent has replied that the number of internet
users in UAE is increasing at a rapid pace. Therefore, recent market demand and favourable external
environment for e-commerce business can abolish the demand for traditional bricks-and-mortar business
operation process. In addition to this, low consumption effort can increase the demand for online ecommerce purchasing activities.
In terms of findings, it can be stated that several individuals among all the respondents are highly
concerned about the online transaction or online order delivery process. It is true that several
organizations are trying to adopt and implement effective strategies in the business operation process in
order to enhance effective business performance. But, it is clear from the responses from the
respondents that the organizations need to improve the security aspect of the websites during the online
payment process to secure the personal information and account details of the buyers.
5. DISCUSSION
It is clear from above analysis and findings that the trend of e-commerce purchasing has increased
significantly among the people of UAE. UAE is gaining positive economic growth rate. It is helping the
government of the country to motivate several leading multinational organizations to enter in the
competitive market place. Now-a-days, several leading organizations are trying to adopt and implement
advanced technological processes in the business operation activities in order to enhance effective
business performance and gain potential competitive advantages. On the other hand, demand for online
product or service consumption is significantly increasing among the people of UAE as it help to reduce
their consumption time and cost. It is clear from the data analysis part, 70 percent respondents used to
purchase products or services through online. But, in terms of cyber hacking and security of personal
details, each and every respondent is concerned. It is the responsibility of the organizations to sue
effective business operation resources in the business operation activities to ensure high quality control.
Therefore, it is true that several organizations need to ensure effective business operation activities to
protect the information of customers and business clients to maintain its high brand image in global
market place. In addition to this, it is highly important to use advanced and high quality technological
resources and tools in the business process to ensure effective e-commerce business operation activities
(Lowe, 2012). Despite the presence of several leading multinational organizations, the leading domestic
firms are also trying to implement e-commerce business operation strategies in the business process in
order to grab the market share of the leading multinational organizations. However, people are only
concerned about the quality of service and security of personal details. Therefore, it is quite important for
each and every organization to focus on issues and overcome them to gain effective customer loyalty.
6. CONCLUSIONS
UAE can be considered as one of the developing countries around the globe. This effective constant
economic growth rate is motivating several organizations to enter into the emerging UAE market and
doing business practices. Demand for online marketing activities is significantly increasing among the
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people of UAE. Therefore, several new entrants are also following the strategies of leading multinational
organizations by introducing e-commerce business operation activities. Several individuals may have
either negative or positive perception about e-commerce purchasing activities. People generally prefer ecommerce purchasing process in order to reduce the consumption time and cost. On the other hand,
some individuals generally have negative perceptions on e-commerce purchasing activities due to several
problematic reasons and issues. It is true that, in some cases several leading organizations also face
issues regarding the theft of personal information and account details of the customers and several
business clients. It is highly important for the organizations to take care of the needs and demand of
people. The business environment in UAE is becoming highly competitive as several organizations are
trying to implement competitive strategies in the business operation processes in order to gain potential
competitive advantages. Therefore, effective sustainability and assurance of high quality security can help
the organization to maintain effective brand image among the target customers.
REFERENCES
Alrawi, K. and Sabry, K. 2009. E-commerce evolution: a Gulf region review. International Journal of
Business Information Systems. Vol 4(5). pp. 509-526.
Ayass, T., 2008. Investigation of the Antecedents of an E-Commerce trust model. London: ProQuest.
Blythe, S., 2011. E-Commerce law around the world. London: Routledge.
Darby, R. 1998. E-commerce marketing: fad or fiction? Management competency in mastering emerging
technology. An international case analysis in the UAE. Journal of Enterprise Information
Management. Vol 16(2). pp. 241-243.
Kolb, B., 2008. Marketing Research: A Practical Approach. London: Sage.
Lowe, A. 2012. UAE holds largest share of e-commerce sales in region. [online]. Available at:
http://gulfnews.com/business/retail/uae-holds-largest-share-of-e-commerce-sales-in-region1.970176. [Accessed on 20th February, 2014].
Appendix: Interview Questions
Lyons, E., and Coyle, A., 2007. Analysing Qualitative Data in Psychology. London: Sage.
Maylor, H., and Blackmon, K., 2005. Researching in Business and Management. London: Palgrave
Macmillan.
Paua, F., 2003. The Global Information technology Report. London: Oxford University Press.
Siddiqui, H., 2008. Investigation of Intention to Use E-commerce in the Arab Countries. London:
ProQuest.
Smith, G., 2004. Control and Security of E-Commerce. New Jersey: John Wiley & Sons.
AUTHOR PROFILE
Dr. Muhannad Khanfar is affiliated with AL Ghurair University, Dubai, UAE.
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APPENDIX
Name:
Age:
Income:
Nationality:
1. How frequently do you purchase products through online?
2. Are you satisfied with e-commerce consumption process?
3. How do you moderate quality in the consumption process?
4. Can you recommend some aspects to enhance effective e-commerce business operation
activities?
5. What are the impacts of e-commerce purchasing activity on your economic stability?
6. Do the e-commerce organizations need to focus on customer feedback during the
strategy development process?
7. Does the upcoming trend of e-commerce purchasing can abolish the demand for
traditional bricks-and-mortars consumption process?
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AMERICAN GLOBAL HEGEMONY IN THE 21ST CENTURY AND THE AMERICAN
PUBLIC DISCOURSE
Marcela Ganea, Artifex University of Bucharest, Bucharest, Romania
ABSTRACT
This paper emphasizes that American hegemony is above all a matter of discourse, and American
st
public discourse creates relations of power and imposes American global hegemony in the 21 century.
American public discourse exercises power, establishes relations, influences opinions and defines
international order. My paper relies on two main ideas: that identity is constructed and performed
through discourse (Michel Foucault), and discourse imposes power (Norman Fairclough). Discursive
activities construct identity and categorizes. Identity is thus created through the representative function
of the discourse, that defines the relations between the discourse producer and the audience, and
through its expressive function, that reveals ideologies and attitudes. Language creates discursive
realities. It shapes ideas, moods and state of affairs, and causes behaviors. It is the tool to stabilize or
destabilize, to suggest and to persuade, to embarrass and to influence. Also, it betrays intended and
unintended effects.
Discourse analysis proves to be very useful to understand policies and diplomacy. Interpretation is a
double-fold effort to analyze and to corroborate them with the elements of the discourse: producer,
audience, setting, context, etc. We should also keep in mind that there may be a hidden purpose of the
discourse beyond the apparent aim and the “soft power’ embedded in language acts efficiently. Skills in
discourse production and discourse analysis are useful for public speeches. It is a fact that international
relations, conflict resolution and crises rely heavily on negotiation skills and rhetorical abilities.
Persuasion proves to be a strong weapon to solve issues and to impose leadership.
Keywords: discourse analysis, hegemony, persuasion, public speech, rhetoric, power.
1. INTRODUCTION
This paper intends to emphasize that American hegemony is above all a matter of discourse. Hegemony
is expressed in American public discourse which creates relations of power, establishes relations,
influences opinions and defines international order, and ultimately, imposes American global hegemony in
st
the 21 century. Language structures express meanings, opinions and ideologies, and these should be
corroborated with the context.
The idea in my paper is that America creates its identity as the world’s leader through public discourse,
especially through what is known as Exceptionalist discourse, and this kind of discourse defines
America’s relations with the world and establishes relations of power. American public speeches have
utmost importance in today’s world because America is perceived to be the hegemon; its discourse,
therefore, will reveal trends in international relations and global order.
The paper is structured into two parts: 1) the first theoretical part sets the paradigm to be used for
discourse analysis: a combination of Cultural Studies and Critical Discourse Analysis, and introduces
authors such as Siobhan McEnvoy Levy, Donald E. Pease and Bradley F. Podliska who extensively
described the method of discourse analysis in understanding American public discourse; 2) the second
part is a practical analysis exercise for 3 speeches: President Barack Obama’s speech on 3 April 2009
at the NATO Summit in Strasbourg, France, President Obama’s speech on 15 April 2010 at John F
Kennedy Space Center in Florida, and President Barack Obama’s speech in Brussels, at the Palais des
Beaux-Arts, on 26 March 2014, during which he urged European nations to back NATO on the standoff
with Russia . I have chosen these 3 speeches because: a) they are long and comprehensive enough so
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as to reflect a variety of ideas and language techniques expressing America’s leadership and b) there is
something special about each of these speeches, namely: 1) on 3 April 2009 at the NATO Summit in
Strasbourg, France, President Obama received the question: “Do you believe in American
Exceptionalism?” and he gave the famous reply that stirred controversies: “I believe just as the Brits
believe in British Exceptionalism and the Greeks believe in Greek Exceptionalism”; 2) on 15 April 2010 at
John F Kennedy Space Center, President Obama suggested that America wanted to be the leader not
only on Earth but also in the outer space, 3) on 26 March 2014 at the Palais des Beaux-Arts in Brussels,
the speech betrayed a similarity with the former rhetoric of the Cold War, dividing the world into two:
Russia, former Soviet Union, and the rest, and defining America as the savior.
Siobhan McEnvoy Levy sees discourse as a major tool in understanding action. She dedicates her entire
book, “American Exceptionalism and US Foreign Policy – Public Diplomacy at the End of Cold War”, to
the study of the rhetoric of American public speeches, or “public diplomacy”, as she calls it, because: a)
rhetoric is an “analytical priority, a key tool in understanding endeavors” such as: US foreign policy, the
survival and effectiveness of US Administrations, b) rhetoric is a tool in shaping opinions, and c) rhetoric
is a means for other countries to evaluate the US and its intentions. The importance of public discourse
and especially of the Exceptionalist discourse appears as major in Siobhan McEnvoy Levy’s book as she
identifies public discourse (public diplomacy) so powerful that it can have “unintended consequences” and
create or undermine international stability: “Public diplomacy can have unintended consequences. US
rhetoric is often a primary means by which other international leaders, governments and organizations
evaluate the US and its intentions. It is not possible to dismiss such rhetoric as meaningless or lacking in
consequences. Regardless of whether US’ officials mean what they say or not, US public diplomacy is
instrumental either in creating international stability or in undermining it. This alone legitimizes a careful
and sensitive analysis of US foreign policy rhetoric” (McEnvoy Levy, 2001, p. 5).
Discourse analysis provides valuable information about how America sees itself and what are the values
it wants to reflect and to promote across the world: “An examination of speeches and statements can
provide information about what a given Administration identifies as the source and strength of its power
and how it perceives the US’ place in the world. It provides evidence of how certain US elites wish the US
to be viewed either at home or abroad” (McEnvoy Levy, 2001, p. 5)
Siobhan McEnvoy Levy takes Exceptionalist discourse as an example because it helps justifying the US
foreign policy. In order to identify meaningful elements, she stresses that “techniques from the study of
linguistics – semantics, pragmatics and discourse analysis – allows us to chart dialogues and contests
between political actors (states, international institutions, publics)” (McEnvoy Levy, 2001, p. 5). On the
other hand, we should to correlate these meaningful elements with the context because in many cases,
the same Exceptionalist elements may be used for different purposes. To note the flexibility of a
discourse which allows re-arranging the same elements under different circumstances and the result is
the same idea with different nuances: “The adaptive use of American Exceptionalism is meaningful
beyond a purely strategic function. Two administrations may differ but the maintenance and recasting of
the Exceptionalism theme points to the existence of enduring principles” (McEnvoy Levy, 2001, p. 5).
Siobhan McEnvoy Levy makes a subtle difference between intended and unintended consequences of a
discourse. The outcome of her research suggests precisely that the US relies heavily on rhetoric to build
consensus and to gain support, and turns official statements into “mood shapers” (2001, p. 3) which
confirms that discourse always has a “desired effect” (McEnvoy Levy , 2001, p. 3):“The strategic
communicator exploits knowledge of the media, human psychology, public opinion and culture to shape
and target messages so that their desired effect is maximized and their unintended effects are minimized”
(McEnvoy Levy, 2001, p. 3).
In addition to being “mood shaper”, American public discourse proves its instrumentality in establishing
relations of “power and hegemony” (McEnvoy Levy, 2001, p. 5) in international relations. Once
pronounced, it triggers reactions and actions of either consensus or rejection: “The US governmental
official makes efforts to construct and maintain shared beliefs about international affairs, establish
interpretative control in the rhetorical political sphere and build elite and public consensus through the
use of persuasive oral communication” (McEnvoy Levy, 2001, p. 3)“US political administrations are
primarily reliant on their public diplomacy skills in two related ways. Cumulative routine rhetoric creates a
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climate of belief, a consensus on broad values, which supports and enables the contingent use of
rhetoric for achieving specific foreign policy issue and international events” (2001, p. 3) “Official
statements are mostly mood shapers, the vehicles for explanation of values, grand strategies and overall
postures – what the US stands for, its purpose and interests” (McEnvoy Levy, 2001, p. 4).
One possible explanation for America’s desire to be the hegemon on the global stage may be the belief in
American Exceptionalism which is a concept difficult to define, it is made up of ideas that position
America as unique, exceptional and an exception as against the rest of the world. That American
st
Exceptionalism serves geo-politics is a recurrent idea in many authors in the 21 century. As Donald E.
Pease argues, “when one version of American exceptionalism no longer suited geopolitical demands,
policymakers reconfigured its elements to address the change in geopolitical circumstances” (Pease,
2009, p. 9). Pease emphasizes that American Exceptionalism, whose meaning stays the same, is subject
to reconfiguration based on certain elements that can be combined at a specific moments in history so
that Exceptionalism justify actions in American politics: “American Exceptionalism managed to survive as
the dominant fantasy in the Cold War culture precisely because the incompatible elements out of which it
was composed lacked fixed relationship to a binding state of affairs. The determination to make its
phrases symbolically efficacious was a function of the historical events to which the fantasy was linked”
(Pease, 2009, p.9).
Wendy McElroy, journalist, published an article on “The Tension within American Exceptionalism” on 21
January, 2013 on the website of “The Future for Freedom Foundation”, www.fff.org, in which she
explains in simple words that a self-assessed and self-assumed superiority permeates American foreign
policy and this superiority is American Exceptionalism. We understand from her interpretation that
American Exceptionalism is invoked to justify action and it is defined by a self-assumed superiority:
“American Exceptionalism claims that there is something qualitatively different and better about the US as
compared to any other nation; it is socially and politically superior. This means Americans are inherently
better than individuals born elsewhere. Thus, Americans have a duty to spread their form of liberty and
democracy, that is, their character, around the globe”.
Wendy McElroy considers that “The concept of American Exceptionalism is a key foundation of American
freedom and militarism, individualism and imperialism” and “American Exceptionalism is a key
assumption driving the US military’s global presence, even in nations that pose no threat to the US
security”, in the name of preserving regional and global security and ultimately, its own hegemonic power.
Bradley F. Podliska states in his book entitled “Acting Alone – A Scientific Study of American Hegemony
and Unilateral Use of Force Decision Making”, that the answer to the question: “Why would any president,
whether Republican or Democrat, decide to enter or respond to a crisis with unilateral US military force,
when the perceived “right” decision is to approach the crisis multilaterally and use allies?”: “a simple
explanation: hegemonic power. The US, as a hegemon, possesses the strength to use unilateral military
force, and the disparity of military power between the US and the other nations serves as an incentive for
a president to act unilaterally”. “The US, as a hegemon, uses its power to provide and maintain the public
good of international order and security and it does so unilaterally a majority of the time” (Podliska, 2010,
p.2).
The idea that the US is invincible and invulnerable due to its political, military, economic and social
superiority became part of the American psyche. We understand that the US claim to leadership is the
effect of: 1) the belief in a unique divine mission, and the Manifest Destiny that America has, felt as a
st
Christian duty to help nations in the 21 century, and translated into justification for the American foreign
policy, 2) the US exceptional military strength.
As Noam Chomsky notices in his book “Hegemony or Survival: America's Quest for Global Dominance”,
the US purpose is always hegemony.
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2. PRACTICAL EXERCISE IN DISCOURSE ANALYSIS
President Obama’s speech on 15 April 2010 at John F Kennedy Space Center in Florida, dedicated to
NASA history and activities, reveals America’s wish to be the leader in the outer space as well, not only
on Earth, thus prolonging hegemony. By achieving new results in the outer space, the US would position
itself above the rest of the world in terms of science, technology, knowledge and prestige and preserve
absolute leadership: “Fifty years after the creation of NASA, our goal is no longer just a destination to
reach. Our goal is the capacity for people to work and learn and operate and live safely beyond the Earth
for extended periods of time, ultimately in ways that are more sustainable and even indefinite. And in
fulfilling this task, we will not only extend humanity’s reach in space—we will strengthen America’s
leadership here on Earth”.
The speech betrays the belief in America’s exceptional character, endowed with innovation, venture and
progress: “For me, the space program has always captured an essential part of what it means to be an
American – reaching for new heights, stretching beyond what previously did not seem possible. So, as
President, I believe that space exploration is not a luxury, it’s not an afterthought in America’s quest for a
brighter future – it is part of that quest”.
The interest in the outer space is a continuation of the expansion of the frontier, which has remained one
th
of the American characteristics, since the 17 century, Westward expansion of the territories through the
th
20 century expansion of its influence and presence across the world, the 21th century sees the
expansion of the American frontier into the outer space. The theme of the frontier is recurrent in American
public speeches, which reveals once again America’s Manifest Destiny to expand and its propensity to
hegemonic presence. The choice of the key words such as “fail”, “cede”, “our future”, “seek”, “American
character”, the repetition of the verb “do”, imply determination, pride and a clear objective: “what we do –
or fail to do – in seeking new frontiers is no less consequential for our future in space and here on
Earth”.(…) “if we fail to press forward in pursuit of discovery, we are ceding our future and we are ceding
that element of the American character”.
President Obama’s goals sound very brave. Although he admits that “people in Washington – driven less
by vision and more by politics” cut NASA budget, he expresses his intention to increase the budget for
development of equipment to explore the outer space with 6 billion USD over the following 6 years and
he defines brave objectives for NASA exploration plans. Phrases such as “ramp up”, “demanding
targets”, “advancing capabilities”, “step forward”, and “leadership in space” suggest again determination,
pride and rejection of the idea that another power may achieve or equal American capabilities: “We’ll
start by sending astronauts to an asteroid for the first time in history. By the mid 2030s, I believe we can
send humans to orbit Mars and return them safely to Earth. And a landing on Mars will follow. (..) so I
believe it’s more important to ramp our capabilities to reach and operate at increasingly demanding
targets, while advancing our capabilities with each step forward. And that’s how we will ensure our
leadership in space in this century even stronger than it was in the last century”.
Another stance of hegemony imposed through discourse - at the NATO Summit in Strasbourg, France, on
3 April 2009, President Barack Obama delivered a speech based on the idea that the US is the leader of
the world and indispensable to the rest of the world. His technique was to simultaneously position
America as a partner and as the leader: “The United States came here to listen, to learn, and to lead,
because all of us have a responsibility to do our parts”. By mentioning America at the end of his
statements, he always stresses actually America’s position as the leader.
During this speech, President Barack Obama received a question regarding his belief in American
Exceptionalism from Ed Luce, a Financial Times journalist who asked: “could I ask you whether you
subscribe, as many of your predecessors have, to the school of American Exceptionalism that sees
America as uniquely qualified to lead the world, or do you have a slightly different philosophy?”. Barack
Obama’s answer: “I believe in American Exceptionalism just as the Brits believe in British exceptionalism
and the Greeks believe in Greek exceptionalism” was the beginning of a series of critical remarks.
Political opponents and analysts jumped to conclusions and separated his statement from the rest of the
context that actually completed the meaning. Obama’s speech in Strasbourg was not recognized as a
typical Exceptionalist discourse stating America’s leadership in the world because it was softer in
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appearance, and it had a more reconciling and cooperative propensity, calling for shared responsibility in
the world, which gave the impression that America gives up its leadership: “It's always harder to forge true
partnerships and sturdy alliances than to act alone, or to wait for the action of somebody else”. However,
Obama emphasized very well America’s unique qualities: its strength, its endeavors and its leadership.
He subtly criticized the attitudes that blame America suggesting this is ungratefulness towards the
sacrifice America makes for the world in its messianic effort: “Instead of recognizing the good that
America so often does in the world, there have been times where Europeans choose to blame America
for much of what's bad”. This remark gently imposes America’s power and requests general recognition
thereof.
President Obama’s statement was later on separated from the following statements, and it was criticized
by many, among which Newt Gingrich in his 2011 book on American Exceptionalism, as a statement of
somebody who does not believe in the American Exceptionalism since it allows comparison. America is
unique and cannot be compared. However, Barack Obama’s further statements during this interview at
the NATO summit in Strasbourg completed and confirmed that Obama continues the Exceptionalist
school: “the United States remains the largest economy in the world. We have unmatched military
capability. And I think that we have a core set of values that are enshrined in our Constitution, in our body
of law, in our democratic practices, in our belief in free speech and equality that, though imperfect, are
exceptional”.
Any criticism to Obama’s reply is not grounded: first, it is to note that Obama mentioned actually 2 former
big empires, the Brits and the Greeks, and his first sentence can be interpreted as an implicit metaphor
that the US is also a big power. Second, Obama’s following sentences actually emphasize American
Exceptionalism.
Obama’s statement “I believe in American Exceptionalism just as the Brits believe in British
exceptionalism and the Greeks believe in Greek exceptionalism” was further on criticized by many voices
that interpreted it in a simplistic manner and taken out of the context. In an article “published on 31
August, 2010 in the Forbes online edition, Mallory Factory, a member of the Council of Foreign Relations,
chair of the Joint Chiefs of Staff Economic Roundtable and cofounder of The Monday Meeting, an
influential meeting of economic conservatives, journalists and corporate leaders in New York City,
wonders whether Obama is an „exceptional” president of the USA because he does not believe in
American Exceptionalism and fears that „in a new era without an American frontier, or even a Cold War or
the Apollo moon program”, the American leaders may not still believe that „America has retained its
unique American spirit and destiny” and if they don’t believe in American Exceptionalism, this may have
consequences upon America’s fate. The author’s reaction confirms that the Exceptionalist discourse is a
must in public speeches because it creates that “state of fantasy”, explained by Donald E. Pease, “that
supplies the horizon of expectations orienting the significance of available representations from the
national mythology” (Pease, 2009, p. 5). For instance Mallory Factory accuses Obama of being too global
and less national; the use of “humbly”, “large groups” suggest indirectly a potential loss of the image of
global leadership and hegemony: „President Obama favors global summits in which we participate
humbly among large groups of the world’s nations. He has embraced meetings of the G-20 group of
countries, including China and Russia, as a more “global” replacement for the G-7 meetings of the seven
largest industrial democracies. He also embraces global, rather than national, solutions to the current
economic crisis”.
Mallory Factory’s interpretation proves that American public discourse must be basically Exceptionalist
because, as Pease states, it is “a regulatory fantasy that enabled US citizens to define support and
defend US national identity” (Hodgson, 2009, p.11) and it is also “morale-building and invigorating”, as
Hodgson says (Hodgson, 2009, p. 14). The tradition of Exceptionalist discourses usually embraces a
narrative of American facts, values and beliefs that cannot be compared and must appear as separate
from the rest of the world. Comparisons and mixing the Americanist, nationalistic discourse with a
globalized tinge are not acceptable. Hodgson also explains that there is “a new intolerance, a new
demand for uncritical assertion of national superiority” (Hodgson, 2009, p. xii).
st
Mallory Factory’s article also proves that American public discourse in the 21 century must be
interpreted in the current geopolitical contexts: the economic crisis started in 2007 and the government
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shutdown in October 2013, the rising China and other emerging powers after 2010. With domestic
economic and social issues at stake, with rising economic and military powers and potential other
geopolitical poles emerging, the US must take into account international dialogue and cooperation and a
new more subtle rhetoric of imposing itself as the leader.
However, this interpretation focuses too much on the Obama’s statements and ignores the possibility of
ambivalence in Obama’s discourse by corroborating statements with facts and Obama’s political
decisions. An overall view of Obama’s speeches after becoming the President of the US reveals indeed a
more ”humble” and reconciling tone which is misleading. Professor James Petras, writing for “Global
Research” think tank, explains that Obama has a “double discourse” which he uses for instance when he
speaks of war: he claims he is against war while he continues the same bellicose military policies like his
predecessors. Or, as Voltaire said, “One great use of words is to hide our thoughts”.
The same hegemon position is revealed by President Barack Obama‘ s long speech in Brussels, at the
Palais des Beaux-Arts, on 26 March 2014, during which he urged European nations to back NATO on the
standoff with Russia, also positioned America as unique and, through skillful structures of language,
defined America as the leader. He began by placing his presence in Europe within the context of the
Ukrainian conflict, thus creating the setting for later arguments against Russia. The first part of his speech
is a narrative of the democratic creation in Europe, stressing America’s role especially after WW II, in
building new societies in Europe: “in the aftermath of World War II, America joined with Europe to reject
the darker forces of the past and build a new architecture of peace.(…) this story of human progress was
by no means limited to Europe. Indeed, the ideals that came to define our alliance also inspired
movements across the globe -- among those very people, ironically, who had too often been denied their
full rights by Western powers”.
President Obama then starts suggesting the ideas of different ideologies and ideological competition by
using the verb “insist” and the metaphor “contest of ideas”: “I come here today to insist that we must
never take for granted the progress that has been won here in Europe and advanced around the world,
because the contest of ideas continues for your generation”.
To place Russia in a doubtful and questionable position in the Ukrainian issue, President Obama uses the
phrase “challenging the self-evident truth”. By using the word “truth”, Obama gives an absolute dimension
to his statement that cannot be questioned. Moreover, he mentions institutions that are associated with
democracy, welfare and progress: international law and self-governance: “And that’s what’s at stake in
Ukraine today. Russia’s leadership is challenging truths that only a few weeks ago seemed self-evident,
that in the 21st century, the borders of Europe cannot be redrawn with force, that international law
matters, that people and nations can make their own decisions about their future”.
President Obama’s speech becomes emotional towards the end as he introduces the theme of the
Manifest Destiny – America’s destiny to get involved and dedicate efforts and resources to the benefit of
other nations. The emotional tinges in a discourse are often bound to create a hierarchy and relations of
power. Words such as “coldhearted” and “cemeteries” imply that America is genuinely acting for the world
as the only savior. The paragraph below is spiced with metaphors that skillfully suggest danger of
totalitarian ideology if America does not preserve its role as the savior. The statements remind of the
former Cold War rhetoric. “If we define our interests narrowly” suggests that America is aware that it has
influence over the entire world. “The old way of doing things” is totalitarianism. “Regain a foothold in this
new century” suggests America’s fear that a new ideology may gain space across the world. “To be
honest, if we define our interests narrowly, if we applied a coldhearted calculus, we might decide to look
the other way. (…)But that kind of casual indifference would ignore the lessons that are written in the
cemeteries of this continent. It would allow the old way of doing things to regain a foothold in this young
century. And that message would be heard, not just in Europe, but in Asia and the Americas, in Africa and
the Middle East. And the consequences that would arise from complacency are not abstractions”.
Once the hierarchy of values suggested, in the end, the tone of president Obama’s speech becomes
stronger as he asks for “condemnation”, invoking again international law and supreme values such as
sovereignty and territorial integrity that are cherished by all countries: “And that’s why Russia’s violation of
international law, its assault on Ukraine’s sovereignty and territorial integrity, must be met with
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condemnation, not because we’re trying to keep Russia down, but because the principles that have
meant so much to Europe and the world must be lifted up”.
3. CONCLUSION
Public discourse should be read like any piece of literary work, trying to understand the implications of
language in detail. We live in discursive realities, and reality is constructed by discourse (Michel
Foucault). Discourse means combinations of narratives, argumentative and persuasive styles that make
up public speeches and have aims: to impose ideas and to cause behaviors. Discursive activities are
therefore powerful tools of: identifying oneself in front of the audience, communicating thoughts and
ideas, and influencing ideas and behaviors.
REFERENCES
Chomsky, N 2003, Hegemony or Survival: America's Quest for Global Dominance, Metropolitan Books
Foucault, M 1971, L’Ordre du Discours
Fairclough, N. 1989, Language and Power, Longman Inc. New York
Factory, M. 2010, Aug 31, “American Exceptionalism and an “Exceptional” President”,
http://www.forbes.com/2010/08/31/barack-obama-exceptionalism-america-opinions-columnistsmallory-factor.html, accessed on 5 May 2014
Haque, U. 2014, May 2, “Five Dirty Secrets about the US Economy”, http://blogs.hbr.org/2014/05/5-dirtysecrets-about-the-u-s-economy/ , accessed on 16 May 2014
McElroy W, 2013, Jan 21, “The Tension Within American Exceptionalism “, http://fff.org/explorefreedom/article/the-tension-within-american-exceptionalism, accessed on 1 May 2014
News conference by President Obama, Palais de la Musique et des Congres, 4 April 2009, Strasbourg,
France,
http://www.whitehouse.gov/the-press-office/news-conference-president-obama-4042009,
accessed on 5 May 2014
Pease, D. E. 2009, The New American Exceptionalism
Petras, J. „Obama’s Double Discourse”, http://www.globalresearch.ca/obamas-double-discourse-talkingpeace-while-making-war/5353886 , accessed on 5 April 2014
Podliska, B. F. 2010, Acting Alone – A Scientific Study of American Hegemony and Unilateral Use of
Force Decision Making, Lexington Books, Maryland, USA
President Barack Obama’s speech in Brussels, at the Palais des Beaux-Arts , on 26 March 2014, on the
Ukraine issue,
http://www.washingtonpost.com/world/transcript-president-obama-gives-speechaddressing-europe-russia-on-march-26/2014/03/26/07ae80ae-b503-11e3-b89920667de76985_story.html, accessed on 14 May 2014
st
Remarks by President Barack Obama on Space Exploration in the 21 century, at John F Kennedy
Space
Center,
Merritt
Island,
Florida,
15
April
2010,
http://www.nasa.gov/news/media/trans/obama_ksc_trans.html, accessed on 15 May 2014
*This paper has been funded from the project:
"Sustainable performance in doctoral and post-doctoral research - PERFORM" co-funded from the
European Social Fund through the Development of Human Resources Operational Programme 20072013, contract no.POSDRU/159/1.5/S/138963
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AUTHOR PROFILE
Marcela Ganea (PhD, “Ovidius University of Constanta, Romania) currently holds the position of
Assistant Lecturer with the Artifex University of Bucharest, Romania. She writes academic articles on
topics related to Cultural Studies, American Studies, geopolitics, international relations and foreign policy,
security studies, as well as reviews, and critical writings on cultural and educational topics. She
participates in international academic conferences across the world. She also works as international
journalist with the National Media Council of the United Arab Emirates. She is a member of: MeCCSA Media, Communication and Cultural Studies Association, University of Coventry, UK; of the editorial
board of the International Journal of Academic Research in Business and Social Sciences, published by
HMARS- Human Resource Management Academic Research Society, USA; and ASAGRI – Romanian
Association for Strategic Analyses, Geopolitics and International Relations.
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SCADA IMPLEMENTATION OF INDUSTRIAL AUTOMATION USING GSM
Haider Ali, CIIT, Abbottabad, Pakistan
Muhammad Baseer, CIIT, Abbottabad, Pakistan
Umar Farid, CIIT, Abbottabad, Pakistan
ABSTRACT
This paper emphasis upon the development of supervisory control and data acquisition (SCADA)
system with curtailed hardware for industrial automation. This system remotely measures &
controls the temperature of boilers plus the speed of AC/DC motors without visiting to the
industrial environment. Various control techniques like integral cycle control, firing angle & pulse
width modulation are implemented for the control of Output voltage (Vo) with high accuracy.
The proposed system consists of human machine interface (HMI) and supervisory system with
m o t o r s d r i v e s , sensors and temperature control interfaces. Communication link between two
units is global system for mobile communication (GSM) network. A set point generated from
personal computer (PC) with designed software installed in it working as HM I is transmitted to
supervisory control using mobile. Supervisory system (PIC18F 452) receives input data in the
form of short messaging service (SMS) & filters the input data. It compares the input data &
feedback and generates an error signal in order to actuate a specific industrial process. HMI
receives the feedback after every 5 seconds and displays it. The simulation is performed in
Proteus Professional ISIS7.8 and implemented on hardware.
Keywords: AC Motor, DC Motor, H-Bridge, Triac, GSM Set Point, HMI, PWM, PIC Microcontroller
1. INTRODUCTION
As the industries become more advanced and complex, automation technology demand is growing
fast. Industrial automation technology has remained the focus of many researchers to design efficient,
cost-effective & reliable automation system for industries.
SCADA system seems to be more interesting side for the researchers in the field of industrial
automation. SCADA system used for the temperature monitoring and the speed control of DC motor
remotely using GSM for communication (Syed, 2011).Speed control of DC motor using
microcontroller and PC interfaced with it to form a closed loop system (Chauhan,2013). SCADA
system implemented for temperature automation in industries and monitoring remotely using cell phone
as human machine interface (Ali, 2011). SCADA system with programmable logic controller (PLC) using
virtual private network has been implemented for industrial automation ( Kirubashankar, 2011) . Cell
phone based SCADA system used for monitoring the position of a crane in industry (Ozdemir,
2006).Monitoring temperature, humidity and pressure of devices employed remotely using wireless
SCADA system (Goel, 2009). The SCADA systems also used in substations for monitoring voltage,
current and frequency (Sachan, 2012). SCADA system in thermal power plants for supervision purposes
of various process like oil flow (Lakhoua, 2010). Not only industries but SCADA systems are
implemented in large buildings to control temperature using MATLAB applications (Figuaredo, 2011).
The prime concern of this paper is to design SCADA based automation system with compact
hardware & high accuracy to control and monitor the temperature of the plants, speed and direction
of electric motors. The proposed SCADA system is comprised of human machine interface or HMI to
control and monitor the speed and temperature. HMI used here is a personal computer with software
designed in C-sharp for visual display of the set point and feedback generated.
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Supervisory system is PIC microcontroller which gathers feedback from the sensors and compares it with
the set point generated from HMI.it generates an error signal and provide it to the motor drives or
heaters connected to it. Supervisory system also transmits the feedback to HMI. Supervisory system
controls the speed of AC motor by varying the firing angle which consequently changes the RMS
voltage. The speed of DC motor is changed by varying the pulse width of PWM signal. The
temperature of the boiler is altered by changing the on period of SCRs connected to heater. The
direction of DC motor is controlled by changing the current direction in H-Bridge e.g. from clock wise
direction to anti clock wise direction. GSM modems are used here for communication between HMI and
supervisory control system. Set point is transmitted to supervisory control and feedback is received
by HMI through GSM.
2. DESIGN OF SCADA SYSTEM
The block diagram for industrial automation is given in figure 1 and each component working is
explained in detail. The simulation implementation of SCADA system is shown in figure 2.
2.1. Human Machine Interface (HMI)
HMI is a device which provides the facility to control and monitor the speed of AC/DC motors and the
temperature of the boiler. HMI here is a PC with software developed in C-sharp.
FIGURE 1. BLOCK DIAGRAM OF SCADA SYSTEM FOR INDUSTRIAL AUTOMATION
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FIGURE 2. SIMULATION LAYOUT OF SCADA SYSTEM
Set point is generated (Firing angle or duty cycle) from HMI to control a specific process. This software
updates itself after every five seconds and receives feedback from the supervisory system. The
developed software is shown in figure 3. To operate the developed software destination number, baud
rate, communication ports are entered for the communication with the supervisory system. Both the set
point ad feedback can be observed on HMI.The feedback speed is displayed in revolution per second
(RPS) while temperature is shown in degree centigrade. The direction of DC motor is changed by clicking
the reverse option and sending the input to supervisory control using AT Commands of cell phone.
FIGURE 3. HUMMAN MACHINE INTERFACE FOR SCADA SYSTEM
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2.2. Cell Phones Communication
One cell phone is connected with HMI to transmit set point to the supervisory system and receive the
feedback from it and update the developed software. Second cell phone is connected with supervisory
system to receive the set point from HMI and transmit the sensors reading to HMI using AT commands.
2.3. Temperature Sensor
LM35 is temperature sensor is installed on temperature plant or boiler to get the temperature reading. It
measures temperature form 0 Co to 150 Co, it increments its output voltage of value 0.01V for one
degree rise in temperature. For 150 Co it produces 1.5V, to get precised reading this voltage is amplified
to 5V by giving voltage gain of 3.33 calculated using equation 1. This amplification is signal conditioning.
The output is provided to the ADC of PIC18F452.
A(Gain) = 1 +
R1
R2
A(Gain) = 1 +
2.33K
1K
………………………. ……………………………………
(1)
A(Gain) = 3.3
D. Voltage Conversion MAX 232 and Serial Interface RS232 PC serial port output voltage range is from
−12v to+12 (overall 25v) from −12v to −3v represents logic 1and +3v to +12v represents logic
0.Microcontroller considers 3.4v to 5v as logic 1 and 0v to 2.7v as logic 0. In order to establish
communication between computer’s serial port and microcontroller voltage conversion is done by
MAX232 IC.This IC is connected to RS232 to provide serial interface between hardware and
communication module.
2.4. Proximity Sensor LM18
LM18 (200Hz) is used to measure the speed of AC/DC motor in revolution per second (RPS).The output
is given to microcontroller to compare the value with set point and generate error signal. The reading is
also transmitted to HMI through serial port using GSM.
2.5. Zero Crossing
Zero crossing is basically the detection of the transition of signal (voltage) from positive to negative or
vice versa, at that particular time it gives a narrow pulse as an output. This output is feed to interrupt
RB0/INT0 pin of microcontroller, microcontroller reset its timer and start counting for firing the Triac at
particular time received from PC.
2.6. Isolator
Optocoupler is used between the drive circuitry and microcontroller to provide electric isolation. It
converts electric pulses into light pulses.
2.7. Heater Control
Heater control circuitry consists of back to back SCRs and is used to control the RMS Voltage supplied to
the heater. Integral cycle control technique is used to control the RMS voltage. In integral cycle control
the on time of the back to back SCRs is changed with respect to the off time of the SCRs to achieve a set
of RMS voltages. Formula for RMS voltage and power is given in equations 2 and 3.
V =
N
2π ( N + M ) ∫
2π
0
2VS2 2 sin 2 ωtdt
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VO = VS
N
(N + M )
VO = VS
VK
………………………………………………………………………………………………
K = d = dutycycle =
PO =
VO2
V2
= K S
R
R
(2)
N
N +M
……………………………………………………………………………………………
(3)
2.8. DC Motor Speed Control
H-bridge is used to control the speed and direction of DC motor. By turning on SW1, SW5 the motor
moves in clock wise direction similarly turning on SW2, SW3 sets the motor in anti-clock wise direction.
For speed control the pulse width d of PWM signal produced is changed. By Varying the pulse width
results different average DC voltage supplied to the motor using equation 4.
VO ( AVG) = Vi
d =
d
……………………………………………………………………………………
(4)
TON , V = inputvoltage
i
T
2.9. AC Motor Speed Control
AC motor speed is controlled using TRIAC. The TRIAC is triggered at different angles resulting changed
RMS voltages. AC signal frequency of 50 Hz (RMS voltage 220V) is used for AC motor speed control
(time period T =20ms). A counter is initialized which counts half cycle (10msec) and reset its value on
zero crossing interrupt, as a result AC signal is cut anywhere, to get desired output. Microcontroller
calibrates half cycle in 200 counts and counter starts from zero to 200 and then reset to zero e.g. If it is
desired to AC signal at Π 2 , microcontroller clock is set automatically to 100 counts then it fires Triac for
very short duration. The RMS voltage value changes with firing angle α using equation 5.
1
⎡
⎤
1 ⎛
sin 2α ⎞ 2 ⎥
VO (RMS) = Vin (RMS) ⎢ ⎜ π − α +
⎟
⎢ π ⎝
2
⎠ ⎥
⎣
⎦
…………………………………………………….
(5)
VO (RMS) = outputvoltage , Vin (RMS) = 220 , α = firingangle = (00 to1800 )
3. SUPERVISORY SYSTEM ALGORITHM
The algorithm of supervisory system is burned into PIC18F452 microcontroller using mikroC pro v4.6 for
PIC. The algorithm is shown in figure (4). The algorithm performs in three steps.
•
It continuously gathers feedback from the sensors installed on motors and heater and transmits the
data to HMI using serial port and AT Commands. The feedback is displayed in three digit format
(−xxx to +xxx).
•
It acquires set point from HMI and filters the set point for AC motor, DC motor and heater. The set
point from HMI is received in message format and three digits, set point is extracted from it using AT
commands.
•
It compares the set point and feedback continuously and controls the drives, heater circuitry
accordingly. If set point is greater than feedback, voltage supplied is increased and vice versa. The
speed of AC motor is controlled by firing the TRIAC from 0o to 180o.Firing the TRIAC at 0o results
maximum RMS voltage and starts decreasing by increasing firing angle. The RMS voltage reaches to
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0V for 180o .Similarly the speed of DC motor is controlled using PWM signal with variable duty cycle.
For heater control the number of cycles passed in particular time is changed.
4. RESULTS
The control techniques used are of great importance to control the speed of AC/DC motor and the
temperature of the plant. Below figures show the wave forms of these control techniques for variable
output voltage achievement. Table 1 is for AC motor 5/25W, 25 Max: RPS Induction Motor, DC motor 24V
Max: RPS 17 and heater 1500W with Average voltage increase and heater power has direct relation with
Voltage supplied.
FIGURE 4. SUPERVISORY SYSTEM - ALGORITHM
FIGURE 5. FIRING ANGLE CONTROL TECHNIQUE FOR AC MOTOR, VO
DECREASES WITH FIRING ANGLE INCREASE
(RM S)
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FIGURE 6. PWM SIGNAL FOR DC MOTOR SPEED AND DIRECTION CONTROL
FIGURE 7. INTEGRAL CYCLE CONTROL TECHNIQUE, VO
(RM S)
INCREASES WITH
INCREASED IN DUTY CYCLE
TABLE 1. MEASURED RESULTS OF AC/DC MOTOR AND HEATER
S. No
AC Motor
Vo (RMS)
RPS
DC Motor
Vo (RMS)
RPS
Heater
Vo (RMS)
P (W)
1
104v
5.5
7.5v
2.5
155v
750
2
115v
10
12v
5.5
190v
1130
3
122v
13
20v
10
220v
1500
5. CONCLUSION
The main objective of this research paper was to develop SCADA system for control and monitoring of
AC/DC motor speed, boilers temperature with minimum hardware and high efficiency. The designed
system can also be extended to control many other applications and more than one supervisory system
can be connected to human machine interfacing to form a distributed control system. Voltage control
techniques used in SCADA system produced accurate results with less than 2 percent of error.
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Journal.Usa
Chauhan,J.(2013). “Microcontroller Based Speed Control Of Dc Geared Motor Through Rs-232 Interface
With Pc”. Ijera, Pp.778-783
Ali, H. (2011). “Scada Implementation Of Industrial Temperature Automation”,Ijcsns.Korea, Vol.11
No.8,Pp.145-150.
Kirubashankar, R. (2011). “Design And Implementation Of Web Based Remote Supervisory Control And
Information System”. Ijsce, Volume.1, Issue-4, Pp 43-51.
Ozdemir, E. (2006). “Mobile Phone Based Scada For Industrial Automation”, Isa, Volume 45, Pp 67-75.
Goel, A. (2009). “Remote Data Acquisition Using Wireless Scada System”, International Journal Of
Engineering (Ije), Volume 3, Issue (1),Pp 58-65.
Sachan, A. (2012). “Gsm Based Scada Monitoring And Control System Substation Equipment”,
International Journal Of Engineering Research & Technology (Ijert), Vol. 1, Issue 5, Pp 1-9.
Lakhoua, M. “(2010). “Scada Applications In Thermal Power Plants”, Journal Of The Physical Sciences,
Vol. 5(6), Pp. 1175-1182, Pp 1176-1182
Figuaredo, J. (2011). “A Scada System For Energy Management In Intelligent Buildings”,Elsvier, Pp85-98
AUTHOR PROFILE
Haider Ali completed his bachelor degree in Electronics Engineering from UET Peshawar in 2008,
Master in Electronic Systems Design Engineering from Manchester Metropolitan University UK in
2010.His research areas are Automation, Renewable Energy and Power Electronics. He is currently
serving COMSATS Abbottabad as a lecturer.
Umar Farid received the B.Sc degree in Electronics Engineering from COMSATS Institute of Information
Technology Abbottabad, Pakistan, in 2010, the MS degree in Electrical Engineering from COMSATS
Institute of Information Technology Abbottabad, Pakistan, in 2013.
He is currently a lecturer in Electrical Engineering department of COMSATS Institute of Information
Technology Abbottabad, Pakistan.
M.Baseer received master Degree from Bradford University UK in 2010,his interest areas of research are
power electronics drives,Machines and Renewable energy.He is a lecturer at CIIT Abbottabd Pakistan.
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DOMINATING TEACHING STRATEGIES AND THEIR INFLUENCE ON TEACHING
Eliza Avdiu, University of Prishtina, Prishtina, Kosovo
Nita Bakija Haraqija, University of Prishtina, Prishtina, Kosovo
ABSTRACT
Ensuring quality of teaching and learning in class is not guaranteed only through effective management of
all work conducted in schools, but also through the knowledge transmitted and elaborated by the teachers
as protruding personalities, on the basis of a new methodology, which directly affects on an education
process, teaching and learning alike, by establishing a new climate and sound expansion to education
fields.
This paper shall analyze strategies-techniques teaching which are used by our teachers and identifying
their impact on learning. The purpose of this paper is to reflect integration process and implementation in
practice new methods and techniques of teaching, as a powerful tool the acquisition of scientific
knowledge because the practikcal experience did not show satisfactorily result to pupils because first of
all the teachers are not trained sufficiently (enough) and most of them difficulty accept the changes.
Personal experience, original literature and different websites, as well as student, parents and teacher
impressions, were used for making this paper.
KEYWORDS: New teaching techniques, Teaching process, Students
1. INTRODUCTION
It is also interesting to metion that the need today in our school system has the dominant role of
institutions teacher starting preschool to university and that is not expressed in the preparation qualitative
rather complete new cadre of almost any profiles (except individual cases rarest holdings that are
ambitious and permanent education reach European quality appropriate).
With educational strategies need to understand the range of measures intended to help the teacher with
the media to be implemented to achieve the goal of education, both in terms of cognitive, affective and
psychomotor. Strategies are divided into a large number of methods, the methods in numerous
proceedings.
In Democratic social system, namely in the school system should be cultivated ratios equal and reciprocal
teaching strategies and not dominate any factor, as we currently have by some teachers. Preparation and
planning are two important activities of teaching, close to each other, met and assisted between itself.
The effort and care that shows teacher preparation can have a positive impact leading to students.
Methodology and new teaching strategies based on the philosophy of developing critical thinking and
interactive learning techniques exist. There are 30 contemporary interactive teaching techniques focusing
on the student-centered teaching emerges (Nuredini, 2012).
2. IMPLEMENTATION OF TEACHING STRATEGIES AS PROVIDED IN THE LEARNING PROCESS
Learning strategies include ideas for achieving the objectives of learning. Tactics are specific techniques
that make up the plan. Teacher should expose students to a large number of different strategies, through
conditional knowledge about when, where and why to use different strategies. Creating proper motivation
of students to use strategies and tactics showing them how to improve their performance give students a
chance for better results.
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The students learn strategies, but do not apply them when they can. To make the students to use in
practice the strategies they know, one should create some condition. First task has given to them, of
course, must be the adaptive to them .Why students to use complex strategies of learning when tasks
given by the teacher is “to teach and repeat'' Words of direct text or lecture? With this type assignment,
evaluations achieved between memorization and the best strategy for learning as learning continues
throughout the year.
On the other hand he teaching of our day have less similar task .So if tasks is to understand rather than
memorize, students. Strategies for solving problems are used when and where required.
In the beginning students learn how to solve problems and try to transfer their cognitive tools in new
situations. To all students there is a positive relation between the use of learning strategies and academic
achievements. This is an important way to prepare all students for the there future. Conception t used
recently, principles and strategies should be implemented in the large number of different situations and
be implemented for solving various problems (Woolfolk, 2011).
3. IMPLEMENTATION OF TEACHING STRATEGIES AS PROVIDED IN THE LEARNING PROCESS
Learning systems are interconnected with many factor, fashioning a calamity that condition the form of
teaching social work, namely the organization of the educational process in line with the form of social
work students as frontal forms with all students, the class, in groups, couples -Tadema and individual
within a certain class also respectiyliy of class. For the overlapping factors besides teaching learning
systems should be considered in conjunction and in harmony with certain forms of educational work with
students.
Proceedings of teaching and learning depend heavily on teaching contents that develops and studied.
From active role of the teacher and active student’s role depends on mutual learning content.
Interrelationship between the teacher and the students in their learning is reciprocal to, depending on the
severity of the associated activity. Most said the contents specifically affects student learning, and that
influence is reflected in his attitude, in activity, proceedings of the learning etc. But the student exerts its
influence on educational content.
Based on the models presented the daily plans but also dominant in our schools can see which
techniques are most appropriate and successfully implemented during teachable class. Among
contemporary teaching techniques (active) based on the philosophy of development and thought critical
based on the structure E (reference), R (realization) and R (reflection).
In phase advocacy group discussion held by satisfying each other ideas. Using advocacy phase
structure, students are asked to make a list by brainstorm for what they know in binging. Itention of phase
of advocacy is to the activation of students. Learning is more active than passive activity.
The realization of meaning is the second phase of the structure. This stage is crucial in the learning
process, keeping the student involved to maintain interest and set the pace.
During the third phase, Reflection, students reinforce learning of new developments actively rebuild
scheme to them. In this stage sustainable learning happens (Ibrahimi, 2004).
4. CONNECTIVITY FACTORS TEACHING WITH TEACHING AND LEARNING
In the 1940s and 50s, the study of educational psychology focus on Individual differences in assessment
and methods / approaches of learning. On years '60 and '70, switched the focus of scientific studies of
cognitive development and learning, paying attention to the ways in which students learn concepts and
remember them.
Teachers in the role of researchers - studies can be used to improve teaching in a classroom or in a
school. Same process of careful observation, intervention, which occurs in large research projects can be
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implemented in every classroom to study issues such as, What ways can affect learning more on
improving the quality of students''? Although some students have more difficulty performing tasks focus
during academic? How cans the participation of all students in fields related to science?
Learning systems are interconnected with many factor, fashioning a calamity that condition the form of
teaching social work, namely the organization of the educational process in line with the form of social
work students as frontal forms with all students, the class, in groups, couples -Tadema and individual
within a certain class of the respective class. For the overlapping factors besides teaching learning
systems should be considered in conjunction and in harmony with certain forms of educational work with
students.
Proceedings of teaching and learning depend heavily on teaching contents that develops and studied.
From active role of the teacher and students depend on mutual active role teachable. From this we can
conclude that, as is the interrelationship between teacher and student learning are reciprocal to them.
Most said specifically affects student learning, and that this influence is reflected in the attitude of his, in
aktivitetein, learning etc. proceedings. But the student exerts its influence on teaching content
5. UTILIZATION OF LEARNING STRATEGIES IN PLANNING
If the teacher makes planning in order to use systematic strategies, then the complexes-teaching posts
must plan where incorporate these three steps:
At the beginning of the topic of the presentation list the strategies for learning goals,
- To monitor progress in achieving the goals of the learned,
- On the introduction of new knowledge leadership
- For exercises, repetition and application of knowledge
- At the end of the topic we lock strategies that help students to determine how well it had
accomplished its goals.
In practical classes often have teaching for students who do not learn nothing, or very little and for some
yes. Also there are cases when the process of learning without teaching follows. This i.e. the proportion of
teaching and learning requires students. Therefor activity for teaching and for learning we can say that it
should be evaluated in terms of success, results achieved in realizing the goals.
It is concluded that the application of qualitative methods in the teaching learning process affect the
recognition of learning psychology and accurate estimates from research. To achieve learning goals must
articulate content with didactic teaching methods where methodical action of teachers is between the
content and the learning of students confront so that content and learning take place in mutual contact, or
methods are relations between teaching and action desired processes of learning that enable students'
needs (Nuredini, 2012).
6. RESEARCH METHODOLOGY
•
It is the method used and the focus group
•
Method of theoretical analysis and
•
Survey
With the aim of getting the opinion and disposal dilemmas about the actual implementation of teaching
strategies by teachers and their impact on learning, have taken some teachers opinions by developing
questionnaires for students and teachers of the three schools of lower secondary education in Kosovo.
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The research included a total of 9 teachers, 38 pupils in three schools in Kosovo
- Primary school,'' Ismail Pristina, were surveyed three teachers and 12 pupils
- Primary school,'' Shkendija Hajvali, were surveyed three teachers and 12 pupils
- Primary school, Pandeli Sotiris'' Obilic, were surveyed three teachers and 14 pupils
7. FINALIZATION
• Many studies show the importance of the implementation of development strategies during learning a
lesson, but based on the results of data show that they are practiced by the teachers but not enough.
• In those cases where teaching has reached an advanced degree should not necessarily exclude the fact
that all teachers including those in older age should be trained in the use of active methods in teaching.
• Today the educational system, for the establishment and functioning of the quality of future generations
should focus on respecting the methods, ideas and techniques, that requires time by creating a new
comprehensive climate in education.
• Increase the level of student achievement is the best indicators we use to teacher strategies and their
impact on learning
8. RESULTS OF THE SURVEY
1. QUESTION: AS USE OF TEACHING STRATEGIES THE TEACHER DURING THE CLASS?
ANSWERS
NO. OF PUPILS WHO RESPONDED
COMPLETELY
24
PARTLY
6
LITTLE
13
NOT AT ALL
NO ANSWER
1
TOTAL
38
2. DID TEACHING STRATEGIES INFLUENCE FOR ACHIEVING THE PURPOSE OF LEARNING?
ANSWERS
COMPLETELY
27
PARTLY
10
LITTLE
1
NOT AT ALL
NO ANSWER
TOTAL
38
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3. HOW DO YOU THINK THE EFFECTIVE IMPLEMENTATION OF TEACHING STRATEGIES
AFFECTS THE ACQUISITION OF KNOWLEDGE TO THE STUDENTS?
ANSWER
NO. OF TEACHERS WHO RESPONDED
COMPLETELY
7
PARTLY
2
NOT AT ALL
NO ANSWER
TOTAL
9
AUTHOR PROFILE
Eliza Avdiu (Ph.D., European University of Tirana) worked at different levels of education in Kosovo as a
teacher in primary schools and in Faculty of Education. However since 2010 she worked as a lecturer in
‘’Universum'' College, '' Business'' College, Faculty of Education - branch in Mitrovica and Pristina where
she still continues her activities. Until now published 7 (seven) international scientific works.
She finished Faculty of Education, while master degree studies ended on 2010 at Mathematics and
Natural Sciences - Chemistry department in Pristina. In 2011 she started the doctoral studies in European
University of Tirana in Tirana, doctoral thesis titled ’’Productivity of learning in group to acquiring scientific
knowledge in natural sciences’’.
Nita Bakija–Haraqija (Master of Pedagogy, Prishtina, Kosovo) works as a lecturer for pedagogical
courses in the Faculty of Education. She since 2009 she work as a coordinator for practice teaching, in
Faculty of Education in Prishtina, Kosovo. She has work experience also in Faculty of Education in
Gjakova, as a coordinator for In-Service Program.
She finished elementary school, high school and the faculty in Gjakova, and the master degree at
University of Prishtina, Faculty of Philosophy in Prishtina. She is looking forward for her PhD study.
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INSIGHT ON EDUCATION CURRICULA REFORMS
Eliza Avdiu, University of Prishtina, Prishtina, Kosovo
Nita Bakija Haraqija, University of Prishtina, Prishtina, Kosovo
ABSTRACT
Evaluation of the current curricula reform for basic education has shown a number of shortcomings in
the general curricula concept, lesson plans and lesson programs, as well as in their implementation in
schools hence all these findings pave the need for a review of the basic education curricula to adapt
the changes to the needs, therefore the purpose of this research is to cover important issues, as is
mastering the curricula reform, its continuity, integration, achievement results and access, aiming to
have a program which fulfills current and future student needs by acknowledging the challenges that
are part of this process and indicators which determine its success and stability.
In order to answer to these challenges we have asked for opinion teachers and pupils in Kosovo, who
are the main agents in the curricula reform as they are very well aware of the capacity of the teachers
and development of curricula competence.
For research questionnaires, source literature and various websites and opinions of experienced
teachers was used.
Keywords: Curricula reform, Managers, Schools, Teachers, Students
1. INTRODUCTION
Modifying previous curriculum, which put emphasis on knowledge and high load contained factual
information, new curricula aimed at ensuring coherence and scientific level of a particular discipline. They
emphasize basic concepts, outlined broad ideas of the structure of discipline and focus in research
methods.
While teachers are asked to play the role of mediators between the new set of teaching materials and
students, their task was to develop specific activities outlined in the teacher's guide and student
textbooks.
In many cases propagation method was used "center-periphery", under which the new curricula
manufacturers or their representatives equip regional offices with central guidelines and directives to
assist teachers in using the new curricula.
Despite efforts, the school practices testified that these new curricula failed anticipated success. From
this perspective only basis initiatives had a chance to succeed, so teachers were invited to participate
actively in the development of curricula.
On the other hand, teachers unless convinced that implementing the central curriculum, will have the
chance to make decisions about what will be taught and students the opportunity to participate in the
creative process of the production of teaching materials. Consequently, their professional status would
become richer and stable (IZHA, 2013)
2. THE CURRENT OPERATION ON CURRICULAR REFORM
It is natural that there are still a lot of work and preparation of the scientific academic body but despite the
difficulties and challenges of the market economy, with a programming and applications in various
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projects, not only to participate, but they should serve the needs strategy raises for education reform by
European perspective (Peshkopia, 2012).
During the implementation of reforms in education, it came up different problems. These problems are
nothing-just targets to achieve up to it what we want. However, to achieve improvements in education is
the major difficulties encountered in the use of new methodologies of teaching and learning by teachers
and students for the difficulties to cope with these methods.
There are teachers who are against these reforms, because they are not able to change and therefore
the reform is misunderstood .As well, it is concluded that the obstacles in this regard are technical ones:
lack of school space and teaching tools. From this it is concluded that all the advantages and
disadvantages are subjective and objective natures.
It is assumed that the training of teachers to positively affect the learning process in raising the quality of
teaching and learning. A large number of teachers do not implement these new techniques into practice.
Non-applicability of new methodologies requires urgent need of organization and preparation for
permanent monitoring of all structures in schools, by competent people, in order to support and advance
the work in schools (IPK, 2008).
3. DIRECTORS, TEACHERS AND STUDENTS AS CURRICULUM REFORM CONTRIBUTOR
Given current developments, any educational institution, of any level if, in perspective seems to be facing
even more with the necessity and the need to decide what and how to teach students. It will be the
responsibility of the school to select the text materials, to adjust the curriculum according to students'
capabilities and requirements, use extra material and different organizational forms to facilitate an
effective learning for all students and also to assess the results of the process education that happens to
them inside and outside school.
In the process of change should not forget that:
- The more seniority has a teacher, the more it is affected by the past, and to changes him is more
difficult.
- From the new and unfamiliar always are gently. Success comes after many trials and failures
- Many teachers understand the changes that are to be made, but few realize, because for this to be a
habit, need concrete work requires time available.
We must not forget that changes in school, changes in teaching-educational process result in changes in
each class of each student's work and generally to any member of staff (Kryeziu, 2012).
-Participation of students in curricular decisions
Involvement of students in curricular decisions is valued for two reasons. First, if students have an
interest in the issue under study, increases their motivation. Secondly, if the students are considered as
partners in determining the courses of study fueled ideal of self-determination and democratization of
school (IZHA, 2013).
•
Overloading- Experiences of teachers, pupils and parents testify to an overload in basic education
curriculum, bringing students reduce interest towards learning.
•
Textbooks - Although the new curriculum will enable the use of alternative sources during the
teaching-learning process, students' textbooks will continue to be the primary source of teaching and
learning.
•
Teachers - The new curriculum, however well be written, cannot achieve success provided if the
teacher is not an integral part of achieving these goals. Teacher is a key factor in curriculum reform.
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Preparing teachers for the implementation of new curriculum will be important for policy-based
education curriculum.
Reform of teacher training system with the principle of credit and market training agencies is a basis for
the development of more rapid and effective professional teachers (IZHA, 2013).
4. TEACHING AND INTEGRATED LEARNING
Teaching and learning is dictated by integrated curricula, but not only. In the new curriculum integrated
curriculum development will be a reality in grades 1-6 in the natural sciences and the social sciences.
This methodological dimension aims to form students with the knowledge and skills to nature and society,
the first elements of the two main areas of integrated knowledge, as they exist in reality.
But, this first dimension should not necessarily link only with integrated curricula. Teaching and learning
have developed integrated curriculum in all subjects, treating concepts and knowledge integrated with
those of other curriculum subjects (MASHT, 2013).
5. RESEARCH METHODOLOGY
• Theoretical analysis method
• Method of Pedagogical Documentation
Results of this research are the best indicators of verifying current dilemmas about the effect of the
curricular reform of lower secondary education curriculum if these changes are stable in Education.
Total number of teachers surveyed was 16, and the number of respondents is 36 pupils in three schools
in Kosovo:
• Elementary School, Ismail'' Prishtina, the number of teachers surveyed was 6; the number of
students surveyed was 12.
• Elementary School, Smoot II'' Vushtri, the number of teachers surveyed was 6, the number of
students surveyed was 12.
• Elementary School, Pandeli Sotiris'', the number of teachers surveyed is 4, the number of students
surveyed was 12.
6. RESULTS OF THE SURVEY
Open question:
1. Did you think this curricular reform of lower secondary education has proven successful?
a) If yes, explain why?
Comments teachers who answered are:
We are convinced that this curricular reform of lower secondary education is appropriate and aimed at
putting the student-centered teaching, and of the teacher only be organizational, motivational counseling.
Use knowledge of new techniques and strategies of teaching and learning enables students to be more
active through literacy and gain new knowledge and this enables the development of critical thinking.
They are also convinced that the results of learning, concentration are the highlights that are before.
Pupils are communicative, creative, and defiant in cognitive development, physical, personal.
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Comprehensiveness another principle acceptable new changes to all. Methodology is another factor that
give good results, as well as the advancement of teachers required next step.
Comments teachers who answered are:
b) If not, what do you think should change?
Comments:
Curriculum Reform of the Education Lower Secondary think not achieved the expected results, because I
think that it is urgent notice because we are unprepared terms of professional development of teachers,
especially the older generations, who are difficult to accept changes.
Another difficulty presents curriculum acting alongside pupils in schools and infrastructure conditions that
country, that the fact that students continue to complain about the load of books and materials are within
their capabilities in relation to pupils, and many other difficulties that accompany our system education.
7. CONCLUSIONS
• Numerous indicators show that the above-mentioned schools in Kosovo have undergone changes
as qualitative implementation of the reform curriculum to be in step with the level of education of the
European countries.
• Information on various direct experiences with schools, teachers, students (our children), we show
practical space created during its integration at different levels of education, and encouraged by the
courage to change.
• We implement curricula quality standards as broadcast contemporary scientific knowledge and
methodology must be addressed in all the work and the attention of state level institutions to face
the challenges that our country is facing.
• Improvement in the function of curriculum standards, increase the quality and development of
structures of different levels and improving our schools so their systematic, comprehensive needs
reflected in the Kosovo education.
REFERENCES
http://www.erisee.org/downloads/2013/2/Training%20impact%20in%20teaching%202008%20AL.pdf
http://www.izha.edu.al/materiale/Kurrikula_e_arsimit_baze_nevojat_per_rishikim_prirjet_konceptimi.pdf
http://www.masht-gov.net/advCms/documents/revista_mesuesi_16.pdf
Kryeziu.Sh. (2012),Revista, Mёsuesi dhe mёsimdhёnia’’, PEGI, Prishtinё
Peshkepia,V., Procesi i Bolonjës dhe disa zhvillime të tij në arsimin tonë të lartë‘’ Tiranë,2012
www.izha.edu.al/index.php?.
AUTHOR PROFILE
Eliza Avdiu (Ph.D., European University of Tirana) worked at different levels of education in Kosovo as a
teacher in primary schools and in Faculty of Education. However, since 2010 she worked as a lecturer in
‘’Universum'' College, ''Business'' College, her Faculty of Education - branch in Mitrovica and Pristina
where she still continues her activities. Until now published 7 (seven) international scientific works.
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School she finished in Prishtina Faculty of Education, while her master degree studies ended on 2010 at
Mathematics and Natural Sciences - Chemistry department in Pristina. In 2011 she started the doctoral
studies in European University of Tirana in Tirana, doctoral thesis ’’Productivity of learning in group to
acquiring scientific knowledge in natural sciences’’.
Nita Bakija–Haraqija (Master of Pedagogy, Prishtina, Kosovo) she works as a lecturer for pedagogical
courses in the Faculty of Education. She since 2009 she work as a coordinator for practice teaching in
Faculty of Education in Prishtina, Kosovo. She has work experience also in Faculty of Education in
Gjakova, as a coordinator for In-Service Program.
She finished elementary school, high school and the faculty in Gjakova. and the master degree she took
at University of Prishtina, Faculty of Philosophy. She is looking forward for her PhD study.
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APPENDIX
1.
How has the current curricular reform positive impact on raising the quality of teaching?
ANSWERS
COMPLETELY
2
PARTLY
8
LITTLE
6
NOT AT ALL
2.
NO ANSWER
0
TOTAL
16
Do you think it fits curricular reform capacities of students?
ANSWERS
COMPLETELY
4
PARTLY
2
LITTLE
10
PAK
NOT AT ALL
NO ANSWER
TOTAL
3.
16
How do you think the curricular reform has a positive impact on learning?
ANSWERS
COMPLETELY
8
PARTLY
9
LITTLE
17
PAK
74
NOT AT ALL
2
NO ANSWER
2
TOTAL
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THE PRINCIPLES OF LEGAL REGULATION OF PARTIES FUNDING
Natalia Platonova, Moscow State University of International Relationships, Moscow, Russian Federation
ABSTRACT
The research papers deal with legal regulation of parties funding. Each democratic country, which
recognizes the multiparty system, elaborates its specific legal frameworks to regulate the fundraising of
political parties. The appropriate regulation is vital to guarantee the equal rights of parties, the
transparency of its budgeting as a method of fight against political corruption and effective functioning
of political system as a whole. Although any national legislation has its specific features it should be
based on some general legal principle implemented in laws to avoid the dependency parties from its
donors or state.
Keywords: Political parties, parties funding, transparency of political parties
1. INTRODUCTION
Political parties play a vital role in any democratic country. They are founded to provide political and
ideological education of citizens, to form public opinion, to represent interests of their electors in relevant
authorities and to take part in elections. It’s obvious that the principle object of political parties is to
participate in elections. But it is impossible to achieve such goal without achievement of others. And it
also requires significant financial assets. That’s why the role of money in politics may be hardly
underestimated.
The ways that parties get access to money can influence the outcome of elections; determine their
political decisions and the level of public trust as a whole. Different countries choose different strategies
of legal regulation of party funding, taking into account the historical, political and others specifics.
Nevertheless, there is no perfect model of party funding. Each of them has pros and cons but
implementation of principles of legal regulation of parties funding, studied thereinafter, may serve as a
way to improve the legislation, to make the political system more transparent and to prevent the
development of improper political competition.
2. MODELS OF PARTIES FUNDING
“Money and politics are inseparable” (Jdin, 1998). To full fill the democratic tasks parties need significant
assets. Nowadays the money obtained from such a source of funding as admission and membership fees
are not enough for parties to carry out its activity. Due to the development, complication and rise of the
costs on political struggle methods parties have to turn to other sources of fundraising such as voluntary
donations and/or public funding. According to the correlation between these two main sources of political
parties funding three models of parties budgeting may be sorted out.
Subject to the first one, budget of a political party is fully or mostly based on public funding. There are
some pros and cons of such a model. On the one hand public funding is very unpopular with the general
public. The matter is that the state subsidy a party, which is entitled to obtain such state aid, by means of
the assets of the taxpayers. Instead of spending money on more crucial social needs, the state gives
them to the parties. And there is also a fear that political parties would become organs of state rather than
independent organizations. In this case parties would not carry out their democratic tasks. On the other
hand, public funding may minimize the influence of “private money” on parties, particularly on their
political decisions (Selected Case Studies of Public Funding of Political Parties, 2005). It should be
mentioned that public funding could be both direct and indirect. Free media time, special taxation status,
free use of public buildings and etc. may serve as examples of indirect public funding. It seems that such
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public support may be a favors the realization regarding such a democratic principle as equality of
political parties.
Subject to the second model private funding dominates. In other words private voluntary donations,
membership and admission fees play the fundamental role in budgeting of political parties. Taking into
consideration that the sum of money obtained from admission and membership fees may not be enough
for parties to carry out its activity, parties lose its financial independency. It should be underlined that
nowadays these two models per se don’t exist and mostly have theoretical importance.
At last, the third model is a mixed model, which seems to be an appropriate one. As most democracies
today acknowledge, public and private funding is required to obtain enough money to full fill parties’
democratic tasks. But it should be emphasized that public funding must be effected in reasonable extent.
The state by force of legal regulation shall ensure a balance between these very sources of parties
budgeting. It’s also essential to avoid that a party would lose their independents on government in making
their decisions. At the same time if public funding may not bridge the gap between the voluntary
donations and the necessary spending of political parties, they will be reluctant to seek funds from
sources that may compromise their independence and democratic functioning. Thereby proper legal
regulation is required. Such legislation shall have provisions to regulate how parties may obtain assets, to
determine maximum amount of donations, loans and funds in general, terms and conditions for obtaining
government support, the order of financial accountabilities, the responsibility of political parties. So that
political parties are to be subject to detailed regulation but such rules shall not be legal fiction to avoid
illegal funding and illegal spending.
3. PRINCIPLES OF LEGAL REGULATION
It is essential for the purposes said above that the legislation should be based on several principles as the
main legal frameworks. Subject to international law it is possible to name four of them:
1. Rule of law;
2. Equality of political parties;
3. Transparency of parties funding;
4. Independence of parties.
The supremacy of law is a basic principle and means that no one is above the law. Political parties are
formed and act subject to the legislative rules. While doing activities parties have to follow the provisions
of the Constitution, international law, international agreements, national laws on political parties and etc.
In the event of breach the special sanctions will be imposed on a political party. The multiparty democracy
presumes that all political parties have equal right. This means that no party may have any privilege
including the sphere of fundraising.
The most important feature of the legal framework is the transparency of political parties funding. To
make the procedure of parties funding transparent the legislators usually require disclosing the
information of the sources of parties’ income, name of the donors and the amount of money donated by
them and other information to the public. Many scientists as well as political parties themselves are
against of such disclosure. They consider that it may be violation of the privacy. But it is absolutely clear
that the principle object of political parties is not to obtain profit and such information may not be deemed
as a commercial secret. Nevertheless the fulfillment of this provision has the significant importance to the
society. The voters in this way are able to make better decisions about which party they want to support
(www.idea.int). In addition it should also be mentioned that subject to the Recommendations Rec (2003)4
of the Committee of Ministers to member states on common rules against corruption in the funding of
political parties and electoral campaigns the financial documents, including the data concerning the
resources of income, the amount of donations and information about donors, shall be given regularly, at
least annually, to the independent authority (Rec2003(4).
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It is common practice when the law sets limits or prohibitions on some sources of funding that might
compromise the democratic functioning of political parties. To such legal bans may be related as follows:
•
Funds originating from anonymous donations. Almost all democratic countries include such ban in
their legislation that serve as a method of fitting against political corruption.
•
Foreign donations. It is obvious that political parties have power to influence on politics. And any
country tries to avoid the influence of foreigners on parties as it may undermine the democratic
principle of self-determination.
•
Donations from government contractors. Clearly that such donation may be deemed as redistribution
of public budgetary funds (www.idea.int).
This list on legal bans is not exhaustive and every country adds to it different limitations that are the most
appropriate to this country to guarantee the transparency of parties funding. For example, in Spain there
is a limit on the maximum amount of the funds obtains by credit agreements and loans, the same law in
drift is in the Russia Federation. In France no donations from legal entities are allowed. The development
of the transparency of parties funding may serve as a guarantee of parties’ financial independency
(www.oecd.org).
The independence of political parties is very important. It has been already mentioned that parties need
significant funds not only for electoral campaigns but also for its current, day-to-day activity. But it is
crucial that while making this or that decision political party relies on its ideals, its political views rather
than on its financial dependence from donors or state.
4. CONCLUSIONS
No party may be a success in electoral campaigns if it hasn’t obtained enough funds. But frequently the
sources of party’ budgeting determines the decisions that the party would make. In other words the party
may lose its financial independency that leads to improper political competition. The fitting against
corruption is one of the most important spheres of public regulation to ensure the proper development of
politic system and the society as a whole. Therefor it is recommended that applicable law be based on
the legal principles stipulated herein. The more transparent will be parties funding system the more
deliberate election will be made by electors.
It is obvious that the issues of political finance laws and regulations are complex and still evolving.
Detailed studies are necessary in order to elaborate the indispensable amendments to the legislation with
the view of its improvement.
REFERENCES
Jdin, J.A. 1998. Politicheski party i pravo v savremenbom gosydarstve, FORYM INFFRA-M, Moskva,
Russiiskai Federacia Москва,
Political party finance database//www.idea.int
Recommendation Rec(2003)4 of the Committee of Ministers to member states on common rules against
corruption in the funding of political parties and electoral campaigns. Adopted by the Committee of
th
Ministers on 8 April 2003 at the 835 meeting of the Ministers’ Deputies. Committee of Ministers.
Council of Europe// https://wcd.coe.int
Transparency and integrity in political finance. Organization for economic co-operation and
development//www.oecd.org
Transparency of political party funding. 16.04.2014//www.ekathimerini.com
Selected Case Studies of Public Funding of Political Parties. Background paper. Nov. Lahore: Son
Printers, 2005. P.7
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AUTHORERS PROFILE
Natalia Platonova is a postgraduate student of Moscow State University of International Relationships.
Her areas of research include legal regulations of political parties, parties funding, transparency of parties
funding, development of political parties. She has published book chapters as well as articles in academic
journals.
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ETHICS AND SCIENCE RESEARCH, A FEASIBLE MARRIAGE?
Norma Pivetta, Universidad Catolica Argentina, Buenos Aires, Argentina
ABSTRACT
The new millennium surprises us, as human beings, in a whole new context. The reason why is that the
20th Century is not only a data with a strong symbolism for a large part of humanity, but also because the
changes that are currently taking place in the world force us to live and think our common being, our
condition of human beings -en and women-, in a whole different way. This work intends therefore to
visualize this new context in which the science operates.
The globalization phenomenon affected, in a very little-known way, the social scene in which men and
scientific research carry out their activities. It should be taken into account the complexity of the social
context in which the scientific research is held; the political factors involved on the selection of the
research areas; the economical and commercial considerations affecting the scientific knowledge
dissemination and the selection of research areas with a perspective of an economic benefit.
The diversity of aspects affecting the scientific work demands individual and complementary attention, in
order to maintain its integrity. In addition, it becomes mandatory to reflect on the responsibility about the
expectations and reliability demands that society legitimately present to science. The values, as an
expression of the variety of needs, interests and wishes of the individuals, social groups and classes and,
ultimately, the society as a whole, express an objective tendency of the development, at the same time it
results in a conscience of value, ideals and utopias. Transforming the reality also demands changes on
the conscience, in this way the act of thinking can turn into volition and praxis of the social subjects.
The transformation of women and men in committed and responsible social subjects, both in the
acquisition of knowledge and on the search for the most genuine human values, has to be the essence of
the educational concerns in alternative projects. The human beings and their lives constitute the values
criterion, the reference point of what is significant.
As a corollary, this work intends to outline the Ethics’ pertinence to Science, as the self-reflection and
self-criticism to be performed by the scientific both at individual and community levels facing the moral
dimensions of its research activity, of its own person considered as a responsible agent and considering
the risks and benefits of his activity for the society that support and promote his research.
Keywords: Scientific research; Ethics and research; moral dimension of research; values and research
1. INTRODUCTION
Isn’t it evident that science and values interact in a complex and not always transparent way?
Paul Feyerabend, Ambiguity and Harmony, “Ambiguity and Harmony”. 1998 Paidós, p.147 Barcelona
The new millennium surprises us, as human beings, in a whole new context. The reason why is that the
20th Century is not only a data with a strong symbolism for a large part of humanity, but also because the
changes that are currently taking place in the world force us to live and think our common being, our
condition of human beings -men and women-, in a whole different way.
The globalization phenomenon – an emblematic concept of the 20th Century - affected in a very littleknown way the social scene in which men and scientific research carry out their activities. The change
generated by this globalization has such a magnitude and affects all the areas of the human activities that
it becomes of interest analyzing this phenomenon in order to understand how this new context affects the
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functions of research in this reality (Jorge Luis Borges confessed his feelings to Héctor Yánover on the
occasion of the presentation of his work: “Every time I publish a poem at La Nación I think: this time they
will realize I am a fraud. Nevertheless, the morning after someone calls me saying: very good, Georgie;
someone else does it between three and four and also says: very good, Georgie and then, when the night
is falling, I receive the call from Adolfito Bioy Casares who says: very good, Georgie. Then I think: Lucky
me, once again they did not realize it!!” Cf. Escribano, J.C., “Borges, as eternal as water and air”, at La
Nación Journal, Buenos Aires, June 14, 1996).
First of all, it must be recognized the complexity of the social context in which the scientific research takes
place. Political factors are also involved on the selection of the research areas. And, likewise, there are
economical and commercial considerations affecting the scientific knowledge dissemination and the
selection of research areas with a perspective of an economic benefit. Furthermore, financing resources
(from the State or private agency) are increasingly being limited (Latin America spends in science and
technology the equivalent of half of the General Motors’ budget on I+D. Cf.: Vacarezza, L.S. “Science,
Technology and Society: The State of the question in Latin America.” Available at:
http://www.rieoei.org/oeivirt/rie18a01.htm), causing a strong competence amongst subsidies applicants (A
characteristic aspect of the scientific research in Latin America is its great dependence on the State. Its
contribution represents more than 70% of the financing source as well as the origin of the research
executors. This is just the opposite of what happens in developed countries. Cf.: Vacarezza, L.S. Op. Cit).
The diversity of aspects affecting the scientific work demands individual and complementary attention, in
order to maintain its integrity ("Virtue has no owner; each one will be virtuous whether he honors or
despises it. The one making the choice is responsible, God is innocent". Cf.: Savater, F. “Invitation to
Ethics”. Madrid: Ed. Anagrama, 1995). In addition, it becomes mandatory to reflect on the responsibility
about the expectations and reliability demands that society legitimately present to science.
Secondly, we are witnessing a growth of the research field, both in scope and in diversity. Such growth
has embraced different aspects: a large number of projects, laboratories or units dedicated to research,
development of specialties and necessity of higher number of people and funds for research. Such
increment has also generated new interdisciplinary relationships, which could lead to conflicts and
communication failures. Research itself is not an act or a series of neutral and simple acts, but a complex
process based on assumptions that reflect both intellectual and moral values.
The scientific research increasingly starts and justifies itself on the knowledge “application context”, i.e.
e., on its utilization’s possibilities and expectations (.The Human Genome Project identified a gene that
predicts breast cancer and that was patented by a US company. The actual cost of testing for the gene is
minimal but patients’ costs are so high in the US that poor people are unable to obtain the test. That
raises questions about the equity and fairness of the patent system”. Cf. Standeford, D. for Intellectual
Property Watch “Intellectual Property Regime Stifles Science and Innovation”. September, 2008.
Available at: < http://www.nodo50.org/fadsp/pdf/revista/118/S2000118%2010-11.pdf>) In this way, the
selection of research subjects, methods, times and opportunities is not autonomously made by scientists
but -more and more-, by actors’ networks who pursue a wide variety of interests related to the possible
knowledge, amongst whom businessmen, plant engineers and financiers play a key role. This affects not
only the applied research but mainly the basic research; as a matter of fact, the difference between one
and the other is practically disappearing and the basic knowledge is increasingly falling into the utilitarian
rationality of the productive company.
Even more, the scientific research, one of the men’s great playful activities, implies an essential value, the
satisfaction of human curiosity. Exactly for that reason, the human being tries to understand the natural
phenomena and himself, to merely satisfy its intellectual curiosity and because such comprehension
provides the tools to manipulate and use the environment for his own benefit, enhancing his strategically
position in the world. On this regard, the French scientist Vladimir Kourganoff affirms that “scientists are
like Christopher Columbus because they start with a hope, never with a certainty, and their hard journeys
may end in shipwrecking. However, some of those adventures are compensated with the discovery of
America. Even more, they must pursue -with extreme urgency-, the secret hidden behind what’s evident,
because they know – even though they only reach a slight portion of truth-, that this is a way to become
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and feel up standing human beings…” (Kourganoff, V., “The scientific research”, Buenos Aires: Eudeba,
1963.
The knowing subject is in a constant exchange with the reality he intends to know, in order to secure the
continuous adaptations or re-adaptations he’s almost homeostatically forced to during said exchanges. In
consequence, the production of new knowledge will come from the intelligent action -exploratory and
transforming- made by the subject over the objects to understand, assimilate and adequate them to his
own previous structures and to provide them a defined signification. The values at stake here are from
the intellectual field and the subject’s reactions belong both to the satisfaction of the evidence / certainty
and to the anxiety generated by the doubt / ignorance.
2. ETHICS PERTINENCE
It is important to outline the Ethics’ pertinence to Science, considered as the self-reflection and selfcriticism the scientist’s has to carry out both at individual and community levels when facing the moral
dimensions of his research activity, of his own person as a responsible agent and of his activities’ benefits
and risks for the society that support and promote his research.
Although it is part of the human structure, the moral conscience is formed and in-formed. The ancients
believed that it was God itself who dictated the moral law through the voice of one’s consciousness.
Nowadays, it is attributed to our own psychic structures, to our internalized moral law.
Barba Martín (Barba Martin L. and Alcantara Santuario A.” “The values and university education”.
Reencuentro 38, 2003. Available at:
http://148.206.107.15/biblioteca_digital/estadistica.php?id_host=6&tipo=ARTICULO&id=176&archivo=312-176rid.pdf&titulo=Los valores y la formación universitaria) affirms that the researcher, as a moral
subject, cannot be indifferent to the Science’s purposes and uses, and that his main scientific value is that
of intellectual honesty. By quoting Sanchez Vazquez, he adds: “The scientist has to reveal a series of
moral qualities whose possession guarantees a better achievement of the main objective of his activity,
which is: the search for truth. Amongst those moral qualities, proper of any true man of Science, strongly
stand out his intellectual honesty, personal unselfishness, eagerness on the search of truth and on their
criticism of falseness.”
On the other hand, Merton (Merton identified in 1940 what he called the “ethos of Science”. Cf. Merton, R.
“The Sociology of Science”. Madrid: Alianza Editorial, 1995.) adds that the Science norms have
methodological justifications, prescriptions that are both technical and moral. The first imperative of the
researcher’s ethos has to be defending the freedom of research as well as the obligation of freely
communicate the results, being the main values of the university researcher the search for truth and
excellence, the social commitment, responsibility and autonomy (Merton, R. Op. Cit).
While the benefits arising from knowledge constitute a vigorous support of the ethical legitimacy for the
society, its production presents controversial sides which are a permanent source of conflicts.
Undoubtedly, the arguments for and against many of them are mainly based on moral values and the
underlying subjective reaction constitute the inner sense of ethics.
Both Biotechnology and Molecular Genetics have opened unexpected frontiers and possibilities. The
perspective of radical changes in the species distribution and in their control, which includes human
beings as well, goes beyond the concerning about a possible improper use of certain research results.
Outside the laboratories sphere, the progressive and irreversible destruction of Nature and its resources,
the climate changes generating uncertainty about the future of life as we currently know it and the
restrictions imposed by some mechanisms for markets protection, are all new scenarios that raise
concerns due to its ethical aspects.
In consequence, an authentic reflection on Science Ethics demands widening the valuing task. This task
is usually guided by a conception inherited from the philosophy of Science and intends to reduce the
ethical reflection to scientific products, i.e., to the technological field. In this way, the debate about Ethics
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only begins when the scientific product is completed and circulating within the society. It is necessary to
introduce this discussion early in the gestation of the scientific activity which implies, among other things,
developing a critical attitude from the beginning of a scientific project, starting in the “thinking phase” (the
historical a priori), and not when the task is complete.
“All cultures can contribute scientific knowledge of universal value. The sciences should be at the service
of humanity as a whole, and should contribute to providing everyone with a deeper understanding of
nature and society, a better quality of life and a sustainable and healthy environment for present and
future generations” ('World Conference on Science for the Twenty-First Century: A New Commitment'.
Budapest (Hungary), June, 1999. Budapest Statement on Science and the use of scientific knowledge.
UNESCO – ICSU. Available at: <http://www.unesco.org/science/wcs/esp/declaracion_s.htm>).
3. ABOUT THE CONCEPT OF SCIENCE
Since prehistoric times, different study fields went through the divisor line between what the historians call
Science Prehistory and History.
Nowadays, it is accepted that the concept of Science has evolved throughout time, for example, it has
changed from Ancient Times to Middle Ages; once more during the Renaissance, and then again during
Modern Ages acquired a new definition. It is during the Modern Era, with very rare exceptions before in
Ancient Times such as those of Archimedes in Alexandria, that experimentation becomes an essential
part of the scientific method. Neither by Aristotle nor during the Middle Ages, (Although the Middle Ages
scoffed at the fossilized scholastics, this was not unfair: it did not blame the university students for the
loss of Jerusalem, or the Sorbonagres for the Azincourt disaster; it was able to identify the fair’s passion
behind the reason, the thirst for truth behind the science and the wish for the best behind the criticism”.
Cf.: LE Goff, J. ¨Intellectuals in the Middle Ages”. Buenos Aires: Eudeba, 1965) the role of math in the
constitution of Sciences received the appropriate attention. And although the Pythagorism, adopted
afterwards by Plato, did consider the importance of mathematics it had no immediate consequences on
Ancient Times. The physics that prevailed was the Aristotelian, which was completely indifferent to math.
On the other hand, the Modern Era combined mathematics and experimentation as the two axes that
configured Science. Amongst Babylonians Science was essentially empirical, based on data collection
and not in extreme theories organizing that data in a conceptual frame.
However, the Greek Science went through a complicated journey until arriving to our present. Between
Early and High Middle Ages (approximately between V and XII Centuries), the Greek knowledge
remained alive in Western Europe but in a very fragmented way. On the opposite, this precious legacy
was not only preserved but also extensively developed on the Near East, reintroducing from there a “new”
science in Europe. Between the years 1150 and 1300, translations of Aristotle’s philosophic treatises and
Ptolemy’s astronomy works, as well as Arabian treatises and comments on ancient texts of Greek
science were spread in the West, especially those coming from the Islamic culture in Spain.
Nowadays, there are many historical-philosophical studies about specific segments of the Science
development. Those studies have completely revolutionized the concept of Science. Not long ago, it was
considered that Science was a cumulative knowledge (the intellectual, with a good knowledge of his
trade, is fully aware of the role he plays in his profession. He recognizes the necessary relation existing
between science and teaching, and does not think in treasuring its knowledge but in spreading it”. Cf.: Le
Goffe, J. Op. Cit.), progressing over the one previously acquired. After T. Kuhn, many people started to
consider that Science is not cumulative. On the contrary, it is widely accepted that a scientific revolution
interrupts the development of a certain line of scientific thought inaugurating a new one. And that the new
conceptions not always nor in most cases preserve the principles, methods and concepts of the previous
era.
4. VALUES AND SCIENCE
The concerns about Ethics on Science have always existed, but it was not until recent times that this topic
became the heart of considerations in political, educational, institutional and other fields. Ethics are not
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news to Science, on the contrary, it constitutes a significant part of the scientific activities: it does not only
try to clarify the moral values of the activity but also support their public discussion, the new dialogue
between science, industry and society, it goes deep into the social responsibility of Science and,
ultimately, into the governance of Science and Technology.
An old belief survived from the dawn of Occidental civilization: the conviction that leaders, in order to
effectively exercise governance, must have any kind of especial wisdom. This was the spirit present at
Plato’s Republic, when he defended the aristocracy of philosophers as the ideal form of a State; Bacon
also agreed on this by attributing the government control to those scientists who applied his inductive
method and, more recently, B. Skinner concurred in this idea in his novel, Walden Dos, by creating the
engineering of a social organization based on his own behavioral technology. However, in a democracy
the great audience has no decision-making capacity over one of the main agents of the social change:
the science-technology.
The theoretical justification for the privileged role of the expert knowledge in the management of
contemporary societies must be looked for in academic spheres, where we can find an inherited
conception about the nature of science and its relationship with technology (there generally has been a
simplistic and disdainful image of the technology, which represented the armed wing of the pure science,
its connection to the social world), which may contrast with the perceived popular image.
According to the Office for Science, Technology and Productive Innovation, a study about the “public
perception of Science” revealed that Argentineans support Science but they are cautious about the
consequences of the application of the scientific knowledge. In this way:
•
•
•
•
82.5% of survey respondents agreed that “the progress of Science and Technology is the main
driver of the improvement of the quality of life”.
60% did not agree that “scientific-technological development bring problems for the human kind”.
most of people also ignore the source of funding of the scientific activities: 40% believe that funds
come from the private sector when, actually, the public sector participation on financing
represents more than 70% of the meager total.
eight out of ten Argentineans think that government should invest more in science and technology
but this priority is relative when seven of ten people consider that the money designated to it
should be used in more “urgent” matters (Gonzalez Garcia, M., Lopez Cerezo, J., Lopez Lujan, J.
“Science, Technology and Society”. (Madrid: Editorial Tecnos, 2000).
The dualistic classification of scientific knowledge has been extensively worked from the beginning of the
th
20 Century. Both the Circle of Vienna and Karl Popper agreed in considering two contexts inherent to
the scientific activity. During the 60’s, Thomas Kuhn almost unintentionally produced an epistemological
rupture of the rational-progressive vision of Science. Kuhn affirmed that although the Science progresses
between the parameters of “normal Science”, it does not have a global and universal progress because,
in one hand, the theories that prevail are not the ones that are closest to the truth (as Popper and others
said) but the “strongest” ones and, in the other hand, because the paradigms leading each period of
normal Science are incomparable to each other.
It was Hans Reichenbach who made official said contexts by calling them “of discovery” and “of
justification”, and established that the first one has no possibility of a rational validation in opposition to
the second, which appears as the privileged analysis object of the epistemology.
However, this idea of the two contexts (though named differently) was not new: it had captivated the
th
theorists of knowledge long before the 20 Century. The Greeks had already made a distinction between
the knowledge as simulation (doxa, opinion) from the real knowledge (episteme or science, the
knowledge itself). The modern contexts of discovery and justification come from this tradition. The Doxa
(context of discovery) cannot be object of rational validation: its justification must be searched on the
sphere of praxis. It is a knowledge that is good enough for handling situations of everyday life with no
expectations, neither of necessity nor of universality. On the contrary, the Episteme (context of
justification) can be rationally founded. This bi-partition of contexts suffers from several reductionisms:
first of all, it is assumed that the scientific activity mainly is scientific knowledge. In this case, it implies a
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reduction of the scientific work to a mere consolidated knowledge. This reduction ignores or denies the
economical practices and the social and technological policies interacting with scientific knowledge.
Secondly, it is considered that, in order to justify this knowledge, it does not receive any external
interference at all, with the exception of the purely formal methodological sphere. The importance of
Science is reduced here to a logical validation, leaving the multiplicity of interests affecting the theories
acceptance or rejection out.
This same reductionist position considers that the scientific knowledge is guided by a single interest: the
search for truth. The scientist “makes Science”, he applies its methods and strategies but he is not
always conscious of the conceptual scope of said methods. This simplification of the scientific complexity
disdains (and not innocently) the multiplicity of social strategies or power struggles at stake in the
implementation of scientific research and its respective technological developments. They deny, for
example, the political decisions and the economical expectations at stake in obtaining a simple position of
research assistant or in the techno-scientific developments of the powerful transnational organisms (The
expense in science and technology activities in Latin American country is slightly less than 8.000 million
dollars, which represents 2.3% of the global spending on the area. For the Latin Americans, the expenses
in science and technology represent an average of almost 0.5% of the GDP, while in developed countries
this grows in most cases up to 2% to 3% of GDP. Cf.: Vacarezza, L.S. Op. Cit.).
It must be also considered that the development of Science is faster than social politics, generating
serious imbalances in the scientific-technological offer and the values ruling the social imaginary
(According to Ernesto Sábato, “The materialization of the universe, rightful for the polyhedron and the
chemical reactions, has been dramatic for the future human survival. We went mad for being accepted by
the hyper development, but we made the serious mistake of losing our original essence, imitating the
empires of machines and the technological delirium”. Sabato, E. “Before the End”, p.63. Buenos Aires:
Seix Barral, 1998), the positive legislation and the concrete people’s living conditions. Instead of thinking
that Science is ruled by unquestionable cognitive objectives and purposes we must achieve, we have to
realize that Science objectives actually arise from previous values (The philosophy of science consider
that sciences apply certain principles without taking the time to analyze them; in consequence, it would be
the philosophy’s function to clarify those principles, a self- imposed ask from the beginning, considering
the Aristotelian definition saying that Philosophy is the knowledge of the first principles) . These values
are in turn born from social practices or ways of life which, at the same time, generate or interact with
certain knowledge, such as Science, considered a true knowledge.
The humanity’s necessities and perceptions about reality became more complex as a consequence of the
levels of abstraction it has reached, that is, as long as it has structured concepts describing, analyzing
and explaining some phenomena and situations but also it has responded to concrete objectives related
to a particular consideration of such reality.
In this way, we can affirm that the levels of abstraction reached by the human kind have not only
represented higher levels of knowledge complexity and systematizing, but have also suffered the
influence of a particular orientation, values and Ethics characteristic of cultures and societies. We must
also highlight that these culture’s values and ethical aspects were developed at the same time as the
investigatory processes. Clonation, genetically modified food and certain technologies are the result of
important scientific and technological advances.
Such advances may contribute to the mankind wellbeing, but also raise a series of ethical questions (the
main issues are related to a redefinition of life and death required by medical interventions, as well as the
necessity of re-conceiving the physician- patient relationships.). But this ethical concerns about
technology is not sudden and unexpected, it has risen along with a series of technological developments:
the discovery and application of nuclear energy, the acknowledgement of environmental pollution, the
biomedical innovations and manipulations and the modern information technologies generated all kind of
ethical reflections and analysis.
In consequence, it becomes necessary to locate Science in the general framework of human culture, to
coordinate the different existing values and to conceptualize a politics according to the culture’s great
scale. We are witnessing a growing corporate participation in research and, at the same time, the
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commercialization of the scientific innovation is everyday more significant within the “research company”.
In this context, scientists may find themselves caught up between two objectives: in one hand, the
Science’s open communication, and the achievement of corporate goals in the other.
We must also add the revolution that took place in the information technologies and communications
areas, which incorporated into the development agenda the “knowledge factor” as a key resource of
every economic and social activity (The developing countries have a large amount of knowledge that
could be used in a more productive way to solve their economic and social problems and to improve their
competitiveness. However, there usually raise serious obstacles for a useful application of this
knowledge, related to: a) education and professional training levels; b) problems in the information and
knowledge storage, access and dissemination; and c) organization of acquired knowledge to enrich the
local and national data bases).
“In its normal state, a scientific community is an immensely efficient instrument for solving the problems or
puzzles that its paradigm has defined. In consequence, progress is the unavoidable result of solving
these problems” (Kuhn, T. “The structure of scientific revolutions”. Buenos Aires: Fondo de Cultura
Economica, 2007).
Many Science critics feel overwhelmed by the rationalist impulse of modern Science, which fights the
traditional ways of knowledge. This makes necessary placing Science in a values scale to allow having a
perspective in the general sphere of human culture (The UNESCO activities in the sphere of Science and
Technology Ethics have the purpose of providing the scientific and technological progress a context of
ethical reflection rooted to the cultural, legal and philosophic patrimony of the Member States. Cf., H.
“Ethics on Science and Technology”. (UNESCO Public Information Office”, 2006). Available at:
http://www.unesco.org/pv_obj_cache/pv_obj_id_A3FC77DC8DB8FDD9E5126660B7C532A58A280200/fil
ename/memobpi44_ethics_es.pdf).
Science continues to be the man’s best way of knowledge or, at least, the most successful. But the
human being is more than mere reason or knowledge.
Ethics implies the study of and the judgment about the human conduct. Aristotle’s Nichomachean Ethics
starts with an attempt of identifying the good in the individual action, pointing out that although everybody
says that the supreme good is happiness, they do not agree on what happiness is… Aristotle analyzes
the different human conducts and their perfections or virtues. Those virtues belong to the common life or
politics (courage, temperance, justice, etc.) and to the intellectual life (science and capacity). The and
definitions, the human kind has faced reality in a certain way. This approach is the result not only of the
intention of legislation or the establishment of social institutions -Aristotle says- are necessary for
achieving any of those virtues with certain regularity. Similarly, it is necessary knowledge of the good to
carry out a critical examination of policies.
Many other values are related to dimensions that are equally essential to the human being, as the artistic
sensibility or the ethical responsibility. But we cannot abandon Science for falling into a suicidal
obscurantism, we must value all of the dimensions in which the human being acts as a social historical
subject.
The authentic moral imperatives demand our loyalty under any circumstance; the technical imperatives
are mandatory only in a hypothetical way. We must take this into consideration since we think Science
and technology as powerful means of knowledge that are very attractive to society but intimately related
to unwanted side effects or non-beneficial secondary results.
The interests, the imperative and economical rationality calculation shall not interfere in any way with the
fundamental demands of ethical reason (“…virtue is a virtue because making the things right is an aim…
it tends to make what is best in relation to pleasure and pain, and the vice does the opposite”. Cf.:
Aristotle. “Nichomachean Ethics”. Madrid: Editorial Gredos, 1985) and the great religious traditions.
The importance of the science and technology activity in the nations’ workforce occupation is represented
by the proportion of scientists and technologists in the total of the economically active population. The
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difference between Latin America and United States is dramatic: more than 7 per thousand for the North
American country and 10 times lower (0, 7 per thousand) for the Latin American countries.
In global economy, in which science and technology play a key role, the imposition of a social Darwinism
and the survival of the fittest must be avoided by all means. On the contrary, every man and every human
group must be treated with humanity, linking all the society actors in a democratic and free society.
The Church has repeatedly affirmed that the truth cannot contradict the truth (Leo XII, Paul VI, and John
Paul II). This affirmation means that the scientific truth cannot contradict the revealed truth, if both remain
in each one’s fields and are properly interpreted (It is not possible for a thing to be both good and evil, in
some occasions light and bearable and, in other, fearsome”. Seneca, L. A. “Golden aphorisms”. Buenos
Aires: Andromeda, 2003).
There’s an obvious reason: God is the supreme Truth, partial truths are only aspects of It.
John Paul II expressed that “the search for the truth (…) never ends, it refers to something above the
immediate study object, to the questions that give access to Mystery” and that “the scientific research
must be oriented to the common good of the society and to the integral development of each one of its
members”.
Robert Merton (Merton, R. Op. Cit.) also expressed: “The ethos of science is that affectively toned
complex of values and norms which is held to be binding on the man of science. The norms are
expressed in the form of prescriptions, proscriptions, preferences, and permissions. They are
legitimatized in terms of institutional values.”
Merton also warns that the Science’s Ethical Code has not been properly codified. Nevertheless, he
affirms that is possible to reflect on it by taking a look to the practices and applications of this code made
by the scientific community, as well as from documents about the scientific spirit and discussions
expressing indignation for the violation of this code. According to Merton, the norms of the scientific
procedure are not only mandatory as a research methodology, but also they are considered “right and
good. They are both moral and technical prescriptions”
Merton describes the following principles of the Science’s Ethical Code:
•
•
•
•
universalism, when something is true, no matter the source, it must be submitted to preestablished impersonal criteria: agreement, confirmation and previously confirmed knowledge.
communism: the findings of Science are a result of the social collaboration and are attributed to
the community. “The communism of the scientific ethos is incompatible with the definition of
technology as ‘private property’ in a capitalistic economy”.
disinterestedness (understood as selflessness): Science, as the professions in general, includes
the personal disinterestedness as a basic institutional component.
organized skepticism: it is both a methodological and institutional precept. The suspension of
judgment until “data is available” and the uncompromised analysis of beliefs with logical and
empirical criteria generate a conflict between Science and other institutions.
Mario Bunge (Bunge, M. Science, its method and philosophy”. México: Siglo XXI Editores, 2000)
recognizes the following values of the Science:
•
•
•
•
appreciation for objectivity;
sense of justice;
judgment independence;
courage, i.e., capacity to defend the truth and to recognize the mistake.
The transformation of women and men into compromised and responsible social subjects, both in the
knowledge acquisition and in the search for the most genuine human values, must be the essence of the
educational concerns in alternative projects. The human beings and their life constitute the criterion of
values, the benchmark of what is significant (The beginning of the De vita beata (Seneca) paraphrases
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the one of the Aristotelian Metaphysics, “All men naturally desire knowledge”; Seneca says: “All men, my
brother Gallio, naturally desire happiness”. Seneca, L. A. Op. Cit.).
The values, as an expression of the diversity of necessities, interests and wishes of individuals, social
groups, classes and the entire society, express the objective trends of the development and at the same
time they are translated into a conscience of values, (“The happy life is the one that is “secundum
naturam”. “The supreme good is a soul that disdains the haardous things and finds fulfillment on virtue».
With this statement appears the decisive concept of “virtus”, which does not exactly match with the Greek
“arête” that mainly expresses skills and efficacy, while the Latin term refers to “vir”, man, to the concept of
energy, strength and, finally, courage”. Cf.: Marias, J. “Seneca”. Madrid: ABC, 1996) ideals and utopias.
The reality transformation also demands changes on the conscience, in this way the act of thinking can
turn into volition and praxis of the social subjects (“The summit and culmination of the man’s happiness
consist on defeating all the bad things, to rise and to go deep into the Nature”. Cf.: Seneca, L. A. Op.
Cit.).
An ethical consensus, a coincidence of certain values, criteria and attitudes as a basis for the scientific
development of a world society (a global ethical attitude, a worldwide ethical attitude is nothing but the
minimum required of human values, criteria and fundamental attitudes”. Cf.: KUNG, H. “A Global Ethic for
Global Politics and Economics”. Buenos Aires: Fondo de Cultura Económica, 2000.) … Isn’t it a beautiful
and great dream? Will it be achieved?
Victor Hugo (HUGO, V. M “Odes and ballades”, 1826.) says that future has many names:
For the weak, it means the unattainable.
For the fearful, it means the unknown.
For the courageous, it means opportunity.
javascript:vote(1,16086,'allow');
REFERENCES
Aristotle., 1995, “Nichomachean Ethics”. Editorial Gredos, Madrid
Barba Martin L. And Alcántara Santuario A., 2003, “The Values And University Education”. Reencuentro
38,.
Available
At:
<Http://148.206.107.15/Biblioteca_Digital/Estadistica.Php?Id_Host=6&Tipo=Articulo&Id=176&Archivo=
3-12-176rid.Pdf&Titulo=Los Valores Y La Formación Universitaria>.
Bunge, Mario. 2000. “Science, Its Method And Philosophy”.: Siglo Xxi Editores, Mexico
Escribano, J.C. June 14 1996. “Borges, As Eternal As Water And Air”, At La Nación Journal, Buenos
Aires
Feyerabend, Paul, 1998.. “Ambiguity And Harmony”. Paidós, Barcelona
Gonzalez Garcia, M., Lopez Cerezo, J., Lopez Lujan, J. 2000 “Science, Technology And Society”.:
Editorial Tecnos, Madrid.
Hugo, Victor. M 1826 ,“Odes And Ballades”.
Kourganoff, Vladimir. 1963. “The Scientific Research”. Eudeba, Buenos Aires.
Kuhn, Thomas. 2007 “The Structure Of Scientific Revolutions”. Fondo De Cultura Económica,. Buenos
Aires.
Kung, Hans. 2000, “A Global Ethic For Global Politics And Economics”. Fondo De Cultura Económica,
Buenos Aires.
Le Goff, Jacques. 1965 ,“Intellectuals In The Middle Ages”. Eudeba,. Buenos Aires.
Marías, Julián. 1996. “Seneca”. Abc, Madrid
Merton, Robert. 1995. “The Sociology Of Science”. Alianza Editorial, Madrid.
Sabato, Ernesto. 1998 “Before The End”.: Seix Barral,. Buenos Aires.
Savater, F. 1995. “Invitation To Ethics”. Ed. Anagrama, Madrid.
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Schweitzer, A. 1930. “The Mysticism Of Paul The Apostle”.
Seneca, Lucius Aennaeus. 2003. “Golden Aphorisms”.: Andrómeda, Buenos Aires
Standeford, Dugie For Intellectual Property Watch. 2008. “Intellectual Property Regime Stifles Science
And
Innovation”.
September,
Available
At:
<Http://Www.Nodo50.Org/Fadsp/Pdf/Revista/118/S2000118%2010-11.Pdf>.
Ten Have, Henk. 2006. “Ethics On Science And Technology”. Unesco Public Information Office”,
Available
At:
<Http://Www.Unesco.Org/Pv_Obj_Cache/Pv_Obj_Id_A3fc77dc8db8fdd9e5126660b7c532a58a280200/
Filename/Memobpi44_Ethics_Es.Pdf>.
Vacarezza, L.S. “Science, Technology And Society: The State Of The Question In Latin America.”
Available At: Http://Www.Rieoei.Org/Oeivirt/Rie18a01.Htm
World Conference On Science For The Twenty-First Century: A New Commitmen. Budapest (Hungary),
June, 1999. Budapest Statement On Science And The Use Of Scientific Knowledge. Unesco – Icsu.
Available At: < Http://Www.Unesco.Org/Science/Wcs/Esp/Declaracion_S.Htm>.
AUTHOR PROFILE
Dr. Norma Jauregui de Pivetta (Public Accountant, Universidad de Buenos Aires has a Master’s Degree
in Sociology Universidad Católica Argentina, a Postgraduate Degree in Public Finance, Ministry of
Economy, Argentina, Master in Sociology training at the Universidad Nacional de Quilmes, with focus on
History. Her areas of interest in research and teaching cover entrepreneurial thinking and ethics, as well
as ethics in science. Her works on the subject have been published in different countries. Member of
ALENE (Latin American Association of Business, Economics, and Ethics), an association member of
ISBEE, Member of the American Management Association, Reviewer of the AMA and the Journal of
Research in Economics and International Finance. She has published book chapters and several articles
in academics journals.
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WHAT DOES ART IMPLY FOR STRATEGIC MANAGEMENT? THE RELATIONSHIP
BETWEEN ARTISTIC EXPERIENCES OF TOP MANAGER AND UNRELATED
DIVERSIFICATION
Yun Sik Oh, Sungkyunkwan University, Seoul, South Korea
Chul Woo Moon, Sungkyunkwan University, Seoul, South Korea
Sang Kyun Kim, Sungkyunkwan University, Seoul, South Korea
Eun Jung Choi, Sungkyunkwan University, Seoul, South Korea
Research Note
ABSTRACT
Scholars in management field acknowledge the importance of top manager’s characteristics in strategic
decision making. Unlike the previous studies mainly focuses on demographic characteristics, this paper
investigates the top manager’s artistic experiences and its influence on strategic choice, especially the
unrelated diversification strategy. Building on upper echelon theory and agency theory, we suggest that
artistic experience represents manger’s willingness of risk taking and account for the unrelated
diversification strategy. From the survey from 272 top managers in Korea, we found support for the
suggested relationship, and the moderating role of ownership. Lastly, the theoretical and practical
implications are discussed.
Keywords: Art, Artistic Experience, Unrelated Diversification, Ownership Structure
1. INTRODUCTION
Traditionally, people consider relation between art and business as philanthropy, sponsorship and social
investment (Bartelme, 2005). In recent year, however, artists share their expertise in creativity and high
performance as a leader of organization (Bartelme, 2005). Because of unpredictable and uncertain
business environment, corporations will not be able to survive if they stick to business as usual (Darso,
2005). In this perspective, a manager is crucial, who is open-minded, creative and can effectively manage
changes in business environment such as globalization, innovation and rapidly redefined industry
segment (Boyle & Ottensmeyer, 2005). And these characteristics can be achieved by artistic experience.
Meanwhile, unrelated diversification that is chosen in modern business environment is somewhat risktaking strategy because it may make corporation suffer heavy losses when it is failed in an unexperienced
industry.
2. THEORY DEVELOPMENT AND HYPOTHSES
Artistic experience has positive effect to creative characteristic that consists of fluency, flexibility,
originality, logicality, open-minded, willingness to challenge (Choi, 2013). To foster an acceptance of
ambiguity and risk, corporations develop sensitivity to other’s ideas and culture. This is possible through
artistic touch and artful creation” (Darso. 2005). Namely, artistic experiences of top manager can make
people and corporations more creative and brave on strategic choices.
Unrelated diversification refers to the strategy through which the corporations diversify into new industry
that is unrelated with present core competencies. Previous studies in upper echelons - perspective that
states characteristics of top manager affect strategic choice - mainly consider demographic factors. And
they found that a manager with the tendency of risk taking prefers unrelated diversification.
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According to the agency theory, there is a separation between the managers that make corporate
decision makers and shareholders. It makes conflicts of interest between two subjects. These conflicts
can be mitigated when managers may have the incentive to strategic choice that is in the line of interests
of shareholders (Denis, Denis and Sarin, 1999). In other words, equity ownership structure is likely to be
related to agency problem. If managers have a large fraction of the corporate’s equity, manager’s
interests become aligned with other shareholders.
We build up main effect and moderating effect hypothesis based on above explanations. This study
investigates relationship between artistic experiences - appreciation experience and creation experience of top manager and unrelated diversification. Also, ownership structure moderates the relationship
between artistic experience and unrelated diversification.
Hypothesis 1: Artistic experience of top manager is positively related with unrelated diversification of
corporations
Hypothesis 1-1: Appreciation experiences of top manager is positively related with unrelated
diversification of corporations
Hypothesis 1-2: Creation experience of top manager is positively related with unrelated diversification of
corporations
Hypothesis 2: Ownership structure negatively moderates the relation between artistic experience of top
manager and unrelated diversification such that artistic experience of top manager is less positively
associated with unrelated diversification when top manager has higher ownership
3. METHOD
To test hypothesis, we conducted survey from 272 top manages of Korea companies. The results are
follows. (See TABLE 1.) First, appreciation experience has not effect on unrelated diversification (H1-1,
not supported). Second, creation experience has significant positively impact on unrelated diversification
(H1-2, supported). Third, ownership structure negatively moderates the relationship between creation
experience and unrelated diversification such that artistic experience of top manager is less positively
associated with unrelated diversification when top manager has higher ownership, but moderating effect
of ownership structure between appreciation experience and unrelated diversification is nonsignificant
(H2, partial supported).
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TABLE 1. THE RESULT OF REGRESSION ANALYSIS FOR RELATION BETWEEN ARTISTIC
EXPERIENCE AND UNRELATED DIVERSIFICATION
Model
1
2
3
Unstandardized
Coefficients
Standardized Coefficients
t
B
Std. Error
Beta
(Constant)
3.514
.526
6.675
AGE
-.008
.008
-.069
GENDER
.001
.225
TENURE
.007
SIZE
Sig.
Collinearity Statistics
Tolerance
VIF
.000
-.963
.336
.726
1.377
.000
.005
.996
.916
1.091
.005
.095
1.417
.158
.826
1.211
-.016
.027
-.043
-.590
.556
.703
1.423
EQUITY
-.001
.015
-.005
-.073
.942
.733
1.365
(Constant)
3.529
.539
6.545
.000
AGE
-.008
.008
-.068
-.940
.348
.725
1.380
GENDER
-.013
.237
-.004
-.054
.957
.831
1.203
TENURE
.007
.005
.094
1.380
.169
.813
1.230
SIZE
-.018
.028
-.049
-.666
.506
.686
1.457
EQUITY
-.001
.015
-.005
-.068
.946
.732
1.367
AE
.013
.072
.012
.183
.855
.856
1.168
CE
.167
.260
.040
.642
.522
.953
1.050
(Constant)
3.469
.537
6.464
.000
AGE
-.007
.008
-.060
-.842
.401
.722
1.384
GENDER
-.005
.237
-.001
-.020
.984
.818
1.222
TENURE
.007
.005
.091
1.343
.180
.812
1.231
SIZE
-.018
.028
-.048
-.645
.520
.676
1.478
EQUITY
.000
.015
-.002
-.032
.974
.724
1.381
AE
.048
.132
.044
.367
.714
.253
3.954
CE
.958
.435
.231
2.204
.028
.336
2.973
AExEQUITY
-.008
.020
-.052
-.420
.675
.244
4.095
CExEQUITY
-.164
.073
-.242
-2.257
.025
.323
3.099
4. CONCLUSION
This study can have academic and practical implication in business. First, the result of this study can be
initial movement for identifying new factor as that influences on strategic choice. Second, we find that
creation experience is more significant than appreciation experience for risky strategy, for example
unrelated diversification. This finding will be able to use for guideline of recruitment and education.
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REFERENCES
Ansoff, H. I. (1958). A model for diversification. Management Science, 4(4), 392-414.
Bartelme, L. (2005). The view from the trenches: an interview with Harvey Seifter and Tim Stockil. Journal
of Business Strategy, 26(5), 7-13.
Bell, C. (1913). Art. New York: F. A. Strokes.
Boyle, M. E., & Ottensmeyer, E. (2005). Solving business problems through the creative power of the
arts: catalyzing change at Unilever. Journal of Business Strategy, 26(5), 14-21.
Carlsson, G., & Karlsson, K. (1970). Age, cohorts and the generation of generations. American
Sociological Review, 710-718.
Child, J. (1974). Managerial and organizational factors associated with company performance part I.
Journal of Management Studies, 11(3), 175-189.
Colbert, F., Nantel, J., Bilodeau, S., & Poole, W. D. (1994). Marketing culture and the arts. Montreal:
Morin.
Collingwood, R. G. (1938). The Principles of Art. Oxford University Press, London.
Collins, O., & Moore, D. G. (1970). The organization makers. Appleton-Century-Crofts, New York.
Croce, B. (1978). Aesthtic:A Science of Expression and General Linguistic. Boston: Nonpareil Books
Edition.
Cyert, R. M., & March, J. G. (1963). A behavioral theory of the firm. Englewood Cliffs, NJ, 2.
Darso, L. (2005). International opportunities for artful learning. Journal of Business Strategy, 26(5), 58-61.
Daum, K. (2005). Entrepreneurs: the artists of the business world. Journal of Business Strategy, 26(5),
53-57.
Dearborn, D. C., & Simon, H. A. (1958). Selective perceptions: A note on the departmental identification
of executives. Sociometry, 21, 140-144.
Denis, D. J., Denis, D. K., & Sarin, A. (1999). Research notes and communications: Agency theory and
the influence of equity ownership structure on corporate diversification strategies. Strategic
Management Journal, 20, 1071-76.
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top
managers. Academy of management review, 9(2), 193-206.
Hart, P., & Mellors, J. (1970). Management youth and company growth: a correlation?. Management
Decision, 4(1), 50-53.
Hayes, R. H., & Abernathy, W. J. Managing our way to eco-nomic decline. (1980). Harvard Business
Review, 58(4), 67-77.
Kerlinger, F. N.(1986). Foundation of Behavioral Research, 3rd ed., Holt, Rinehart and Winston, New
York
O'Hagan, J., & Harvey, D. (2000). Why do companies sponsor arts events? Some evidence and a
proposed classification. Journal of Cultural Economics, 24(3), 205-224.
Seung eun, Choi (2013). The Effect of Cultu6re and Arts based experience on Individual Creativity and
Performance(Doctoral dissertation,Ewha Womans University).
Tostoy, L. (1930). What is art?. Oxford: Oxford University Press.
Winner, E. (1982). Invented worlds: The psychology of the arts. Harvard University Press.
AUTHOR PROFILES
Yun Sik Oh is a student at Sungkyunkwan University, Seoul. He is studying for a master’s degree of
Business Administration. His area of research is strategic management.
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Chul Woo Moon is a Professor of strategy at Sungkyunkwan University, Korea. He received his Ph.D. in
strategic management from University of Maryland. His areas of research are strategic management,
M&A, culture contents strategic management and India market expansion strategy. His previous research
has been published in Journal of Strategic Management, International Business Journal, Korean
Management Review, International Studies Review, and elsewhere.
Sang Kyun Kim is an Assistant Professor at Sungkyunkwan University, Korea. He received his Ph.D. in
strategic management from Washington State University. His primary research interests are innovation,
corporate strategy, and R&D strategy. His previous research has been published in Strategic
Management Journal, Journal of Product Innovation Management, Global Business and Finance Review,
African Journal of Business Management, Journal of Management Policy and Practice, and elsewhere.
Eun Jung Choi is a student at Sungkyunkwan University, Seoul. She is studying for a master’s degree of
Business Administration. Her area of research is strategic management.
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WHAT IS THE RELATION BETWEEN CREATIVITY OF TOP MANAGERS AND THEIR
STRATEGIC CHOICE?
Eun Jung Choi, Sungkyunkwan University, Seoul, Korea
Chul Woo Moon, Sungkyunkwan University, Seoul, Korea
Sang Kyun Kim, Sungkyunkwan University, Seoul, Korea
Yun Sik Oh, Sungkyunkwan University, Seoul, Korea
Research Note
ABSTRACT
In this uncertain and disruptive environment, corporates are finding the answer about triggering
creative idea and making novel value to creativity. Researches about creativity have been discussed
consistently from individual level to organizational level. On the other hand, the argument about
creativity and relevant strategy was not enough at the business strategy field.
To reveal the relation, we provide a brief review of the literature on creativity and risk taking which is
one of attributes of creativity. Upper echelons perspective explains the top managers’ characteristics
and its decision making, and we draw Porter’s (1980) generic competitive strategies (cost leadership
and differentiation) as top managers’ strategic option. From our research in Korea, we revealed the
strategic choice of creative top managers but, insignificant moderate role of environmental uncertainty.
Lastly, the practical and theoretical implications are discussed.
Keywords: Creativity, Risk Taking, Upper Echelons, Strategic Choice
1. INTRODUCTION
By the research analyzing historical development pattern, top 10 corporates selected by Fortune
Magazine had this common point that they pursuit creation and innovation. Creativity is a key factor of
success and survival of organization as precedent value of innovation. Researches about creativity cover
artist to individuals in organization, manager’s leadership and culture of team or organization. But, the
argument about the introduction and application of creativity on business strategy remains not sufficient.
Therefore, we would contribute to this point by revealing the relation between creativity and strategy,
especially focusing on top managers in the way that business strategies are reflected by its top
manager’s characteristics.
2. THEORY DEVELOPMENT AND HYPOTHSES
2.1. Creativity and Risk Taking
Creativity is defined as ability to make novel and useful thing. At the strategy field, creativity as intangible
resource can provide a competitive advantage based on the resource-based theory of the firm, it makes
firm to hold a sustainable competitive advantage because it is valuable, flexible, rare, and imperfectly
imitable or substitutable. In other words, creativity is eligible for important factor in strategic field.
Especially, one of five attributes appearing in creative personality in commons, risk taking, is important to
make decision in terms of managerial ideology.
Practically, even if a number of firms require their employees to be creative, they don’t want to take over
its risk. But creative person needs to be risk-taker to suggest the new ideas. In general, theories about
choice assume that decision makers prefer larger expected returns to smaller ones and smaller risks to
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expected value. On the other hand, creative top managers would make bold decision to proactively take
action at managerial environment.
2.2. Upper Echelons Perspective
CEOs and top management team (TMT) members are labeled as the dominant coalition by Cyert and
March (1963) and upper echelons by Hambrick and Mason (1984). Upper echelons perspective premises
that demographic variables such as age, gender, level of education, and career path of top manager
affecting cognitive processes will cause strategic outcomes and performance. Recent researches make
elaborate the initial framework by adding new variables. Recent research has been developed in
psychological field which was neglected before.
2.3. The Generic Competitive Strategies
We categorized a variety of strategies with methodology of taxonomy and typology and paid attention to
typology because it came from business phenomenon. One of the representative strategies of typology is
Porter’s (1980) generic competitive strategies categorizing to cost Leadership, differentiation and focus.
We consider Porter’s strategies because it has some relationship with other strategies and empirical
support from previous researches. But we excluded focus strategy because it is a matter of scope size of
target rather than business strategy.
By these theoretical backgrounds, we suggest creativity involving risk taking of upper echelons as a new
variable to explain the strategic choice between cost leadership and differentiation, under uncertain
environment.
Hypothesis 1: Top manager’s creativity affects the generic competitive strategies such that top manager
who has high creativity chooses differentiation strategy through his(her) risk taking and top
manager who has low creativity chooses cost leadership strategy through his(her) risk
aversion.
Hypothesis 2: Environmental uncertainty moderates the relationship between top manager’s creativity
and the generic competitive strategies such that top manager’s choice between cost
leadership and differentiation would be polarized under the environmental uncertainty.
3. METHOD
This study used the sample of 272 top managers collected by e-mail survey in South Korea at 2009.
As a result (See TABLE 1), top managers who have high creativity choose differentiation, but the relation
between top managers who have low creativity and cost leadership was not significant. Thus, hypothesis
1 was partially supported. The moderate role of environmental uncertainty was not significant when we
consider regression model and its r-square, hypothesis 2 was not supported.
TABLE 1. THE RESULT OF REGRESSION ANALYSIS FOR RELATION BETWEEN CREATIVITY AND
STRATEGIES
Unstandardized
Coefficients
Standardize
d
Coefficients
B
Std. Error
Beta
(Constant)
2.244
.215
SIZE
-.002
.027
AGE
-.004
TENURE
-.011
Model
1
Collinearity Statistics
t
Sig.
Toleranc
e
VIF
10.419
.000
-.005
-.066
.948
.712
1.404
.008
-.040
-.539
.590
.673
1.486
.008
-.110
-1.470
.143
.653
1.532
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SHARE
.021
.017
.099
1.217
.225
.555
1.802
GENDER
-.242
.222
-.069
-1.091
.276
.914
1.095
(Constant)
1.805
.415
4.355
.000
SIZE
-.004
.027
-.012
-.162
.872
.708
1.412
AGE
-.003
.008
-.028
-.381
.704
.663
1.509
TENURE
-.012
.008
-.117
-1.558
.120
.649
1.540
SHARE
.021
.017
.103
1.267
.206
.554
1.805
GENDER
-.239
.221
-.069
-1.081
.281
.914
1.095
CREATIVITY
.112
.090
.076
1.238
.217
.981
1.020
(Constant)
1.812
.416
4.352
.000
SIZE
-.004
.027
-.012
-.162
.871
.708
1.412
AGE
-.003
.008
-.030
-.403
.687
.655
1.528
TENURE
-.012
.008
-.116
-.1.542
.124
.648
1.544
SAHRE
.021
.017
.101
1.220
.223
.543
1.841
GENDER
-.243
.222
-.070
-1.093
.276
.909
1.101
CREATIVITY
.125
.108
.085
1.162
.246
.690
1.449
CREATIVITY
*UNCERTAI
NTY
-.004
.018
-.017
-.229
.819
.674
1.484
4. CONCLUSION
From our research, we found that creative top managers choose differentiation but, environmental
uncertainty does not affect their strategic choice.
Practically, this finding proposes that creativity of top managers should be considered when their
selection, placement and appointment depend on the strategy pursued by the firm. Theoretically, we draw
the creativity as a novel variable at the strategic field and shed light on the relationship between creativity
and relevant strategic choice.
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Frank Barron and David M. Harrington, “Creativity, intelligence, and personality”, Annual Review of
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John A. Parnell, “New Evidence in the Generic Strategy and Business Performance Debate: A Research
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Kim Linsu and Lim Yooncheol, “Environment, Generic Strategies, and Performance in a Rapidly
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Luis Ma. R. Calingo, “Environmental Determinants of Generic Competitive Strategies: Preliminary
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MacKinnon, D. W., “Personality and the realization of creative potential”. American Psychologist, 1965,
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Mason A. Carpenter, Marta A. Geletkanycz and Wm. Gerard Sanders, “Upper Echelons Research
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McCrae, R. R.,“Creativity, divergent thinking, and openness to experience” Journal of Personality and
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Michael E. Porter, “Competitive Strategy: Techniques for analyzing industries and competitors”, THE
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Michael E. Porter, “Competitive Strategy: Techniques for analyzing industries and competitors”, THE
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Mune Yong Soo, “Theoretical Review of the patterns of Strategy”, Department of Business
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AUTHOR PROFILES
Eun Jung Choi is a student at Sungkyunkwan University, Seoul. She is studying for a master’s degree of
Business Administration. Her area of research is strategic management and innovation.
Chul Woo Moon is a Professor of strategy at Sungkyunkwan University, South Korea. He received his
Ph.D. in strategic management from University of Maryland. His areas of research are strategic
management, M&A, culture contents strategic management and India market expansion strategy. His
previous research has been published in Journal of Strategic Management, International Business
Journal, Korean Management Review, International Studies Review, and elsewhere.
Sang Kyun Kim is an Assistant Professor at Sungkyunkwan University, South Korea. He received his
Ph.D. in strategic management from Washington State University. His primary research interests are
innovation, corporate strategy, and R&D strategy. His previous research has been published in Strategic
Management Journal, Journal of Product Innovation Management, Global Business and Finance Review,
African Journal of Business Management, Journal of Management Policy and Practice, and elsewhere.
Yun Sik Oh is a student at Sungkyunkwan University, Seoul, South Korea. He is studying for a master’s
degree of Business Administration. His area of research is strategic management.
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THE EFFECTS OF EMPOWERING LEADERSHIP ON PERFORMANCE AND
SUBJECTIVE WELL-BEING OF EMPLOYEES
Mi-jin Sung, Sungkyunkwan University, Seoul, South Korea
Jin-Hee Moon, Sungkyunkwan University, Seoul, South Korea
Dae-ho Kim, Sungkyunkwan University, Seoul, South Korea
Jiseon Shin, Sungkyunkwan University, Seoul, South Korea
Chul-Woo Moon, Sungkyunkwan, University, Seoul, South Korea
You-sang Koh, Sungkyunkwan University, Seoul, South Korea
Research Note
ABSTRACT
The purpose of this study is to empirically investigate the relationship between empowering leadership
and employees` performance and happiness (subjective well-being) by focusing on a mediating
influence of psychological empowerment. Conducting a survey with a sample of 789 full-time
employees working for various organizations in the healthcare industry in Korea, we found general
support for the hypothesized relationships. Specifically, our findings suggest that employees whose
leaders exhibit empowering leadership are more likely to report high levels of subjective well-being and
perform better primarily through increased levels of psychological empowerment.
Keywords: Empowering Leadership, Subjective Well-being, Psychological Empowerment
1. INTRODUCTION
Considerable research has highlighted the importance of leader behaviors for team performance
(Durham, Knight, & Locke, 1997; Judge, Piccolo, & Ilies, 2004). In particular, a number of scholars
examined benefits of empowering leadership for various positive outcomes of employees. Yet, only a
limited number of scholars examined why and how empowering leadership can produce positive
outcomes. We attempt to investigate the role of empowering leadership in improving employees’ work
performance and subjective well-being through a mediating influence of psychological empowerment.
2. THEORY AND HYPOTHESES
As reviewed by several scholars (Burke, 1986; Burpitt & Bigoness, 1997), empowering leadership not
only emphasizes sharing power with followers also increases followers’ abilities such as a sense of
meaning, competence, self-determination, and impact (Ahearne, Mathieu, & Rapp, 2005). In other words,
empowering leadership is defined as behaviors whereby power is shared with subordinates and that
raise their level of intrinsic motivation. According to prior study, empowered employees find more
meaning in their jobs and are more satisfied with their job. Also, leader behaviors that promote power
sharing and raise the intrinsic motivation of subordinates are also likely to enhance followers’ efficacy
(Conger & Kanungo, 1988; Thomas & Velthouse, 1990). Therefore, we propose:
H1: Empowering leadership is positively related to employees’ performance.
Existing research has documented that employees` subjective well-being (happiness) and stress are
significantly influenced by their leaders’ behaviors (Danna & Griffin, 1999). Most of people have a need
for autonomy, and the extent to which this need is satisfied tends to depend on how their leaders treat
them (Ryan & Deci, 2000). In addition, employees may feel valued, accepted and trusted by their
empowering leaders, which in turn help them feel subjective well-being. Therefore, we argue that
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employees who are empowered by their leaders are likely to experience pleasurable feelings. Thus, we
propose:
H2: Empowering leadership is positively related to employees’ subjective well-being.
Psychological empowerment is defined as increased intrinsic task motivation manifested in a set of four
cognitions reflecting an individual’s orientation to his or her work role: meaning, competence, selfdetermination and impact (Spreitzer, 1995). According to prior studies, empowered employees
experience high potency and autonomy in performing their tasks and find their tasks more meaningful and
impactful, leading to higher intrinsic motivation and positive feelings (i.e., Diner & Biswas, 2011; Kirkman
& Rosen, 1999). This increased intrinsic motivation and positive feelings will lead to high levels of
performance and subjective well-being. Thus, we propose:
H3 & 4: Employees' psychological empowerment will mediate the relationship between empowering
leadership and their performance (H3) and subjective well-being (H4).
3. METHODS & RESULTS
We tested the hypotheses using regression analyses with SPSS. The hypothesized mediating effects
were tested relying on Baron and Kenny (1986). We first found that empowering leadership did not
increase employees’ performance (H1, not supported). Second, empowering leadership was positively
related to subjective well-being of employees (H2, supported). Third, employees' psychological
empowerment was found to mediate the relationship between empowering leadership and their
performance (H3, supported). Finally, employees' psychological empowerment significantly mediated the
relationship between empowering leadership and employees’ subjective well-being (H4, supported).
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4. CONCLUSION
Our study makes important contributions to the empowering leadership literature. Our research helps
scholars and practitioners better understand the complex relationship between empowering leadership
and employees’ performance and emotional experience. We suggest future researchers adopt a more
systematic approach to empowering leadership in order to examine various benefits of empowering
leadership by focusing on other mechanisms at multi-level through which empowering leaders help their
followers to be more competent and happy.
REFERENCES
Ahearne, M., Mathieu, J., & Rapp, A. 2005. “To empower or not to empower your sales force? An
empirical examination of the influence of leadership empowerment behavior on customer
satisfaction and performance”, Journal of Applied Psychology, 90: 945– 955.
Baron, R. M., & Kenny, D. A. 1986. “The moderator-mediator variable distinction in social psychological
research: Conceptual, strategic, and statistical considerations”, Journal of Personality and Social
Psychology, 51, 1173-1182.
Burke, W. 1986. Leadership as empowering others. In S. Srivastva (Ed.), Executive power: 51-77. San
Francisco: Jossey-Bass.
Burpitt, W. J., & Bigoness, W. J. 1997. “Leadership and innovation among teams: The impact of
empowerment”, Small Group Research, 28: 414–423.
Conger J. A., & Kanungo, R. N. 1988. “The empowerment process: Integrating theory and practice”,
Academy of Management Review, 13: 471–482.
Danna, K., & Griffin, R. W. 1999. “Health and well-being in the workplace: A review and synthesis of the
literature”, Journal of management, 25(3), 357-384.
Diener, E., & Biswas-Diener, R. 2011. Happiness: Unlocking the mysteries of psychological wealth, John
Wiley & Sons.
Durham, C. C., Knight, D., & Locke, E. A. 1997. “Effects of leader role, team-set goal difficulty, efficacy,
and tactics on team effectiveness”, Organizational Behavior and Human Decision Processes, 72:
203– 231.
Judge, T. A., Piccolo, R. F., & Ilies, R. 2004. “The forgotten ones? The validity of consideration and
initiating structure in leadership research”, Journal of Applied Psychology, 89: 36–51.
Kirkman, B. L., & Rosen, B.1999. “Beyond self-management: Antecedents and consequences of team
empowerment”, Academy of Management journal, 42(1), 58-74.
Ryan, R. M., & Deci, E. L. 2000.”Self-determination theory and the facilitation of intrinsic motivation, social
development, and well-being”, American psychologist, 55(1), 68.
Spreitzer, G. M. (1995). “Psychological empowerment in the workplace: Dimensions, measurement and
validation”, Academy of Management Journal, 38, 1442-1465.
Thomas, K. W., & Velthouse, B. A. 1990. “Cognitive elements of empowerment: An “interpretive” model of
intrinsic task motivation”, Academy of Management Review, 15: 666–681.
AUTHOR PROFILE
Mi Jin Sung is a graduate student in Human Resources and Organization at Sungkyunkwan University,
Seoul. Her area of research is empowering leadership and psychological capital.
Jin Hee Moon is a graduate student in Human Resources and Organization at Sungkyunkwan University,
Seoul. Her area of research is human resource management, communication, and leadership.
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Dae Ho Kim is a graduate student in Human Resources and Organization at Sungkyunkwan University,
Seoul. His area of research is psychological reactance and person-job fit.
Ji Seon Shin (Ph.D., University of Maryland, USA) is an assistant professor in Human Resources and
Organization, Sungkyunkwan University. Her work has been published in top-tier journals in
Organizational Behavior such as the Academy of Management Journal and the Academy of Management
Review. Her research interests focus on leadership, organizational change and social networks.
Chul Woo Moon is a Professor of strategy at Sungkyunkwan University, South Korea. He received his
Ph.D. in strategic management from the University of Maryland. His areas of research are strategic
management, M&A, culture contents strategic management and India market expansion strategy. His
previous research has been published in Journal of Strategic Management, International Business
Journal, Korean Management Review, International Studies Review, and elsewhere.
You Sang Koh is a doctoral candidate of school of business, Sungkyunkwan University, South Korea.
His area of research includes entrepreneurship and healthcare management.
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