Wednesday, February 28, 2007

Capitalism as an Ideal

Timothy Ash, a professor of European studies at Oxford, in the Globe and Mail makes the comment:

What is the elephant in all our rooms? It is the global triumph of capitalism.
Maybe in his room - most of us don't really care or don't even notice. And that's how markets have developed and thrived; not explicitly or intentionally, but because governments loosened their collective grips after experiencing stagnation and failure. This isn't a condition that governments have sought, but have simply happened. For those of us who do care, to accept his view is dangerous.

One can almost sense Ash's level of futility and desperation in making such an admission, except for the fact he's wrong. Ash begins by attempting to define capitalism:

Is what Russian or Chinese state-owned firms do really capitalism? Isn't private ownership the essence of capitalism? One of America's leading academic experts on capitalism, Edmund Phelps of Columbia University, has an even more restrictive definition. For him, much of what continental Europe has, with its multiple stakeholders, is actually corporatism. Capitalism, he says, is “an economic system in which private capital is relatively free to innovate and invest without permissions from the state and green lights from communities and regions, from workers, and other so-called social partners.” In which case, most of the world is not capitalist. I find this much too restrictive.

Hmmm, let's clarify. Let's go to an expert in "capitalism", ask them to define it and then when we don't like the definition, make one up? And make it up in order to suit his argument, he does:

Surely what Europe has is multiple varieties of capitalism, from more liberal market economies such as Britain and Ireland to more co-ordinated stakeholder economies such as Germany and Austria. In Russia and China, there's a spectrum from state to private ownership. Other considerations than maximizing profit play a larger part in the decision-making of state-controlled companies, but they, too, operate as players in national and international markets, and increasingly they also speak the language of global capitalism. Granted, China's “Leninist capitalism” is a very big borderline case, but the crab-like movement of its companies toward what we would recognize as more rather than less capitalist behaviour is far clearer than any movement of its state toward democracy.

It's not difficult to find those like Ash who long for an alternative (or maybe it's just a charm of being in Canada). The average German apparently even believes that it's better to inherit the wealth you have rather than earn it! They find capitalism far too disruptive, they associate it with greed, manipulation, and consumption and even find it impolite. They're willing to use Cuba as an example that socialism can work pointing to its healthcare system despite American oppression/hegemony keeping it impoverished, (nevermind that Taiwan, an island embargoed by a far more hostile neighbour, has thrived).

But basically what it comes down to for those like Ash, is that it's possible for socialism and communism to have an "ideal" but capitalism must be flawed at its core. With the growth and prominence of the environmental movement, they can now point to another reason to reign in the "excesses" of capitalism. Where apparently Marx had it wrong on why capitalism would fail, Ash apparently knows better:
They are not precisely the famous “contradictions” Marx identified, but they may be even bigger. For a start, the history of capitalism over the past 100 years hardly supports the view that it is an automatically self-correcting system. As George Soros (who should know) points out, global markets are now more than ever constantly out of equilibrium — and teetering on the edge of a larger disequilibrium. Again and again, it has needed the visible hands of political, fiscal and legal correction to complement the invisible hand of the market. The bigger it gets, the harder it can fall.
This is a favorite strawman of the anti-capitalists: to them, anarchy is apparently the ideal state for free markets, nevermind that free markets require rule of law and property rights as noted by everyone from Milton Friedman to Adam Smith. Governments are needed to protect us from each other - the problem is when governments attempt to protect us from ourselves or blur the line between the two. What is perhaps a bit galling is that Ash prefers we forget many of these "disequilibriums" are caused by brutish (though often unintentional consequences of) government interventions. Ash goes on:

Then there is inequality. One feature of globalized capitalism seems to be that it rewards its high performers disproportionately, not just in London but also in Shanghai, Moscow and Mumbai. What will be the political effects of having a small group of super-rich people in countries where the majority are still super-poor? In more developed economies, such as in Britain and North America, a reasonably well-off middle class, with a slowly improving personal standard of living, may be less bothered by a small group of the super-rich — whose antics also provide them with a regular diet of tabloid-style entertainment. But if a lot of middle-class people begin to feel they are personally losing out to the same process of globalization that is making those few fund managers stinking rich, while at the same time outsourcing middle-class jobs to India, then you may have a backlash.

This seems more to do with wishful thinking. To Ash, apparently the fact that wealth is accumulated and stolen by oligarchies and corrupt governments who don't care to enforce rule of law can all be blamed on free markets. Further, Ash implicitly makes the equivalence of the "super-rich" in developed countries with those in developing countries - as if self made billionaires like Rupert Murdoch and Bill Gates can be compared at the same level as oil sheikhs. To those like Ash it seems that wealth can only be distributed rather than made and earned. Wealth to them is a "fixed pie", not one that grows with innovation. I often wonder how they reconcile their reality with the continual growth in per capita GDP. Economics mumbo jumbo perhaps?

Above all, though, there is the inescapable dilemma that this planet cannot sustain six and a half billion people living like today's middle-class consumers in the rich north. In a few decades, we would use up fossil fuels that took 400 million years to accrete — and change the earth's climate as a result. Sustainability may be a boring word, but it is the biggest single challenge to global capitalism today. However ingenious modern capitalists are in finding alternative technologies — and they will be very ingenious — somewhere down the line, this will mean richer consumers settling for less rather than ever more.

Finally, it's the argument most in vogue by redistributionists - using the environment - claiming that we don't have enough resources. They use words like "ecological footprint" and "inevitable" to scare us into compliance. But these Malthusian arguments aren't particularly new but as they have been for the pasts 300 years, they are still wrong. Ash however does acknowledge that technologies have been the solution to resource constraints but he treats these solutions as mere tricks by "ingeniuous modern capitalists". The genius of free markets is that scarcity is signalled to ingenious modern (and even stodgy) capitalists through higher prices and therefore greater incentives to develop more efficient ways to use resources and develop alternatives. The evidence is quite clear - commodity prices fall over time.

There's an elegant truth to the markets. With prices having consistently fallen in the long run, it suggests resources are becoming more abundant rather than scarce. What makes this fall even more remarkable is increased population and increased wealth allowing more people to afford what were luxuries mere decades ago. There are however those who have been willing to bet that this wouldn't be the case, putting their money where their mouths have been.

But back to why accepting Ash's belief that capitalism has "won" is dangerous. Consider a doomsday scenario of what might happen when China ultimately falters. Who to blame? I'll bet that those like Ash won't be pointing fingers at government policy (and the extreme levels of bad bank debt). According to James Waterton:
I fear a worldwide economic slump prompted by the collapse of China and its supposedly free market will provoke a popular backlash against globalisation and the liberal market reforms carried out in the 80s in the most successful economies of the West. Capitalism and liberalism will be blamed if people create a nexus between China's collapse, its market reforms and its intertwining with the greater world economy. There is no shortage of people who will quickly jump to the fallacious conclusion that the free market sunk China - those who protested in Hong Kong and other places would grab plenty of (misguided) ammunition from such a catastrophic event. Ask any one of those economic curmudgeons about post communist Russia's economy, and I will bet you penny to a pound that their standard response would be "capitalism failed Russia". This is about as sensible as saying that modesty failed Paris Hilton, for anyone who knows anything about post-Soviet "free market reforms" will know that they were in fact nothing of the sort. This type of thinking could very well gain traction because it makes sense prima facie. Policy reversals may follow and suddenly we're staring down the barrel of a neo-Keynesian revolution. Consider what the average person knows about China's economy. We're all told about China's free market reforms and its burgeoning capitalist class in the mainstream media - we're not told about the Chinese government's meddling in the economy and its mandating of compulsory totalitarian-style imposts on big private companies like internal "political cells", its retention of control over huge swathes of industry, its equity market (there is currently a ban on IPOs on Mainland bourses) which is stuffed with companies who are controlled by local governments and even the military, rather than shareholder, the board and a CEO. Most importantly, we're not told about the largely intractable problems with China's banking sector. Most people truly think China operates under a free market economic system. If the dog's breakfast that is China Inc fails with all the accompanying pain and fallout, there's a real danger that free market liberalism will be made the scapegoat internationally.
Let's not forget the words of a Frenchman:

"When goods do not cross borders, soldiers will." - Bastiat

Some argue quite convincingly that this led to World War I.

Sunday, February 25, 2007

The Worst Job in America

I thoroughly enjoyed Steven Levitt's Freakonomics - and in this Youtube, he talks about his research project into the economics of a drug gang which, for its lowly members was "the worst job in America". (R-Rated: Language). Hat Tip: Simon @ Classical Values.

Friday, February 23, 2007

Are CEOs worth it?

Here's an interesting position (I seem to like contrarian and unpopular positions for some reason); Jerry Taylor and Jagadeesh Gokhale from Cato make the argument that CEOs may be underpaid:

A 1997 study by Harvard economists Brian Hall and Jeffrey Leibman examined 15 years worth of data relating to CEO pay and corporate performance. Messrs. Hall and Leibman found that, for 1994, every additional dollar given to a CEO translated into an average return of $3.90 for the company. While subsequent studies have highlighted the ambiguities associated with studies like this, the evolution of CEO compensation arrangements strongly suggests that corporate boards are increasing compensation packages for a reason -- to improve performance.
[...] The inference from Mr. Bush's statement -- that rising CEO pay is fueling income inequality -- thus begs the question about whether rising CEO pay is improving corporate performance. If it is, then workers might well be better off if CEOs were paid even more. And if it isn't, then the market will either punish firms that are overpaying for executive talent, or shareholders would lose. To us, the only excess here is the attention politicians are "paying" to the issue.
I tend to agree - the onus of responsibility of ensuring that the investment in strong executive talent is the responsibility of shareholders, who delegate responsibility through directors, who in turn have a fiduciary responsibility for representing their interest. If I recall this whole mess with options is the direct result of Congress tinkering with what they deem fair in executive pay.

'The Real Crisis in Public Education'

More on Steve Jobs' speech from the Wall Street Journal:

The real crisis in public education, he noted, has nothing to do with the amount of technology in the classroom. It's the fact that union work rules prevent principals from firing the bad teachers and rewarding the good ones. "Here's the problem," said Mr. Jobs, using a business analogy: "What kind of person could you get to run a small business if you told them, when they came in, they couldn't get rid of people they thought weren't any good in the first place? Or they couldn't pay people three times as much when they got three times as much work done?"

Thursday, February 22, 2007

Corporate Taxes and What's "Fair"

TCS Daily makes the argument that fair corporate taxes is no corporate taxes. As a small business owner, I'm all for it, though I'm not sure how practical or politically feasible that is (ie it isn't). But it raises an interesting point since double taxation has always been one of those bizarre things that governments do. Practically speaking though I wonder how you deal with people who use businesses to pay their personal expenses? I suppose you're not allowed to do that anyway. Or even the accumulation of assets within corporations so it isn't taxed?

The Effect of Unions on Productivity

In general, I can't say that I am a fan of unions. I believe they served a purpose that is now largely unnecessary, at least in the developed world. Economic choice has reinforced this with union membership dropping steadily. The Economist though has a thoughtful article that references Stephen Bainbridge on the subject who argues that rather than being negative, the net result on productivity of unions may be closer to zero. Hat Tip: Instapundit.

Nobelist Polanyi on Innovation

In a followup to a Globe and Mail article last week, Nobelist John Polanyi makes the argument that what's stopping innovation isn't either the lack of engineers/scientists as advocated by Bill Gates, or even business people as argued by Roger Martin and James Milway. Polanyi argues that, in fact, it's over/poor management:

The damage is done when the manager takes ownership of the pig before whisking it off to the market. The health of the pig, we are told, is to be assured by rules of husbandry. Research, in order to qualify for support, should abide by a multitude of rules.
Ignoring for a moment that the case as made by Martin & Milway wasn't that there wasn't adequate management at the government level, Polanyi errs by ignoring where innovation comes from. What started it all, was Bill Gates' assertion that America's prosperity was dependent on innovation. Where he goes wrong is in thinking that this innovation must come from scientists and engineers, Martin and Milway go wrong thinking that it's the business grads and Polanyi goes wrong thinking that innovation must happen at universities - or even driven by universities.

There's little doubt that innovation drives prosperity. It's easy to see that a given product is worth more than the sum of its parts, and the difference, after taking into account the cost of capital is almost always the direct result of innovation. But innovation isn't always as radical as the development of the lightbulb, the microchip or hopefully, eventually, fusion. The vast amount of innovation is incremental - or evolutionary, as pointed out in a study in 2000, for Duke Law Professor Lewis Branscomb by Booze, Allen, Hamilton. It's adding a new menu item at McDonald's, or making cars in colors other than black.

In fact, Booz Allen makes the observation that:
Almost all GDP growth is due to evolutionary growth of existing markets, services, and production processes. $200 billion in R&D was funded by private industry. Of this only about $16 billion funded R&D for radical innovators.
From this innovation was economic activity (gross profitability for an economy) of nearly 10 trillion dollars. So to recap: prosperity is the result of profitability measured by GDP (as an aggregate) which in turn is the direct result of largely incremental innovations. Understanding the problem is probably the first step to building a solution. As in the case of labor markets, in promoting innovation in private industry, governments need to learn less is probably more.

Barack Obama isn't Black?

Racism apparently isn't just for white people despite what those at the UN might think. Here's a hilarious interview from the Colbert Report (despite being partisan Democrats, Colbert and Stewart can be quite funny).

Life and Times of Milton Friedman

Read it here.

Wednesday, February 21, 2007

Setting Labor Free

The Wall Street Journal is reporting that "economies in the Nordic region are surging" (subscription required / Congoo):

From almost every angle, the economies of Sweden, Norway, Denmark and Finland look much stronger than those in the euro zone. In Sweden, double-digit growth in consumer sales last year helped to produce the country's best year of economic growth since the 1970s. Labor-market overhauls have helped push unemployment to near record lows in Denmark, Finland and Norway.

In Sweden, the new center-right government, which won power in September after 12 years of Social Democratic rule, has cut income taxes and employer fees and reduced unemployment benefits to increase both labor demand and supply. One result: Retail sales in Sweden jumped 10.9% in December from a year earlier.
Governments can do more by doing less. It's remarkable how long it can take for governments to realize that the only thing the've been protecting people from are jobs.

Heh... Slapdown of Robert Reich

Greg Mankiw points out the hypocrisy of Robert Reich on minimum wage and trade.

Solar at Half the Cost of Oil?

I have my doubts but I certainly hope so. According to Ambrose Evans-Pritchard in the Telegraph:

In a decade, the cost may have fallen so dramatically that solar cells could undercut oil, gas, coal and nuclear power by up to half. Technology is leaping ahead of a stale political debate about fossil fuels.
I have few doubts that something will ultimately substitute oil. Though statements like this strike me as premature:
Needless to say, electricity utilities are watching the solar revolution with horror.
Horrified all the way to the bank no doubt. I would suggest the days of high oil prices are limited. Commodity prices drop with time because of technological substitutes and improved extraction technologies but in the short run, however temporary prices remain high is anyone's guess.

Tuesday, February 20, 2007

More on the Limits of Microfinance

As most people know, I'm fairly enthusiastic about microfinance but I believe there are some significant limits to what it can do. This reinforces the idea that though they may be provided with the best of intentions subsidies and soft loans to microfinance are ultimately unhelpful to target recipients/clients. A recent study from Cato:

Microfinance—the provision of financial services such as small loans to the world’s poor—has grown in the past decade, extending billions of dollars in credit to tens of millions of people. A major aim of the microfinance movement is to provide funds for investment in microbusinesses, thus lifting people out of poverty and promoting economic growth.

Recent experience and the economic history of rich countries, however, suggest that those expectations are unrealistic. Most people, poor or otherwise, are not entrepreneurs, so there is little reason to think that mass credit would in general lead to viable business start-ups. Today as in the past, business start-ups in the advanced countries depend predominantly on savings and informal sources of credit; past forms of microcredit never played a role in small business development, and much microcredit is actually used for consumption rather than investment. In the history of today’s rich countries, moreover, economic growth occurred first, then came credit for the masses. That credit was and is predominantly for consumption rather than investment.

There is no reason to believe that the nature and sequence of growth and mass credit are fundamentally different for poor countries today than they were in the past. We should not expect microfinance to noticeably affect growth or successful business development.

Don't like inflation numbers? Make them up.

I could have also titled this why countries stay poor/get poorer. From the Wall Street Journal (this link needs subscription but according to Richard in the comments, you might be able to access the same editorial at

Just when you think world economic policy might be moving in a more sensible direction, along comes Latin America. This month's lesson in how not to create prosperity comes from Argentina, which has decided that the way to whip inflation is to throw out inconvenient statistics.

Recently the Peronist government of President Nestór Kirchner sacked an official at its National Statistics and Census Institute for refusing to agree to alter the "methodology" used to calculate inflation in January. Armed guards then escorted a political appointee to replace her.

Theory of Government

Funny but true. According to Jane Galt:

The post below also applies to behavioural economics, which the left seems to believe is a magical proof of the benevolence of government intervention, because after all, people are stupid, so they need the government to protect them from themselves. My take is a little subtler than that:

1) People are often stupid
2) Bureaucrats are the same stupid people, with bad incentives.

Interesting... Labor Law & "The Office"

This is for fans of the mockumentary The Office (US). I didn't watch this show for the longest time because I thought it would be a watered down version of the British one but I am finding it pretty funny. Here's an HR lawyer's blog who estimates Dunder Mifflin's litigation costs associated with what Michael does using broad examples from her practice. Pretty educational - perhaps more so for those who get the humor of the show.

Monday, February 19, 2007

Teachers Unions

I've had some pretty great teachers. I've also had some pretty miserable ones. With the (seemingly) increased militance of teachers unions making unreasonable demands/comparisons and from purely anecdotal evidence, I have been wondering if the latter has been flourishing more than the former. Is the economic power of the US (and Canada) in spite, rather than the result of our education system (and as a corollary, teachers and their unions)? Apparently Steve Jobs and Michael Dell (both on the same stage no less!) think so.

Saturday, February 17, 2007

When globalization isn't for you...

To Brink Lindsey, the biggest mistake that Thomas Friedman (author of The World is Flat and the Lexus and the Olive Tree) makes is in believing that globalization is inevitable and governments are powerless. Lindsey's book after all, is titled "Against the Dead Hand: The Uncertain Struggle for Global Capitalism". Countries apparently willingly check out of the global economy all the time.

Which brings us to Venezuela and Zimbabwe. Zimbabwe inflation reached an annual rate of 1281% in December according to New York Times. But here's their prescription, as quoted by Greg Mankiw:

The central bank’s latest response to these problems, announced this week, was to declare inflation illegal. From March 1 to June 30, anyone who raises prices or wages will be arrested and punished. Only a “firm social contract” to end corruption and restructure the economy will bring an end to the crisis, said the reserve bank governor, Gideon Gono.
Now comes Venezuela (hat tip Instapundit) where Daniel Drezner reports "things are beginning to fall apart". What is a bit galling, is that while their problems are entirely predictable (i.e. if you print money ad infinitum, its value goes down), their ideological allies agree with the view that their problems are caused by some American conspiracy.

Same thing with Cuba in that sense. I don't know how many people who have said the whole reason Cuba is an economic basket case is that the Americans have had them embargoed for all this time. I've even agreed to a certain extent, but PJ O'Rourke, does a good job of reminding us of another small island that's been embargoed by an economic giant and in spite of it all, has done quite well for itself - Taiwan.

Travel Blogging - Pet Peeves

I think this is a post that I'll keep adding to over time just to gripe about, and hopefully at some point, someone who can actually make a difference will pay attention.


Plastic wrapped soap -
for the life of me I can't figure out why even five star hotels wrap their soaps in plastic. I instinctively reach to wet my hands before grabbing the soap - which is a problem when it is wrapped in slippery plastic and sometimes even double wrapped! Hotel Harbour Plaza Metropolis (HK) does this as does Novotel (Guangzhou).

Toilet paper dispensers that require gymnastics to reach - I was surprised the Novotel does this. You have to do a near 180 behind you if you're sitting on the throne in order to reach the toilet paper. It's a flippin' new hotel too. The dispenser sits immediately next to the flush chamber or whatever it's called.

Employees who care more about their own convenience than those of their customers - Admittedly I haven't seen this at any 0f the five star hotels I've stayed at but it's a costless thing that all employees in hospitality should know - i.e. hold the elevators for customers particularly when you're the only one in there and particularly when there's only one elevator and it's slow as heck.


Unexplained in-flight acrobatics - Sometimes turbulence causes you to drop a few feet out of nowhere - which I am told is not unusual, but it would help if the pilots came on to explain it to the frightened passengers afterwards. Plus side - unusually compliant passengers for the rest of the flight .

People who don't care about the people in front and behind their seats - I'm one of those people who don't think it's worth travelling business class in general. Hook me up with an aisle seat and an electrical plug (yes! they have those now in AC economy), and I'm pretty happy. But it's annoying when people in front of you are fully reclined, they get up and they slam themselves back on the seats - it's even more annoying when you're fully reclined sleeping and the person behind you struggles pulling themselves up using your seat as leverage.

Hotel Blogging - Novotel Guangzhou

An employee of mine has a membership at "elong" in China which is something like a travelzoo and gets pretty good deals for hotels across China. This five-star Novotel in Guangzhou was nice (and like the Guangzhou airport that it sits conveniently and immediately behind, it's quite oversized). At 588 RMB/night (about $75 USD/night), it was an introductory offer (opened Jan 15 apparently and the pool and a few restaurants on second floor weren't open yet).

Hotel Blogging - Home Inn (Guangzhou)

I'm sure there's more than one of these things in Guangzhou. I think it's aiming to be something like a Holiday Inn. I require very little from my hotel rooms - basic, clean, and good internet (I am told I have an addiction), are my requirements. So this is I think an encouraging development in China. It's actually a public company HMIN on the NASDAQ (expensive, but if it weren't, I would be a buyer so it's on my watch list). At 180 RMB a night (but my room was more expensive because it had a window and a larger bed), the internet was great. My theory about internet and hotel rooms is that sometimes it's the dumpier/more basic hotels that will have better internet because fewer of the lodgers will have laptops with which to use said internet.

Of course these places have tv's that don't have any english (whereas the Novotel even had HBO Asia along with the usual CNN International), and they don't have anyone who speaks a smidgen of english let alone cantonese, but it's nothing a cell phone call to someone who does can't solve.

If I may dwell on this for a moment though, places like this are a departure and quite encouraging for China which typically has much smaller lodging houses which are inconsistent at best for your average domestic traveller. With its bright colors, it's almost like they drew inspiration from somewhere like Ikea and it's developing into a good consumer brand (another thing most smaller lodging houses have no idea about). In Africa, I wouldn't stay in places where your average domestic traveller would stay because it wouldn't be either safe or clean.

Friday, February 16, 2007

Nukes, Nukes Everywhere...

Power is a problem for most of the factories I work with down south. During the summer when it's the worst, factories can be forced not to use any electricity off the grid for as many as 3-4 days a week. It's odd but now that I think about it I've seen very few nuclear power facilities down south. Flying about up north though they seem to pop up everywhere.

Now here's a new development that might be a difficult sell, at least over in North America:

Below is your standard set of nukes out in Changchun. It's kind of strange too, you start to notice that people build these residential units pretty close to the nukes (I even saw small older looking huts driving by the base of these nukes). Maybe they don't really care, or maybe these people who live there just don't know any better.

Flying like a Madman around Northern China

I thought I'd add some original content. I'm back in Canada now after an exhausting few weeks in China with the last leg of my journey travelling with a client criss-crossing Northern China. The one thing that is amazing is the level of construction that is going on everywhere. And we're not talking little developments.

It's quite similar to what I saw going on near in Southern China when I first started this job a few years ago - cranes everywhere, infrastructure developments anticipating future growth which meant massive highways which were near empty, and multimillion dollar if not multibillion dollar airports with few people in them. It was stunning when I first came to China 3-4 years ago - the downtown core of Shenzhen was being completely rebuilt - and not piecemeal as you might see in a "hot" city in North America, it was being done all at once.

Here are some pics from a few weeks ago. Personally I don't think the pictures do the scale of construction going on justice. These are in Tianjin, 1.5-2 hours south of Beijing. At first, my client thought that all the cranes in the distance were for a massive port. Now imagine this effect being multiplied all over the coast of China.

This last pic is also illustrative of the kind of development that seems to go on out in the country side. There's still a lot of flat country side but every so often you get this massive building in the middle of nowhere. It would be as if after driving out in the middle of Kansas after seeing miles and miles of farmland and then without warning you have this huge commercial building. One wonders how they deal with things like electricity and water or even more importantly sewage...

More from Phelps... on Wealth and Culture

As blogged earlier though perhaps not as selective in my quoting, there's an additional point that should have been emphasized in his editorial:

Lastly, there a strain of anti-commercialism. "A German would rather say he had inherited his fortune than say he made it himself," the economist Hans-Werner Sinn once remarked to me
As the Right Coast points out, it is extraordinary. Hat Tip, Instapundit.

What Not to Do....

As the bumper sticker goes: "what if your purposes in life is to serve as a warning to others?" Well there's Venezuela, held on a pedestal by some for his "defiance" to the US and able to do so awash in oil money. Hat Tip: Instapundit.

Thursday, February 15, 2007

Wall Street Journal Economics & Development Roundup

Lots of good stuff in the Wall Street Journal today on development and economics and also a bit on Africa (a subscription is highly recommended). Let's start with what's not behind their subscription services:

John Fund reviews "Radicals for Capitalism" by Brian Doherty (the publishers should have spent a bit more money on the cover page). Here's a quote: "But very few writers have devoted much attention to the role of libertarians, a more appealing and optimistic group of thinkers, political activists and ordinary citizens who believe that respect for the individual and the spontaneous order of market forces are the key to progress and social well-being."

Next comes an OECD report out on European Joblessness and the associated editorial:

Look at the welfare-besotted Nordics, in particular Denmark, which has recently found tough love. Its "flexisecurity" system combines generous jobless benefits, strong incentives to get new work fast and lenient hiring and firing rules. This encourages Danish employers to create jobs and pushes beneficiaries back into the work pool. The result: Unemployment fell to 4.8% in 2005 from 8% in 1994.

New governments in Italy and Germany and a soon-to-be new president in France have a chance to catch up with other developed economies on getting their citizens into jobs. The recipe isn't complicated: Reduce taxes to reduce wage costs, tighten rules on government benefits, loosen up employment protection laws.
Then there's Nobel Prize winner for Economics winner Edward C. Prescott arguing the merits of globalization, getting out of the way of successful industries while allowing old uncompetitive industries to die:
Of all the thankless jobs that economists set for themselves when it comes to educating people about economics, the notion that society is better off if some industries are allowed to wither, their workers lose their jobs, and investors lose their capital -- all in the name of the greater glory of globalization -- surely ranks near the top.
Finally, while I can't agree with the authors who say Doha is Africa's last best chance, they do make some good points that the collapse of the Doha round of trade talks would make African nations poorest for it. Here's the argument:
It would lead the United States and the European Union to negotiate more bilateral free-trade agreements with key countries, but not with sub-Saharan Africa and other poor countries, which offer few attractive markets for developed countries' manufactured goods and services. Africa, which has seen its share of world trade shrink in recent years, would fall even further behind.
This runs counter to those anti-trade idealists or self proclaimed advocates for the poor, however well intentioned who argue that no trade agreement is better than a flawed trade agreement.

The Role of Innovation

Hat tip to my friend Brett who pointed me to a Globe and Mail article where it's argued that Bill Gates is wrong:

Neither is there evidence that more scientists and engineers would enhance future prosperity. Across developed economies, there is no relationship between the graduation of scientists and engineers and economic growth. Among the Group of Seven industrialized nations, America ranks seventh in natural science and engineering undergraduate degrees per capita, yet leads in innovation and prosperity.
I'm doubtful that the real driver of economic growth is business education. In fact it's been argued the critique encompasses all of education. Off the top of my head, India's historical level of development comes to mind. It's only recently that it has seen significant growth much of it given its largescale economic reforms despite a highly educated workforce. Education like microfinance like many other interventions are catalysts - they do little to spark the incentives for entrepreneurship and development.

Wednesday, February 14, 2007

A bit on the freaky side...

Imagine being able to shuck a lobster - what's more, shucking it while it's still alive without losing any of the meat! This is what you get:

Personally I love lobster - I just don't like the work, but this is freaky even for me. Apparently you can now buy them like this at Whole Foods. Isn't technology great ? One of the best meals I've ever had was a tasting menu at Canoe in Toronto - one of the things I thought was a neat luxury at the time was an appetizer where you didn't have to peel the shell. I have to say the idea has its appeal... but in practice...

Monday, February 12, 2007

In Praise of Entrepreneurialism

From the Nobel Prize winning Edmund Phelps:

Where there is more entrepreneurial activity--and thus more innovation, as well as all the financial and managerial activity it leads to-- there are more jobs to fill, and those added jobs are relatively engaging and fulfilling.
Phelps explores why continental Europe has lagged the United States in economic growth. Interestingly he argues that culture and values may have as much a role as institutions.

Bringing Transparency to the Global Fund at the UN

They should make Tom Coburn President for all that he's done. "One doesn’t have to think of oil-for-food to know that if the UN is running your expense account, there could be problems." No, unfortunately, one does not. From the same article in

It is easy to admire the Global Fund for the good work that it has achieved. But its early successes may be forgotten if it becomes just another corrupt UN scheme. The Global Fund may not like it, but Senator Coburn’s transparency initiative may save its reputation along with the lives of millions.
What I'm not clear on is why our governments have been allowed to write blank cheques to organizations like the UN who seem at times better at press releases than real acts of good work without some requirement of accountability and/or transparency.

Thursday, February 08, 2007

"The curious career of Maurice Strong"

Maurice Strong is a Canadian with ties to the Liberal Party of Canada, and perhaps not so coincidentally to the UN. Locally, he also used to sit on the board at the "Center for International Governance Innovation", where quite coincidentally, Louise Frechette, deputy Secretary General under Kofi Annan was hired as a "Distinguised Fellow". Personally, it strikes me as odd that anyone who has held a substantive role at the UN be associated with "good governance" but I digress.

From Claudia Rosette:

Before the United Nations can save the planet, it needs to clean up its own house. And as scandal after scandal has unfolded over the past decade, from Oil for Food to procurement fraud to peacekeeper rape, the size of that job has become stunningly clear.

But any understanding of the real efforts that job entails should begin with a look at the long and murky career of Maurice Strong, the man who may have had the most to do with what the U.N. has become today, and still sparks controversy even after he claims to have cut his ties to the world organization.

From Oil for Food to the latest scandals involving U.N. funding in North Korea, Maurice Strong appears as a shadowy and often critically important figure.
I would strongly recommend you read the whole thing. It's stunning. Hat Tip: Instapundit.

The New Deal Revisited

According to Arnold Kling:

The New Deal gave the American people new faith in large, powerful central government. However, the results of the New Deal did not justify that faith in the 1930s, nor do the results of the welfare state justify such faith today.
Obviously I know nothing of the context of that time, but the premise that government can spend its way out of unemployment or structural economic issues seems to be somewhat erroneous (and has been repeatedly proven many times over since the Great Depression). Of course if you believe this then you also have to believe that the New Deal prolonged and/or worsened the Great Depression instead of its original intentions. But isn't that nearly always the case with top down government solutions?

Friday, February 02, 2007

What's wrong with Education?

A good case can be made that it's unions:

Who, on average, is better paid--public school teachers or architects? How about teachers or economists? You might be surprised to learn that public school teachers are better paid than these and many other professionals. According to the Bureau of Labor Statistics, public school teachers earned $34.06 per hour in 2005, 36% more than the hourly wage of the average white-collar worker and 11% more than the average professional specialty or technical worker.
I mean it's remarkable how far ahead the US and the rest of much of the western world including Canada are, despite what can only be described as dysfunctional education systems. That said, it is somewhat difficult to measure such things as creative thinking and innovation which our education systems appear to produce in spades - but is this in spite of or because of our school systems? (I recommend reading it all)

Updated - Linked "reading it all".

Posting infrequent...

Unfortunately updating the blog has been rough having a miserable cold, way too much work lately, and unable to even access this site with any degree of speed from China. Usually my net is working well enough only while in Hong Kong and the nature of my work being what it is, I'm not usually out here all that often (though I confess it is a bit of a luxurious treat). In any event, hopefully I will be able to post more and more often soon when I return back to Canada on the 9th. In the meantime, I'll try to take a few more pics and the like of what it's like out here.