Author:
Graham MacDonald
Public
concern about jobs and the economy has focused media and political attention on
the job creation credentials of President Obama and his Republican
contenders.
MetroTrends
offers solid facts to inform this debate: which industries are gaining or
losing jobs? Without these details, it’s difficult for policymakers to
craft effective responses that strengthen metropolitan
economies.
Our
latest interactive map shows Current Employment Statistics data for October
2011. The highlights:
The
Top 100 Metros' Job Creation in All Industries (click image for interactive
map)
Source:
Urban Institute analysis of BLS Current Employment Statistics (CES)
Data
Since
the Great Recession ended in June 2009, the United States has gained about 1.2
million jobs, mostly in the services sector. Of the top 100 metros, 59 have
added jobs overall, while 41 have lost jobs.
The
top 10 job-creating metros account for 38.5% of net U.S. job growth and include
Houston (7.2%), Dallas (6.1%), Boston (6.0%), Phoenix (3.5%), Detroit (3.1%),
Miami (3.0%), Nashville (2.7%), Pittsburgh (2.5%), Washington DC (2.2%), and San
Jose (2.1%).
In all
these metros, the
service sector is the main source of job growth.
For example, most of
Houston’s gains have come from increases in both professional and business
services and education and health services. Dallas has gained
many jobs in the same two fields, compensating for manufacturing sector
losses. Boston’s growth stems mainly from large increases in education and
health services jobs. And in DC, government, professional and business services,
and education and health services jobs have offset losses in goods producing,
leisure and hospitality, and information jobs.
Every
metro tells a unique story that varies over time. By understanding job trends
both within and among metros and industries, policymakers and local stakeholders
have a strong foundation for building sound job-creation strategies going
forward.
Paris
From their flagship—and
so far, only—location in the fifth arrondissement, two French entrepreneurs sit smirking.
Michael Cohen and Rachid Ez-Zaïdi, co-founders of the year-old Bagel Corner,
recall earlier in the week being visited by another pair of Frenchmen who'd
launched a bagel shop.
"We
got to talking about our businesses and we asked about their expansion plans,"
says Mr. Cohen, aged 26. Mr. Ez-Zaïdi, 24, jumps in with the punchline: "They
have none!"
"They
said they only want one shop—it's theirs, they make an income, they have their
little lives—they're happy," explains Mr. Cohen. "That's very
French."
"Yeah.
But that's not us," grins Mr. Ez-Zaïdi. "We want to be
huge."
President Nicolas Sarkozy
came to office five years ago promising an entrepreneurial boom—albeit of a
peculiarly French sort: "I believe in capitalism," he told Charlie Rose in
January 2007. "I believe in the market economy. I believe in competition. But
I want an ethical form of capitalism."
In practice that meant
extending the retirement age here and loosening overtime restrictions there, and
a host of new giveaways and tax carve-outs to startups in favored industries
such as tech and alternative energy.
And France has spawned
hundreds of thousands of "enterprises" in the past five years—more than half of
which employ no one but the founder. Many
of these are set up mainly as a way of avoiding tax: Through your business, you
can buy a car, pay your rent, even purchase wine (for entertaining your
clients), and voila, it all becomes
tax-deductible. Whether this is what Mr. Sarkozy meant by "ethical" capitalism
or not, it hasn't exactly produced a jobs boom. French unemployment is now just under
10%.
Messrs. Cohen and
Ez-Zaïdi have a different vision. Both
from the Paris suburbs, they met in business school and began plotting the
invasion of the bagel: loaded sandwiches, toasted, made-to-order with all the
fixings and starting at €4 a pop. First Paris, then the world: "We've got a list
of about 20 people now asking us to franchise—in Marseilles, Cannes, Belgium,"
Mr. Cohen says. "This
is a global vision, for a fast-food chain that's really
everywhere."
Enlarge
Image
Randy
Jones
They
launched their first shop last February using personal savings, a loan from the
Crédit du Nord bank and a zero-interest public loan. They've since booked a 20% profit margin,
just above average for fast-food in France and not surprising for a market that
sheepishly loves its McDonald's and always prefers crusty
bread.
Their problem now: expansion.
"For
two years [in school] they told us 'start a business, it's easy, there'll be
lots of aid for you,'" says Mr. Ez-Zaïdi. "On the ground, it's a little harder."
For
starters, there's the small matter of there being more than one meal a day.
Currently the Bagel Corner is open for lunch six days a week and through dinner
on Thursdays, for which it requires two workers other than Messrs. Ez-Zaïdi and
Cohen.
"So at the moment no one
works more than five hours a day," Mr. Ez-Zaïdi explains, meaning they don't
have to worry whether their Saturday hours violate their employees' rights to
work no more than 35 hours per week.
"Fine
for now, we're a neighborhood that's all students, at night there's no one," Mr.
Cohen adds. "But maybe the next shops will be near bars, offices, discotheques,
maybe it would make sense to be open at night, or have a breakfast special on
lox, cream cheese and coffee."
Yes,
please. Earlier in the day, at a brasserie nearby, a coffee and buttered
baguette went for €7 and change.
But as
soon as they expand their hours, "we'll run into this French problem of the
shift—we'll have to start rotating personnel," Mr. Cohen says.
"And to be open seven
days a week, 24 hours a day—you would just need so many people." All earning
a minimum wage of €9.22 and costing Bagel Corner €13.36 per hour after
payroll and social security taxes.
"It's
possible," adds Mr. Ez-Zaïdi. "But you'd have to be huge already." Hence, your
correspondent's McDinner later that night.
Bagel
Corner is still nowhere near that third employee. They hope to have two more
locations open this year, but having gone back to Crédit du Nord for a second
loan, the unit of Société Générale is now "a lot more risk-averse than they were
a year ago," says Mr. Ez-Zaïdi. "They're asking for more in reassurances than we
can offer after barely a year."
Their
next step will be to try other French banks, though they hear the mood is the
same elsewhere. If only the banks had conducted comparable due diligence with
sovereign debtors. Another four or five years and this first Bagel Corner's
profits could finance the €200,000 they need for a second, but Messrs. Cohen and
Ez-Zaïdi want rapid expansion.
Failing
a loan, they may seek investors, whom two years ago they could have enticed with
one of the Sarkozy-era loopholes: a 70% deduction on France's "wealth tax" for
investors in start-ups. Now the government has decided it needs that revenue
more than entrepreneurs. "So this year the deduction is down to 50%," Mr.
Ez-Zaïdi observes. For good measure, Paris's latest austerity moves also bump
the effective capital-gains rate to 32.5% from 31.3%, and all income over
€250,000 will face a "temporary" 3% surtax, on top of the standard 41% top rate.
Were
they churning out solar panels or launching Twitter Deux, Bagel Corner could
apply for more government giveaways or offer other loopholes to investors. But
"honestly I'd just prefer private financing," Mr. Cohen tells me. "€50,000 is
great, but if the government gives that to us, they'll give it once. We need a
system for recurrent investment, for financing that will always be there for
good ideas just because they're good."
As
they grow, so will the government's take. France taxes corporate profits at 15% up
to €38,120 per year; every euro above that is automatically taxed at
33.33%. Mr. Ez-Zaïdi estimates they're currently
handing over about 20% of their profits—a bittersweet point of
pride. "We
don't care, we still want to be huge."
"It's
true, this isn't America, this is France—maybe things are changing but
fundamentally they still want us to think local, not global," Mr. Ez-Zaïdi
continues. "But for us it doesn't matter how good this one shop is. If there
isn't a second and a fifth and a 100th, we will have
failed."
At the
talk of a 100th Bagel Corner, Mr. Cohen smiles dreamily: "We shouldn't be afraid
of being big."
Miss
Jolis is an editorial page writer for The Wall Street Journal
Europe.
The
financial crisis has forced Portugal to confront a number of longstanding
imbalances in its economy. No country desires an adjustment program, but once in
place it should be embraced as an opportunity for decisive action in addressing
fiscal problems and eliminating barriers to growth. In turbulent times, an
adjustment program provides much-needed breathing room to focus on what matters:
reforms that boost competitiveness.
Eight
months into the EU-IMF program and despite the hard work still ahead of us,
there is already ample evidence that Portugal has been seizing this
opportunity.
In
recent days, some commentators and the illiquid secondary bond markets suggested
concerns about the Portuguese situation. Being a small part of a wider global
crisis, and facing jittery markets, it is difficult to get across the relevant
information on what we have been doing to generate growth, and to highlight the
indicators that suggest that imbalances are being
corrected.
In
recent years, problems of competitiveness and high levels of debt-fueled
consumption brought external deficits to unsustainable levels. In 2010
Portugal's deficit in the current account was 8.9% of GDP. Recent Bank of
Portugal estimates project sharp corrections in this deficit: to 6.8% in 2011,
and to 1.6% of GDP in 2012. In 2013, for the first time in decades, it is
expected to positive.
These
corrections are explained in part by a contraction of domestic demand, mirrored
by a healthy rebound on the savings rate, but also by the strong performance of
exports, which grew by 7.3% in 2011. In a context of dampened global demand,
such growth suggests that Portugal is gaining market
share.
The
latest official figures, from November 2011, continue to show
double-digit growth in exports of goods. This is a major
adjustment, both in magnitude and in speed. It is a testament to the strong
adaptability of Portuguese companies, which, facing weaker demand in European
markets, are tapping the strong potential of emerging markets with linguistic
ties to Portugal, such as Brazil and Angola. Thus, Portugal is showing a
capacity to restore competitiveness within the constraints of the monetary
union.
In
terms of fiscal consolidation, adjustment is well under way. We have already brought down the
structural deficit to 6.9% in 2011 from the 2010 high of 11.4% of GDP, and we
will bring it further down to 2.6% of GDP in 2012. This
year, the primary balance (excluding interest payments) is expected to be a
surplus of 0.3% of GDP.
Naturally,
this entails austerity measures and some economic contraction. But because more than 70% of the
adjustment comes from spending cuts and the rest from the revenue side, we are
minimizing potential disincentives for economic activity while retrenching the
size of the state.
Total
primary expenditure represented a staggering 48.4% of GDP in 2010 and will be
brought down to 42% in 2012. This will further contribute to a shift from the
non-tradable to the tradable sectors, and will ultimately open the possibility
for tax cuts.
We are
also moving decisively on our privatization program. With
our first transaction, that of the power company EDP, we obtained a 53% premium
on the share price, for total revenue of €2.7 billion. The proceedings from this
one sale represent more than half of expected revenue for the whole
privatization program. This first transaction, which was widely praised for its
fair and transparent process, bodes well for future transactions and for FDI
attractiveness.
Finally, Portugal is engaged in a sweeping
program of structural reforms that will enable Portugal to emerge from this
crisis with better prospects for growth—better, arguably, than
the prospects of other countries that currently lack the proper incentives and
drive for change.
In a
few days Portugal will have a new competition law, aligned with the best
European practices, to better promote a level playing field and reduce
rent-seeking. We
are accelerating the transposition of the services directive, which will reduce
long-standing barriers to an open economy. We have submitted to Parliament a new
insolvency code focused on restructuring viable companies and bringing insolvent
ones to a rapid end.
In the
public sector, the government is restructuring its state-owned enterprises and
eliminating redundant services and management positions. At
the same time, we successfully merged the different agencies in charge of tax
collection to save resources and improve tax collection. It should be noted,
incidentally, that despite unfavorable economic conditions, tax revenues
increased by 4.6% in 2011, and tax recovery was 12% above
target.
Last
week, the government
and social partners reached a comprehensive agreement for labor-market reform,
an area previously marked by considerable rigidities. Under this deal,
indemnities for dismissal will be brought down and the process itself will be
simplified. A number of active labor-market policies will
promote professional training and increase productivity, and the reduction of
vacation days and holidays will generate more competitive unit-labor costs. This
agreement represents an important milestone for our country. It will decisively
contribute to our competitiveness while promoting conditions for social
peace.
This
last point is key. The most salient aspect of the current difficulties is the
resilience and resolve demonstrated daily by the Portuguese people. We are
fortunate to have strong social and political consensus around the imperative of
fiscal discipline and the need for change. This is why the program is working.
This is why Portugal is already restoring its competitiveness despite all
headwinds. This is why growth will return.
—Mr.
Moedas is secretary of state to the prime minister of
Portugal.
News
that Japan last year suffered its first trade deficit in 31 years brought out
the usual concerns among Japanese mercantilists that the sky was
falling. But
probably the heavens over Tokyo will remain in place.
A
comparison can be made to the Broadway theater district in New York, often
referred to as the "fabulous invalid." Fabulous because the marquees light up
with new shows and new names yearly and "invalid" because of yearly predictions
by producers and critics of imminent doom.
Japan
is a bit that way in that its vast underlying economic strength is so often
underrated by attention to prominent weaknesses, such as an aging population,
frequently inept governance, an underdeveloped financial sector, and a huge
government deficit. Those are all real issues but they obscure, in the public
view, the remarkable achievements of Japan's private sector.
The
private sector can't be blamed for a natural disaster. The $32 billion trade deficit last
year was partly a result of the massive Fukushima tsunami in March that damaged
export industries and forced higher imports of fuel to compensate for the loss
of nuclear power capacity.
But
Japanese trade analysts are predicting that trade deficits may persist even as
the country recovers productive capacity lost to the tsunami. Among the reasons,
a slowdown in the global economy and more intense competition from other rising
industrial powers, such as South Korea.
If so,
perhaps Japan's diehard mercantilists will learn that there is nothing so
bad about deficits after all. Quite
possibly that realization will reduce political resistance to Prime Minister Yoshihiko Noda's plans
to make Japan a more active participant in efforts to promote freer trade among
Pacific Rim nations via the Trans-Pacific Partnership now under negotiation,
something that would be beneficial to Japan and its trading partners.
Enlarge
Image
Bloomberg
The
attention given to the trade deficit obscures Japan's underlying economic
strength.
The
old mercantilist model, once hailed by the likes of the late American economist
Chalmers Johnson, became obsolete years ago. The government-industry alliance
that supposedly turned Japan into an export machine was highly overrated even in
the 1980s. The country's export successes had very little to do with the
interventions of bureaucrats and a great deal to do with a simple fact: Japan's
private corporations became very good at making products that lit up the eyes of
consumers throughout the world.
Over
the past 30 years, Japanese companies of course have shipped their skills
abroad, scattering factories around the globe from Thailand to England to
Greensburg, Indiana. Today, Japan's overseas assets have a
value of some $3 trillion.
Japanese-owned
factories and skills account partly for the fact that manufacturing production
in the U.S. has not declined, as some doomsayers claim, but has in fact expanded
by about one-third over the past decade. There hasn't been a corresponding
increase in factory employment—there has been a decline—because robotics (also
pioneered by Japan) have made production more
efficient.
Another
contra-indicator of the alleged invalid status is the strength of the Japanese yen.
It's risen some 45% against the dollar over the past four years despite efforts
by the Bank of Japan to stop it from
appreciating.
The
bank is reacting to complaints that the strong yen reduces the cash flow of
Japanese companies as they convert dollars earned abroad into expensive yen. But
the mighty yen also
gives them enormous buying power abroad. That helped ameliorate
the burdens of post-tsunami fuel importation. And, because investment opportunities in
Japan itself are limited, it has expanded their appetites for snapping up more
assets abroad and for making more direct investments in factories in
underdeveloped parts of the world.
The
attention given to the trade deficit also obscures the fact that Japan still has
a positive cash flow. Its "current account" in
international financial transactions is still in the black, largely because of
the returns in interest and dividends on Japan's vast investments
overseas. Barring a global recession that might diminish the
overseas earnings of Japanese companies, the current account will likely remain
in surplus.
Which
of course means that the Japanese will likely continue to be a market for U.S.
Treasury securities. But because the current account balance will be diminished
by trade deficits, it
won't be quite the well-heeled creditor it has been in the past. Neither will
China, which is also experiencing a decline in production.
None
of this is good news for the U.S. Japan and China likely will have reduced
capacity to absorb the U.S. Treasury securities pouring onto the global market
to finance an out-of-control U.S. deficit.
Because Europe is
afflicted with its own debt burden, it is in no position to offer much help.
That leaves only the U.S. Federal Reserve to keep the Treasury afloat. That
means printing more money and likely further
inflation.
Japan's
reputation as one of the world's sick countries has been exaggerated, and a mere
trade deficit will do it little harm. The "fabulous" economy we should be
worried about is the one in the U.S.
Mr.
Melloan, a former columnist and deputy editor of the Journal editorial page, is
author of "The Great Money Binge: Spending Our Way to Socialism" (Simon &
Schuster, 2009).
January 26, 2012
The vast majority of Americans believe the
country is heading in the wrong direction, and, according to a 2011 Pew Survey,
close to a majority feel that China has already surpassed the United States as
an economic power. However, these views ignore some of the greatest
components of America's economic, political and social success that will
continue or increase in importance in the near future, says Joel Kotkin,
executive editor of NewGeography.com.
These are advantages that America is rapidly
exploiting, yet they are only a small manifestation of America's thriving
economy. This can be seen in the demographic and competitive fundamentals
of the economy, which remain strong and portend future
growth.
In order to capitalize on these fundamental
boons, both political parties will need to amend their policies and belief
systems. Democrats will need to realize the damaging effects of higher
income taxes on entrepreneurialism and free markets. They must also
embrace America's natural advantage in fossil fuels. Republicans, on the
other hand, will need to surrender their vendetta against immigrants, who
diversify America's pool of skills, and bow to infrastructure
needs.
Source: Joel Kotkin, "This Is America's Moment,
If Washington Doesn't Blow It," New Geography, January 19,
2012.
For text:
http://www.newgeography.com/content/002634-this-is-americas-moment-if-washington-doesnt-blow-it
John Everett slaps a tire in his vast warehouse
and delivers a troubling verdict on Washington's big battle with China over tire
imports.
Enlarge Image
Close
Imaginechina/Zuma Press
Many tire imports to the U.S. now come from other
nations besides China. Above, Chinese workers on a production line in
Jiaxing.
"This is a China tire, it costs me $69 today," says the
owner of Cybert Tire & Car Care in New York City. "Before it cost $39." A
big part of that increase: The fat tariff the U.S. has placed on Chinese tires.
"It all gets passed to the customer," says Mr.
Everett.
So goes one of the highest profile trade fights
the U.S. has picked with China. The
tariff, enacted in 2009, will be up for review and possible extension soon, and
it has shoved big manufacturers like Goodyear, Cooper Tire, Michelin and others
into the spotlight.
The
measure was meant to whack imports of passenger and light-truck tires and give a
boost to manufacturers and job creation in the
U.S.
Yet,
for a variety of reasons, it has apparently done little of either—and has surely
raised prices for consumers.
It goes without saying that if you have to pick a fight
with China, make sure it's a fight worth picking. The much-ballyhooed U.S.
tariffs on Chinese tires probably haven't qualified, according to John Bussey on
The News Hub. Photo: Reuters
"The
tariffs didn't have any material impact on our North American business," says
Keith Price, a spokesman for Goodyear
Tire & Rubber Co., echoing a sentiment expressed by some other
manufacturers. "The stuff coming in from China is primarily low end. We got
out of that market years go."
After
the tariff was enacted in 2009—35% in the first year—imports from China
did in fact drop sharply. But that business quickly shifted to Thailand,
Indonesia, Mexico and elsewhere. Tire imports to the U.S. from these countries
rocketed, proving once again that the world has become one big fungible
production platform: If it doesn't get built in China and it's too expensive to
make in the U.S., it will get made in a cheap locale somewhere
else.
"So
far as saving American jobs, it just isn't working," says Roy Littlefield of the Tire Industry
Association, which has 6,000 members.
"And it really hurt a lot of people in the industry—smaller businesses that
geared up to bring these tires in from China."
Several manufacturers in the U.S. have
factories in China and elsewhere and export from them. Partly for that reason, the Rubber Manufacturers Association has
avoided taking a position on the tariff.
·
Wsj JANUARY 27, 2012, 10:18
A.M. ET
The
U.S. economy grew at its fastest pace in more than a year and a half in the
final three months of 2011, but details of the report raised questions about how
strong expansion can be this year.
The
nation's gross domestic product -- the value of all goods and services produced
-- grew at an annual rate of 2.8% between October and December, the Commerce
Department said Friday. That is up from 1.8% growth in the third quarter and
1.3% in the second quarter. It was the fastest pace since the second quarter of
2010.
Economists surveyed by Dow Jones Newswires
expected 3.0% growth.
The faster growth capped an otherwise sluggish
year in which the economy grew by 1.7%, slower than the 3.0% growth in 2010.
Now, the question is whether the momentum in the fourth quarter will simply be
another blip in a recovery marked by fitful starts, or whether it marks a
stronger phase of the recovery.
One encouraging sign was that consumers
continued to step up spending, as more Americans got jobs, their disposable
incomes rose and price increases eased. Consumer spending, which accounts for more
than two-thirds of demand in the economy, rose 2.0% in the fourth quarter
compared with 1.7% in the third and 0.7% in the second quarter. The increase in spending came as Americans
continued to dip into their savings, as the personal savings rate slipped a bit.
Another key factor in the growth was a
restocking of shelves by businesses, who had whittled their inventories during
the summer amid fears of a second recession back then. Since those fears ebbed,
businesses have been replenishing their inventories to respond to increased
demand.
Business investment grew at a much slower pace,
however, a factor that the government said dragged on growth. Nonresidential
fixed investment grew by 1.7%, compared to 15.7% in the third quarter and 10.3%
in the second quarter. The government said a boost in spending in a separate
category that reflects inventory investment rose more sharply.
Real final sales--GDP less changes in private
inventories--increased 0.8%, compared with a 3.2% rise in the third quarter.
Another drag was an acceleration in imports,
widening the trade deficit, the government said.
Exports rose 4.7%, the same pace as in the
third quarter. Economists have warned that exports could be a vulnerable part of
the economy as conditions in the euro-zone deteriorate this year.
Governments continued to cut spending. Overall
government spending declined 4.6%, with federal, state and local governments all
pulling back.
Even
with the speed-up in growth, economists are expecting the economy to grow only
modestly this year, as the sovereign-debt crisis in Europe threatens to hurt
U.S. exports, and while governments at home continue to cut.
Federal
Reserve officials estimate that GDP will expand between 2.2% and 2.7% this
year. Fed officials said after their
latest policy-making meeting this week that they expected to keep short-term
interest rates near zero for almost three more years and signaled they could
restart a controversial bond buying program in the latest attempt to boost the
recovery.
One issue will be whether inflation remains at
bay. Friday's report showed a significant slowing in price increases as energy
costs eased. The price index for
personal consumer expenditures -- the Fed's preferred gauge for inflation -- was
0.7% in the fourth quarter, compared with 2.3% in the third and 3.3% in the
second. The core inflation rate -- which excludes volatile moves in food and
energy prices and is closely watched by the Fed -- was 1.1%, compared to 2.1% in
the third quarter.
Gross domestic purchase prices were up 0.8%, while the
chain-weighted GDP price index increased by 0.4%.
Editor's
Note: The following has been signed by the 16 scientists listed at the end of
the article:
A
candidate for public office in any contemporary democracy may have to consider
what, if anything, to do about "global warming." Candidates should understand
that the oft-repeated claim that nearly all scientists demand that something
dramatic be done to stop global warming is not true. In fact, a large and
growing number of distinguished scientists and engineers do not agree that
drastic actions on global warming are needed.
In
September, Nobel Prize-winning physicist Ivar Giaever, a supporter of President
Obama in the last election, publicly resigned from the American Physical Society
(APS) with a letter that begins: "I did not renew [my membership] because I
cannot live with the [APS policy] statement: 'The evidence is incontrovertible:
Global warming is occurring. If no mitigating actions are taken, significant
disruptions in the Earth's physical and ecological systems, social systems,
security and human health are likely to occur. We must reduce emissions of
greenhouse gases beginning now.' In the APS it is OK to discuss whether the mass
of the proton changes over time and how a multi-universe behaves, but the
evidence of global warming is incontrovertible?"
In
spite of a multidecade international campaign to enforce the message that
increasing amounts of the "pollutant" carbon dioxide will destroy civilization,
large numbers of
scientists, many very prominent, share the opinions of Dr. Giaever. And the
number of scientific "heretics" is growing with each passing year. The reason is
a collection of stubborn scientific facts.
Perhaps
the most inconvenient fact is the lack of global warming for well over 10 years
now. This is known to the warming establishment, as one can see from the
2009 "Climategate"
email of climate scientist Kevin Trenberth: "The fact is that we can't account
for the lack of warming at the moment and it is a travesty that we can't." But
the warming is only missing if one believes computer models where so-called
feedbacks involving water vapor and clouds greatly amplify the small effect of
CO2.
The
lack of warming for more than a decade—indeed, the smaller-than-predicted
warming over the 22 years since the U.N.'s Intergovernmental Panel on Climate
Change (IPCC) began issuing projections—suggests that computer models have
greatly exaggerated how much warming additional CO2 can cause. Faced with this
embarrassment, those promoting alarm have shifted their drumbeat from warming to
weather extremes, to enable anything unusual that happens in our chaotic climate
to be ascribed to CO2.
The
fact is that CO2 is not a pollutant. CO2
is a colorless and odorless gas, exhaled at high concentrations by each of us,
and a key component of the biosphere's life cycle. Plants do so much better with
more CO2 that greenhouse operators often increase the CO2 concentrations by
factors of three or four to get better growth. This is no surprise since plants
and animals evolved when CO2 concentrations were about 10 times larger than they
are today. Better plant varieties, chemical fertilizers and agricultural
management contributed to the great increase in agricultural yields of the past
century, but part of the increase almost certainly came from additional CO2 in
the atmosphere.
Enlarge
Image
Close
Corbis
Although
the number of publicly dissenting scientists is growing, many young scientists
furtively say that while they also have serious doubts about the global-warming
message, they are afraid to speak up for fear of not being promoted—or worse.
They have good reason to worry. In 2003, Dr. Chris de Freitas, the editor of the
journal Climate Research, dared to publish a peer-reviewed article with the
politically incorrect (but factually correct) conclusion that the recent warming
is not unusual in the context of climate changes over the past thousand years.
The international warming establishment quickly mounted a determined campaign to
have Dr. de Freitas removed from his editorial job and fired from his university
position.
Fortunately, Dr. de Freitas was able to keep his university job.
This
is not the way science is supposed to work, but we have seen it before—for
example, in the frightening period when Trofim Lysenko hijacked biology in the
Soviet Union. Soviet biologists who revealed that they believed in genes, which
Lysenko maintained were a bourgeois fiction, were fired from their jobs. Many
were sent to the gulag and some were condemned to death.
Why is
there so much passion about global warming, and why has the issue become so
vexing that the American Physical Society, from which Dr. Giaever resigned a few
months ago, refused the seemingly reasonable request by many of its members to
remove the word "incontrovertible" from its description of a scientific issue?
There are several reasons, but a good place to start is the old question
"cui
bono?" Or the modern update, "Follow the money."
Alarmism
over climate is of great benefit to many, providing government funding for
academic research and a reason for government bureaucracies to grow. Alarmism
also offers an excuse
for governments to raise taxes, taxpayer-funded subsidies for businesses that
understand how to work the political system, and a lure for big donations to
charitable foundations promising to save the planet. Lysenko and his team lived
very well, and they fiercely defended their dogma and the privileges it brought
them.
Speaking
for many scientists and engineers who have looked carefully and independently at
the science of climate, we have a message to any candidate for public
office:
There is no compelling scientific argument for drastic action to "decarbonize"
the world's economy. Even if one accepts the inflated climate forecasts of the
IPCC, aggressive greenhouse-gas control policies are not justified economically.
A
recent study of a wide variety of policy options by Yale economist William
Nordhaus showed that nearly the highest benefit-to-cost ratio is achieved for a
policy that allows 50 more years of economic growth unimpeded by greenhouse gas
controls. This would be especially beneficial to the less-developed parts of the
world that would like to share some of the same advantages of material
well-being, health and life expectancy that the fully developed parts of the
world enjoy now. Many
other policy responses would have a negative return on investment. And it is
likely that more CO2 and the modest warming that may come with it will be an
overall benefit to the planet.
If
elected officials feel compelled to "do something" about climate, we recommend
supporting the excellent scientists who are increasing our understanding of
climate with well-designed instruments on satellites, in the oceans and on land,
and in the analysis of observational data. The better we understand climate, the
better we can cope with its ever-changing nature, which has complicated human
life throughout history. However, much of the huge private and
government investment in climate is badly in need of critical review.
Every
candidate should support rational measures to protect and improve our
environment, but it makes no sense at all to back expensive programs that divert
resources from real needs and are based on alarming but untenable claims of
"incontrovertible" evidence.
Claude
Allegre, former director of the Institute for the Study of the Earth, University
of Paris; J. Scott Armstrong, cofounder of the Journal of Forecasting and the
International Journal of Forecasting; Jan Breslow, head of the Laboratory of
Biochemical Genetics and Metabolism, Rockefeller University; Roger Cohen,
fellow, American Physical Society; Edward David, member, National Academy of
Engineering and National Academy of Sciences; William Happer, professor of
physics, Princeton; Michael Kelly, professor of technology, University of
Cambridge, U.K.; William Kininmonth, former head of climate research at the
Australian Bureau of Meteorology; Richard Lindzen, professor of atmospheric
sciences, MIT; James McGrath, professor of chemistry, Virginia Technical
University; Rodney Nichols, former president and CEO of the New York Academy of
Sciences; Burt Rutan, aerospace engineer, designer of Voyager and SpaceShipOne;
Harrison H. Schmitt, Apollo 17 astronaut and former U.S. senator; Nir Shaviv,
professor of astrophysics, Hebrew University, Jerusalem; Henk Tennekes, former
director, Royal Dutch Meteorological Service; Antonio Zichichi, president of the
World Federation of Scientists, Geneva.
In
January 1912, the United States emerged from a two-year recession. Nineteen more
followed—along with a century of phenomenal economic growth. Americans in real
terms are 700% wealthier today.
In
hindsight it seems obvious that emerging technologies circa
1912—electrification, telephony, the dawn of the automobile age, the invention
of stainless steel and the radio amplifier—would foster such growth. Yet even
knowledgeable contemporary observers failed to grasp their transformational
power.
In
January 2012, we sit again on the cusp of three grand technological
transformations with the potential to rival that of the past century. All find
their epicenters in America: big data, smart manufacturing and the wireless
revolution.
Information
technology has entered a big-data era. Processing power and data storage
are virtually free. A hand-held device, the iPhone, has
computing power that shames the 1970s-era IBM mainframe. The Internet is evolving into the
"cloud"—a network of thousands of data centers any one of which
makes a 1990 supercomputer look antediluvian. From social media to medical
revolutions anchored in metadata analyses, wherein astronomical feats of data
crunching enable heretofore unimaginable services and businesses, we are on the
cusp of unimaginable new markets.
Enlarge
Image
Close
Corbis
The
second transformation? Smart manufacturing. This
is the first structural shift since Henry Ford launched the economic power of
"mass production." While we see evidence already in automation and information
systems applied to supply-chain management, we are just entering an era where
the very fabrication of physical things is revolutionized by emerging materials
science. Engineers will soon design and build from the molecular level,
optimizing features and even creating new materials, radically improving quality
and reducing waste.
Devices
and products are already appearing based on computationally engineered materials
that literally did not exist a few years ago: novel metal alloys, graphene
instead of silicon transistors (graphene and carbon enable a radically new class
of electronic and structural materials), and meta-materials that possess
properties not possible in nature; e.g., rendering an object
invisible—speculation about which received understandable recent
publicity.
This
era of new materials will be economically explosive when combined with 3-D
printing, also known as direct-digital manufacturing—literally "printing" parts
and devices using computational power, lasers and basic powdered metals and
plastics. Already emerging are printed parts for high-value applications like
patient-specific implants for hip joints or teeth, or lighter and stronger
aircraft parts. Then one day, the Holy Grail: "desktop" printing of entire final
products from wheels to even washing machines.
The
era of near-perfect computational design and production will unleash as big a
change in how we make things as the agricultural revolution did in how we grew
things. And it will be
defined by high talent not cheap labor.
Finally,
there is the unfolding communications revolution where soon most humans on the
planet will be connected wirelessly. Never before have a billion people—soon
billions more—been able to communicate, socialize and trade in real time.
The
implications of the radical collapse in the cost of
wireless connectivity are as big as those following the dawn of
telegraphy/telephony. Coupled with the cloud, the wireless world provides cheap
connectivity, information and processing power to nearly everyone, everywhere.
This introduces both rapid change—e.g., the Arab Spring—and great opportunity.
Again, both the launch and epicenter of this technology reside in
America.
Few
deny that technology fuels economic growth as well as both social and lifestyle
progress, the latter largely seen in health and environmental metrics. But
consider three features
that most define America, and that are essential for unleashing the promises of
technological change: our youthful demographics, dynamic culture and diverse
educational system.
First,
demographics.
By 2020, America
will be younger than both China and the euro zone, if the
latter still exists. Youth brings more than a base of workers and taxpayers; it
brings the ineluctable energy that propels everything. Amplified and leavened by
the experience of their elders, youth and economic scale (the U.S. is still the
world's largest economy) are not to be underestimated, especially in the context
of the other two great forces: our culture and educational
system.
The
American culture is particularly suited to times of tumult and
challenge.
Culture cannot be
changed or copied overnight; it is a feature of a people that has, to use a
physics term, high inertia. Ours is distinguished by incontrovertibly powerful
features, namely open-mindedness, risk-taking, hard work, playfulness, and,
critical for nascent new ideas, a healthy dose of anti-establishment thinking.
Where else could an Apple or a Steve Jobs have emerged?
Then
there's our educational system, often criticized as inadequate to global
challenges. But American higher education eludes simple statistical measures
since its most salient features are flexibility and diversity of educational
philosophies, curricula and the professoriate. There is a dizzying range of
approaches in American universities and colleges. Good. One size definitely does
not fit all for students or the future.
We
should also remember that more than half of the world's top 100
universities remain in America, a fact underscored by soaring
foreign enrollments. Yes, other nations have fine universities, and many more
will emerge over time. But again the epicenter remains
here.
What
should our politicians do to help usher in this new era of entrepreneurial
growth? Liquid financial markets, sensible tax and immigration policy, and
balanced regulations will allow the next boom to flourish. But the essential
fuel is innovation. The promise resides in the tectonic technological shifts
under way.
America's
success isn't preordained. But the technological innovations circa 2012 are
profound. They
will engender sweeping changes to our society and our economy. All the forces
are in place. It's just a matter of when.
Mr.
Mills, a physicist and founder of the Digital Power Group, writes the Forbes
Energy Intelligence column. Mr. Ottino is dean of the McCormick School of
Engineering and Applied Sciences at Northwestern University.
The euro crisis may have stolen the headlines
at the World Economic Forum in Davos last week, but behind the scenes one of the
biggest debates concerned the ongoing deglobalization of
finance.
Bankers and regulators alike expressed alarm
that the global reform effort is coming apart under the pressure of the euro
crisis. Bankers fear national regulators are coming up with new domestic rules
that undermine the commitment from the Group of 20 industrialized and developing
nations to a global reform agenda. They worry that the free movement of capital,
vital to the success of globalization, is being impeded.
For their part, regulators fear that any
backsliding over the new Basel 3 rules will create new opportunities for
regulatory arbitrage—making the global financial system more vulnerable to
future shocks.
"If this generation of regulators allows
financial protectionism to take hold it will have failed," one person involved
in setting the new standards said to me last week.
The balkanization of the financial system is
most marked in the euro zone: Cross-border demand for southern European
government bonds has virtually evaporated; cross-border lending is also drying
up; and banks are reluctant to lend even to each other. Many banks are prioritizing domestic markets and
shrinking international activities, among them French banks BNP Paribas and
Société Générale, the Italian bank UniCredit and the U.K.'s Royal Bank of
Scotland. For countries whose domestic financial systems are dominated by
foreign-owned banks, including those in Central and Eastern Europe, this home
bias is a potentially serious challenge.
The strains in the financial system extend
beyond Europe. The cost of borrowing in dollars has risen to exorbitant levels
everywhere, a clear sign the system is dysfunctional. Typically the price would
be similar everywhere and close to LIBOR, the London Interbank Offered Rate. But
Chinese banks must currently pay three times LIBOR and Indian banks must pay six
times, according to Standard Chartered. That is handing a huge competitive
advantage to U.S. banks that have plenty of dollar
liquidity.
Enlarge Image
Bloomberg News
Many banks are prioritizing domestic markets and
shrinking international activities, among them French banks BNP Paribas and
Société Générale
Regulators are contributing to this
fragmentation. Many are using the discretion allowed under the Basel "Pillar 2"
rules to heap extra capital and liquidity requirements on subsidiaries of
foreign banks. The Financial Services
Authority is demanding that Santander and Morgan Stanley's U.K. units comply
with tough local rules; German regulator BaFin is restricting UniCredit's
ability to transfer capital and liquidity out of its German unit.
Understandably, regulators want to minimize the risk of a local bank failure and
protect the domestic economy from a sudden withdrawal of funding. But banks say
these new demands make it harder to run a cross-border business and risk pushing
up the cost of finance globally. Long term, banks may be less willing to deploy
capital in markets seen as protectionist.
At the same time, Basel 3 rules are changing
the shape of the global financial system—not always in ways regulators intended.
Many argue the new liquidity rules are forcing euro- zone banks to deleverage
faster.
The rules require banks to hold much
larger reserves of liquid assets, tightly defined to consist primarily of cash
and low-yielding developed-country sovereign bonds, and to use more expensive
longer-term funding. Combined with higher capital requirements, this has driven
down returns on equity, leading banks to push up borrowing costs and cut
lending.
Policy makers at Davos acknowledged problems
with the rules, including the perverse incentive to load up with sovereign
bonds, the asset class at the heart of the current crisis. But there is no
consensus over an alternative.
Some types of socially useful financial
activity appear to be particularly vulnerable to the new rules. Trade finance,
for example, is vital to the smooth functioning of global trade: Banks provide
importers with letters of credit to reassure exporters they will be paid;
exporters can then use these letters of credit to raise loans while their goods
are being shipped.
Despite a historically very low default rate,
the Basel rules will increase the risk weights on trade finance and make it
subject to a bank's overall leverage ratio, making it less economic for banks to
provide it. The French banks, which traditionally dominated this market, are
pulling back and it isn't clear that Asian banks will easily be able to fill the
gap given Western bank concerns over counter-party risks.
Similarly, Basel 3 will dramatically increase
the risk weights on revolving credit facilities in a way that some bankers fear
will undermine the vast commercial paper market, an important source of cheap,
short-term funding for large highly rated corporations.
Meanwhile some countries are considering
introducing rules that may be incompatible with the global agenda. Top of the
list is the U.S.: some of the proposals in the Dodd-Frank Act will make it very
hard to do business in the U.S. or with U.S. clients, according to European
bankers. The U.K., Japan and Canada are worried that the current draft of the
Volcker rule, designed to outlaw proprietary trading, will make it hard for
banks to trade non-U.S. sovereign bonds, reducing market liquidity and
potentially pushing up funding costs. If the U.S. gives special treatment to its
own government bonds, Europe may be tempted to do the same, says European
internal market commissioner Michel Barnier. At the same time, the E.U. is being
urged to water down Basel 3 by delaying the introduction of the proposed
leverage ratio and providing more favorable capital treatment for bank-owned
insurers.
How can regulators stop the disintegration of
the global financial system? The Financial Stability Board, which brings
together national policy makers, is putting its faith in peer review: It will
audit every country's regulations to see how each complies with the Basel rules.
Countries that deviate from the global standards will be named and shamed. But
peer pressure may not be enough.
MADRID—Two years after it clawed back from
recession, the Spanish economy shrank in the last three months of 2011 as
government austerity measures crimped spending and Europe's debt crisis drove up
financing costs.
Spanish gross domestic product in the fourth
quarter fell 0.3% from the third, while it rose 0.3% from the same period a year
ago, preliminary data from the National Statistics Institute showed
Monday. The figures matched the latest
reading from the Spanish central bank.
The euro-zone's fourth-largest economy is
suffering from the collapse of a decade-long housing boom that has punched a
large hole in public finances, sent unemployment soaring and placed it at the
center of the region's debt crisis.
Spain's new downturn came after seven
consecutive quarters of weak growth following the country's 2008-09 recession.
Previously, the last quarter of negative growth was the fourth quarter of 2009.
The statistics agency blamed the new downturn
on weakening domestic demand, though net exports strengthened slightly. It will
give more details Feb. 16.
In its report last week, Spain's central bank
said a deepening of Europe's sovereign-debt crisis had undermined confidence and
raised the cost of finance in Spain. Consumer spending and business investment
fell as a result. At the same time, draconian government spending cuts designed
to help close the region's largest budget gaps also weighed on output.
In a report last week, the central bank
forecast Spain's economy will contract 1.5% in 2012. The International Monetary
Fund has forecast it will shrink 1.7%.
Also Monday, Moody's Investors Service warned
"deteriorating growth [for Spain] is credit negative as it further complicates
the government's challenge of significantly reducing the fiscal deficit."
Write to Jonathan House at jonathan.house@dowjones.com
January 30, 2012
http://www.ncpa.org/sub/dpd/index.php?Article_ID=21541&utm_source=newsletter&utm_medium=email&utm_campaign=DPD
The Tax
Foundation recently published its 2012 State Business Tax Climate Index
-- a comprehensive state-by-state
comparative analysis of distinct tax climates across the country. The
index delves far beyond each state's corporate income tax system, and includes
as variables four other taxes: individual income taxes, sales taxes,
unemployment insurance taxes and property taxes, says Mark Robyn, an economist
at the Tax Foundation.
The methodology for the study is complex,
drawing on all five tax systems and including 118 variables that allowed for
in-depth assessment of tax structures. Furthermore, each system was not
treated as being equally important, as some carry more weight in business
relocation decisions than others. The following are the weights assigned
to each respective type of tax:
The aggregation of each state's scores and
comparison with other states should be recognized as important information, not
only for business leaders looking for possible relocation options, but also for
state lawmakers. Though the media emphasizes the globalization of commerce
and international competition to attract businesses, the Labor Department points
out that most mass job relocations are from one state to another. For this
reason, states should concern themselves with their tax environment, as this
undoubtedly affects their attractiveness in this highly competitive
atmosphere.
Source: Mark Robyn, "2012 State Business Tax
Climate Index," Tax Foundation, January 25, 2012.
For text:
http://www.taxfoundation.org/research/show/22658.html
'Jobs
and economic growth" will be the focus at today's crisis summit in
Brussels, but judging by recent
meetings European leaders will address the financial symptoms rather than the
causes of their economic woes. For insight into the latter, they might do well
to read a report on Europe published
last week by the World Bank, of all unlikely places.
The study's lead
authors, World Bank economists Indermit
Gill and Martin Raiser, conclude that the Continent's basic growth model of the
last half-century is seriously amiss, and that it will take more than
well-meaning summitry to fix it.
Some of the news in the report is good.
Europe, despite its woes, still accounts
for one-third of world GDP with only one-tenth of world population. Before the financial crisis, half of the
world's $15 trillion in trade in goods and services involved Europe. Within the
Continent, the single market has created a boom in cross-border trade and
investment, raising the incomes of millions of Southern and Eastern Europeans
over the last few decades.
As for the bad news, the first source of trouble is the labor
market. European workers aren't nearly as productive as they ought to be,
especially in the South. Labor participation is low, and those who are employed
are working less than they used to. In the 1970s, the French worked the longest
hours among advanced economies. By 2000, they worked a month and a half less
than Americans each year.
Europe's demographics also aren't on the side of growth.
Populations across the developed world are graying, but Europe's low
productivity growth means that its future labor shortfall will be especially
acute. It doesn't help that Europeans
draw social security benefits earlier and more easily than their developed-world
peers. Pension commitments will strain national budgets even if Angela Merkel
gets her way on handcuffing euro-zone public debt.
Which brings Messrs. Gill and Raiser to the
other serious drain on European growth. Big government, by their calculation,
shaves about two percentage points off growth once public spending passes 40% of
GDP. Some welfare states are better-run than others—think Sweden and Germany—but
the World Bank report highlights a few important connections between the welfare
state and growth.
Today, European governments spend more on social
protection than the rest of the world combined, thereby entrenching powerful
disincentives to work and enterprise. Social protections have also come at
huge direct cost to taxpayers. Europe's
giant debts arose because of "public spending to protect societies from the
rougher facets of private enterprise," the authors write. It's rare to hear
an institution such as the World Bank that is typically sympathetic to its
political bosses put the matter so clearly.
A few policy fixes suggest themselves. Labor is still not as mobile within the
EU as once envisioned. Easing restrictions on immigration from outside the EU is
highly controversial, but it would help Europe face its demographic and economic
shortfalls. Wealthy European countries have suffered a net drain of 1.5 million
highly educated people to the U.S. alone in the last few
decades.
But something
deeper that needs adjustment. "From
North Americans," the authors write, "Europe could learn that economic liberty
and social security have to be balanced with care: nations that sacrifice too
much economic freedom for social security can end up with neither, impairing
both enterprise and government."
Messrs.
Gill and Raiser call Europe a "lifestyle superpower": It attracts tourists in
droves, and its residents enjoy peace and a high standard of living. But it's
not getting richer. Unless it again puts income growth ahead of income security
and redistribution, the Continent will continue to decline as an economic power.
Jan
29 03:07 PM US/Eastern
http://www.breitbart.com/article.php?id=CNG.218bcf7fdf123da81f848acd32746026.6e1&show_article=1
Anti-capitalism
activists sing in front of the university campus during
the...
Thousands
of critics of capitalism meeting in Brazil called Sunday for a worldwide protest
in June to press for concrete steps to tackle the global economic crisis.
The World Social Forum wrapped up a five-day meeting in this southern Brazilian city, urging citizens to "take to the streets on June 5" for the global action, which would be in support of social and environmental justice.
The
forum also announced a "peoples' summit" of social movements to be held in
parallel with the high-level UN conference on sustainable development scheduled
next June 20-22 in Rio.
The
Rio+20 summit, the fourth major gathering on sustainable development since 1972,
will press world leaders to commit themselves to creating a social and "green
economy," with priority being given to eradicating hunger.
But
World Social Forum participants, including representatives of the Arab Spring,
Spain's "Indignant" movement, Occupy Wall Street, and students from Chile,
sharply criticized the concept of "a green economy" that would allow
multinational corporations to reap the profit.
"The
political and economic elites are the one percent who control the world and we
are the one percent seeking to change it. Where are the (other) 98 percent?"
said Chico Whitaker, one of the Forum's founders.
"There
are many who are happy because each time they get more consumer
goods, but many are concerned and unsatisfied. The challenge for us
is to speak with them."
"If we
do not raise the issue of inequality, we won't solve the problems," said
Venezuelan sociologist Edgardo Lander.
"If
the system is not capable of redistributing and deal with inequality, we have to
do it ourselves," agreed Sam Halvorsen, of the Occupy London movement.
The
Forum is an alliance of social movements opposed to the World
Economic Forum, the annual gathering of the world's
economic and political elites held at the same time in the Swiss resort of
Davos.
Addressing
the gathering Thursday, Brazilian President Dilma Rousseff appealed for "a
development model that articulates growth and job
creation, battles poverty and decreases inequalities," and advocates
for the "sustainable use and preservation of natural resources."
Candido
Grzywoski, one of the founders and a coordinator of the Forum, said the urgency
of the global economic crisis and the popular indignation around the world "gave
us more unity in diversity."
The
Forum, which drew around 40,000 participants this year, has its roots in 1999
street
protests in the US city of Seattle during a
World Trade Organization meeting but it settled in Porto
Alegre as its regular venue 12 years ago
when it drew 20,000 activists from around the world.
Next
year, it will be held in Cairo.
http://www.realclearpolitics.com/articles/2012/01/24/copyright_debate_misses_big_picture_112884.html
From: Davis, William
Sent: Tuesday, January 24, 2012 10:16 AM
To: Davis,
William
Subject: Copyright Enforcement Debate Misses Big
Picture
January
24, 2012
By Cathy
Young
A few
days ago, I committed an illegal act.
Instead
of watching the latest episode of the British fantasy show "Merlin" on the SyFy
channel and suffer through a hundred commercials and pop-up ads that sometimes
deface the screen during the show itself, I got online and watched an illicitly
streamed video. What's more, I intend to continue my crime spree and download
the three-episode second season of "Sherlock," which aired on the BBC earlier
this month, rather than wait until May when it finally gets to
PBS.
The
point of this true confession is that the current debate about copyright
enforcement and piracy on the Web largely misses the boat. Yes,
creators and copyright holders have important rights and legitimate interests.
And yes, some Internet users display an obnoxious sense of entitlement to "free"
intellectual content. But media corporations and other owners would be far
better helped by being savvy about consumers' wants and needs than by draconian
and ultimately futile attempts to police the Web.
Right
now, the copyright enforcement debate has focused on two controversial
congressional bills, SOPA (Stop Online Piracy Act) and PIPA (Protect
Intellectual Property Act), both withdrawn a few days ago due to a ferocious
backlash from technology companies and websites -- a backlash that culminated in
a day-long blackout of popular sites including Wikipedia. Among other things, the legislation
would have enabled the federal government to take down websites based on mere
allegations of copyright infringement, even if the offending material was
uploaded by users without the owners'
knowledge.
Yet
even without these bills, which may yet be revived in some form, there's plenty
of heavy artillery in the war against Internet piracy. Even as SOPA and PIPA
were breathing their last, news came of the government's seizure of
Megaupload.com, a hugely popular file-sharing site, and the arrest of several of
its top executives on charges of racketeering and criminal copyright
infringement.
Megaupload,
which has made $175 million since 2005, was
a particularly juicy target due to its size, popularity, and apparently blatant
moneymaking from enabling copyright violations. But most experts acknowledge
that the raid will barely make a dent in the black market for copyrighted
material. At most, Internet users looking for illicit movies or TV episodes may
have to search a bit longer and settle for less convenience (for instance,
having to download the video without the option to watch
online).
It is
commonly claimed that digital piracy causes huge revenue losses: $3.5 billion a
year to the film industry, over $4 billion to the music industry. Yet these
figures come from industry sources, which are hardly objective. A 2004 analysis
by Harvard business professor Felix Oberholzer-Gee and economist Koleman Strumpf
found the impact of file sharing on legitimate music sales to be negligible. In
a 2009 paper, Oberholzer-Gee and Stumpf noted that several other studies
supported their conclusion while others documented a real but small effect,
accounting for no more than 20% of the overall sales
decline.
The
notion that every illegal download represents a lost sale, on which official
claims often seem to be based, is frankly absurd. It's
unclear whether these estimates even account for the impact of legal video
streaming through Netflix and video-on-demand services. They certainly don't
account for the positive effect of unauthorized content sharing -- for instance,
sales to people who buy a TV show on DVD set after sampling it online, as I and
quite a few of my friends have done.
A
common retort is that theft is theft. But do owners of intellectual
property have a right to collect a profit from every consumer? Consistently
applied, such a position should lead to a ban on libraries and make it illegal
to lend a book or DVD to a friend -- or even to resell used books, CDs and
DVDs.
Of
course, if few consumers paid for media content, the entertainment and
publishing industries would either collapse or require vast public subsidies.
Most people understand this, and are willing to pay their way. But this is where
entertainment companies should meet customers halfway. Why not make more content
available via pay-on-demand? (To take my earlier example: if British shows with
a substantial American following became available in the U.S. shortly after
their original airing for a reasonable fee, many fans would gladly pay to watch
them legally.)
In
their 2009 paper, "File Sharing and Copyright," Oberholzer-Gee and Strumpf
conclude that file sharing does weaken copyright protection -- but does not
discourage artistic production and, in fact, benefits society as a
whole.
It is important to
remember that copyright was originally instituted, as the Copyright Clause of
the U.S. Constitution says, "to promote the progress of science and useful arts,
by securing for limited times to authors and inventors the exclusive right to
their respective writings and discoveries." The "limited times" have been
extended again and again, from an initial maximum of 28 years to the present
term of author's life plus 70 years, or 95 years for corporate creations.
Copyright law has also been extended to derivative works, raising roadblocks for
authors and artists who engage in the sort of creative reimagining of classics
-- such as "Gone With the Wind" retold from through a slave's eyes -- that has
always been culture's lifeblood.
The
defeat of SOPA and PIPA is the first time a proposed expansion of copyright
enforcement has been stopped by those who champion intellectual freedom. Perhaps
it should be the start of rethinking and rolling back an overgrown law that, in
its current form, arguably hinders rather than promotes creativity and expansion
of knowledge.
Cathy
Young writes a weekly column for RealClearPolitics and is also a contributing
editor at Reason magazine. She blogs at http://cathyyoung.wordpress.com/.
She can be reached at cyoung@realclearpolitics.com
Financial transactions taxes (FTT) are a bad idea that just won't die. These schemes
purport to punish financial institutions for bad behavior in the financial
crisis, or to tax these institutions, for the sake of "fairness," for the costs
of government bailouts. But in fact, these taxes punish savers, pensioners and
long-term investors—none of whom directly contributed to the banking crisis. At
the same time, FTTs slow economic growth, drive away financial activity and make
markets less efficient.
Europe is now in the curious position of
considering not one but two FTT proposals. From the perspective of the long-term
investor, the first is terrible and the second is
worse.
The original
notion was a tax on every trade that involves a financial institution in a
European Union member state. In its impact assessment on the proposal, the
European Commission states that the foremost reason for the FTT is "raising
revenue from the financial sector"—a point echoed last week by Michel Barnier,
the commissioner for internal market and services. But this tax won't just fall
on banks and financial institutions. A substantial portion of any revenues
collected will come from individuals saving through mutual funds and other
collective investment vehicles.
Enlarge Image
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Agence France-Presse/Getty Images
Michel Barnier, European commissioner for internal
market and services.
Why? As
envisaged, the tax would be levied both on investors as they purchase or sell
mutual fund shares and on the fund each time it purchases or sells stocks, bonds
or other portfolio securities. Thus, if an investor purchases mutual fund shares
for €1,000 and the fund then purchases securities, then that €1,000 is taxed
twice. It's taxed two more times when the investor later redeems the units and
the fund sells securities to pay the investor. If the fund does any trading to
manage its portfolio in the meantime, those trades will also be taxed.
Each of these tax payments will come directly
from the fund's owners—the investors holding its shares. In short, the mere act
of putting aside €1,000 for an individual's retirement will cost that investor
at least four FTT payments.
These multiple tax payments will devastate
money-market funds, wreaking havoc on their shareholders. Individuals and
businesses use these collective investment vehicles to manage their cash, buying
and redeeming shares frequently. These routine transactions, combined with the
short maturities of money-market fund portfolios, mean that these funds buy and
sell securities in volume—and each of these trades would be subject to FTT. The
tax burden on money-market funds would likely drive away investors, depriving
individuals of a convenient saving tool and denying businesses and governments a
reliable source of short-term funding.
The United Kingdom and other prominent market
centers announced that they would not support or enact the EU's FTT, so the levy
in that form would do little more than cause trading to flee Europe for untaxed
markets. But in a bid to bring the British on board, a recent proposal has
emerged to have the U.K.'s stamp duty reserve tax apply to equity trading on the
Continent.
The stamp-tax proposal would shift even more of
the burden of the tax onto ordinary investors. The stamp duty also taxes fund
investors twice, on their fund shares transactions and on the fund's portfolio
trades. And rather than hitting its claimed target—financial engineers and
active traders—in practice the stamp tax comes down squarely on pensions,
savings and the economy.
The
U.K.'s stamp tax is levied only on trades in equities, contracts to
deliver equities (for example, equity options), and certain bonds. As such, it
exempts the routine trading tools of hedge funds and financial
engineers—futures, swaps and other derivatives. The tax also misses most of the
activity of high-frequency traders, the vast majority of whose trades are
eventually canceled and thus never taxed.
The
stamp tax's record in London is clear. A 2007 study sponsored by the Investment
Management Association and others found that three-quarters of stamp duty
revenue was collected from pension funds, insurers, investment trusts and
individual shareholders. Rather than curbing financial engineering, the study
found, the stamp tax has driven down stockholding and increased trading in
derivatives.
In either version—the terrible or the worse—an
FTT would make markets less efficient by reducing liquidity, increasing bid-ask
spreads and transaction costs, and impairing price discovery. It will slow
growth in an already anaemic economy, as the European Commission's own staff
shows in its impact assessment of the original FTT proposal. The EU should lay
this idea to rest once and for all.
—Mr. Waters is managing director of ICI Global, a
London-based trade organization focused on regulatory, market and other issues
for global investment funds and their managers and investors.
Wsj
econ blog Jan 30, 2012
8:42 AM
By Justin Lahart
The country is torn by conflict. The people are
hungry.
Our natural response is to send food, but in
practice that can be problematic. For decades, aid workers, journalists and
others have documented cases where food aid has been misappropriated by armed
groups who use it to feed their soldiers and buy weapons. Convoy trucks and
other equipment are often captured.
Such reports are, in the end, merely anecdotal,
and may only represent extreme, outlying cases. Moreover, there are
chicken-and-egg problems such as the question of whether the food aid heightened
the conflict, or whether the brewing conflict brought in the food
aid.
But Harvard’s Nathan
Nunn and Yale’s Nancy Qian devised a
way sidestep such issues and more directly measure what is happening. Their
results are sobering.
The
flow of American food aid, the economists found, has a lot to do with the wheat
crop. In bumper years, the U.S. government accumulates wheat as part of its
price support program. In the following year, the surplus is shipped to
developing countries as food aid. This allowed the economists to tease out how
the effects of the flow of food to 134 developing countries from 1972 through
2006.
They
found that an increase in food aid raises the incidence, onset and duration of
armed civil conflict in a recipient country. The problem is particularly acute
in countries where there are few roads — giving aid convoys fewer opportunities
to circumvent problems — and ones where there are stark ethnic
divisions.
http://www.nytimes.com/2012/01/30/opinion/krugman-the-austerity-debacle.html?_r=2&ref=opinion
Last week the National Institute of Economic
and Social Research, a British think tank, released a startling chart comparing
the current slump with past recessions and recoveries. It turns out that by one
important measure — changes in real G.D.P. since the recession began — Britain
is doing worse this time than it did during the Great Depression. Four years
into the Depression, British G.D.P. had regained its previous peak; four years
after the Great Recession began, Britain is nowhere close to regaining its lost
ground.
Paul
Krugman
Nor is Britain unique. Italy
is also doing worse than it did in the 1930s — and with Spain clearly headed
for a double-dip recession, that makes three of Europe’s big five economies
members of the worse-than club. Yes, there are some caveats and complications.
But this nonetheless represents a
stunning failure of policy.
And
it’s a failure, in particular, of the austerity doctrine that has dominated
elite policy discussion both in Europe and, to a large extent, in the United
States for the past two years.
O.K., about those caveats: On one side, British
unemployment was much higher in the 1930s than it is now, because the British
economy was depressed — mainly thanks to an ill-advised return to the gold
standard — even before the Depression struck. On the other side, Britain had a
notably mild Depression compared with the United States.
Even so, surpassing the track record of the
1930s shouldn’t be a tough challenge. Haven’t we learned a lot about economic
management over the last 80 years? Yes, we have — but in Britain and elsewhere,
the policy elite decided to throw that hard-won knowledge out the window, and
rely on ideologically convenient wishful thinking instead.
Britain, in particular, was supposed to be a
showcase for “expansionary austerity,” the notion that instead of increasing
government spending to fight recessions, you should slash spending instead — and
that this would lead to faster economic growth. “Those who argue that dealing
with our deficit and promoting growth are somehow alternatives are wrong,”
declared David Cameron, Britain’s prime minister. “You cannot put off the first
in order to promote the second.”
How could the economy thrive when unemployment
was already high, and government policies were directly reducing employment even
further? Confidence! “I firmly believe,” declared Jean-Claude Trichet — at the
time the president of the European Central Bank, and a strong advocate of the
doctrine of expansionary austerity — “that in the current circumstances
confidence-inspiring policies will foster and not hamper economic recovery,
because confidence is the key factor today.”
Such invocations of the confidence fairy were
never plausible; researchers at
the International Monetary Fund and elsewhere quickly debunked the supposed
evidence that spending cuts create jobs. Yet influential people on both sides of
the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in
particular, because the doctrine of expansionary austerity dovetailed with their
ideological agendas.
Thus in October 2010 David Broder, who
virtually embodied conventional wisdom, praised
Mr. Cameron for his boldness, and in particular for “brushing aside the
warnings of economists that the sudden, severe medicine could cut short
Britain’s economic recovery and throw the nation back into recession.” He then
called on President Obama to “do a Cameron” and pursue “a radical rollback of
the welfare state now.”
Strange to say, however, those warnings from
economists proved all too accurate. And we’re quite fortunate that Mr. Obama did not, in fact, do a
Cameron.
Which
is not to say that all is well with U.S. policy. True, the federal government
has avoided all-out austerity. But state and local governments, which must run
more or less balanced budgets, have slashed spending and employment as federal
aid runs out — and this has been a major drag on the overall economy. Without
those spending cuts, we might already have been on the road to self-sustaining
growth; as it is, recovery still hangs in the balance.
And we may get tipped in the wrong direction by
Continental Europe, where austerity policies are having the same effect as in
Britain, with many signs pointing to recession this year.
The
infuriating thing about this tragedy is that it was completely unnecessary. Half
a century ago, any economist — or for that matter any undergraduate who had read
Paul Samuelson’s textbook “Economics” — could have told you that austerity in
the face of depression was a very bad idea. But policy makers, pundits and, I’m
sorry to say, many economists decided, largely for political reasons, to forget
what they used to know. And millions of workers are paying the price for their
willful amnesia.
January 30, 2012
http://www.taxfoundation.org/research/show/22658.html
The Tax Foundation recently published its 2012
State Business Tax Climate Index -- a comprehensive state-by-state comparative
analysis of distinct tax climates across the country. The index delves far
beyond each state's corporate income tax system, and includes as variables four
other taxes: individual income taxes, sales taxes, unemployment insurance taxes
and property taxes, says Mark Robyn, an economist at the Tax
Foundation.
The methodology for the study is complex,
drawing on all five tax systems and including 118 variables that allowed for
in-depth assessment of tax structures. Furthermore, each system was not
treated as being equally important, as some carry more weight in business
relocation decisions than others. The following are the weights assigned
to each respective type of tax:
The aggregation of each state's scores and
comparison with other states should be recognized as important information, not
only for business leaders looking for possible relocation options, but also for
state lawmakers. Though the media emphasizes the globalization of commerce
and international competition to attract businesses, the Labor Department points
out that most mass job relocations are from one state to another. For this
reason, states should concern themselves with their tax environment, as this
undoubtedly affects their attractiveness in this highly competitive
atmosphere.
Source: Mark Robyn, "2012 State Business Tax
Climate Index," Tax Foundation, January 25, 2012.
For text:
February
6, 2012
Why
Growth Matters More than Debt
Headlines
regarding the U.S. debt level continue to make the front page, as a national
audience of readers grows increasingly uneasy. Politicians and pundits
clamor about unsustainability and the economic burden of chronic deficits, and
constantly question the ability of the U.S. Treasury to attract new
investors. However, much of this discussion is misleading. In order
to make clear the dialogue about the debt, it is first necessary to understand
who owns it, says Steve Conover in The American.
These
investors must decide each time their bonds mature if they want to rollover
their new dollars into another treasury bond. One of the most important metrics that they
use in ascertaining the likelihood of repayment is the "interest bite" --
the portion of federal tax receipts that are necessary to service the interest
on the debt. This speaks to the lack of importance of the absolute
principle on the debt, as almost all foreign investors simply rollover their
redeemed bonds to buy more bonds. The interest bite is determined by
three separate factors:
·
The
absolute debt level -- this is the consideration that receives the most
attention.
·
The
interest rate demanded by investors.
·
Total
tax receipts.
In
light of these considerations many
might think that, because the debt level is reaching record highs, so too must
the interest bite. However, near-zero interest rates have kept the
interest bite between 9 and 11 percent throughout the Obama administration --
much lower than the 19 percent reached during the Clinton
years.
The
most important conclusion to draw from this information is that paying off the debt should not
be the primary concern of lawmakers. Rather, they should focus on
fostering a growing economy, as this will ensure long-term fiscal security and
limit the growth of the interest bite by increasing total tax
receipts.
Source:
Steve Conover, "Why Growth Matters More than Debt," The American, January 29,
2012.
For
text:
http://www.american.com/archive/2012/january/why-growth-matters-more-than-debt
full
article
Sunday, January 29, 2012
http://www.american.com/archive/2012/january/why-growth-matters-more-than-debt/article_print
Filed under:
Economic Policy, Numbers
The proper
question is not how will America pay foreign creditors back but rather what will
maintain China and Japan’s desire to buy low-interest Treasury securities from
us?
The U.S. federal debt recently eclipsed $15
trillion, and is still climbing. That has generated headlines and raised a lot
of questions. How should we behave towards China, supposedly our biggest
creditor? Has the debt burden become unsustainable? How will our kids and
grandkids ever pay off the debt we’ve been accumulating? The answers contain
some surprises.
A total federal debt of $15 trillion means debt
owners currently hold assets totaling $15 trillion in Treasury bonds, bills, and
notes. Let’s examine who owns those assets.
Who owns the debt?
A pie chart is a convenient way of showing how
those assets break down by owner. At the time of this writing, the latest
official numbers are for December 2011. (The official numbers are updated
monthly: The Treasury summarizes our debt
position; the Fed estimates
the magnitude of foreign holdings by country and reports its own
holdings of Treasury securities.)
The United States’ two largest creditors are
U.S. citizens and the U.S. government. (Yes, the U.S. government owes itself a
substantial sum of its own money; for years, Uncle Sam’s social insurance fund
has been using its surpluses to purchase special bonds from Uncle Sam’s general
fund.)
What does the pie chart reveal? At least one
fact stands out: China’s holding of the
total federal debt comes in a distant fourth—behind the U.S. government, the
U.S. public, and the Federal Reserve. Interestingly, China and Japan have been
neck-and-neck for years as the two foreign entities most desirous of
exchanging their export-derived U.S. dollars for interest-bearing U.S. Treasury
securities.
How will we pay China (and Japan)
back?
The proper
question is how do we propose to maintain China and Japan’s desire to buy
low-interest Treasury securities from us?
That is a misleading question, because every
time one of their U.S. Treasury securities matures, we really do “try” to pay
them back—with (non-interest-bearing) U.S. dollars. We are obligated to
redeem their maturing securities with dollars; otherwise, we would be in
default—a scenario that has never, and should never, happen. But the Chinese and Japanese debt holders
have been turning right around and exchanging those dollars, in the open market,
for brand new U.S. Treasury securities. In effect, we keep trying to pay
them back, but they won’t let us; they’d rather hold interest-bearing
T-bonds than non-interest-bearing dollars. It’s their choice, and they’ve been
consistently rolling their maturing T-bonds over into new
T-bonds.
So
the proper question is not how will we pay the foreigners back but rather how do
we propose to maintain China and Japan’s desire to buy low-interest
Treasury securities from us? The answer: A healthy, robust, growing economy is
the only way to maintain their confidence in the long run. If they ever
started losing confidence in our economy’s prospects, their appetite for
acquiring U.S. Treasury securities would be likely to wane, creating upward
pressure on our interest rates; that in turn would not help our “debt
burden”—which is explained in the section below.
Our priority should not be how to pay them
back, it should be how to get our economy growing again.
How much of a burden is the
debt?
Because of our large and (historically) robust
economy, the worldwide demand for U.S. Treasury securities has been huge;
investors view the T-bond as the world’s safe haven. Therefore, rolling the debt
over (as described above)—instead of paying it down—has never been a problem. Because the debt has always been rolled
over, the debt principal has not been a burden to taxpayers. The “burden”
the taxpayers must bear has always been the interest on Treasury
securities—not the principal.
Mildly surprising
is the fact that the current interest bite is no higher than it was ten years
ago.
Specifically, the debt “burden” is directly indicated by
the “interest bite”: the portion of tax receipts required to cover the
interest on the debt. When the
interest bite is increasing, the debt is becoming less sustainable; conversely,
when the interest bite is decreasing, the debt is becoming more
sustainable.
What makes the interest bite grow or shrink? The debt level is just one of three primary
factors. A second factor is the
interest rate demanded by the buyers of T-bonds; for example,
when they demand only 1 percent interest, the “burden” of any given level of
debt is 80 percent smaller than it would have been had they demanded a whopping
5 percent.
The third factor affecting the interest bite is
the level of tax receipts. For any given tax-rate structure, the
larger the economy and the more people who are working and paying taxes, the
larger the government’s tax receipts—and the lower the debt burden, i.e., the
interest bite. A strong economy strengthens our ability to sustain any given
debt level.
In summary, there is upward pressure on the “debt
burden” when the interest rate rises, the debt level increases, or tax receipts
fall. Conversely, there’s downward pressure when the interest rate falls,
the debt level decreases, or tax receipts increase.
And with that, it is time to answer the
question, how big is our debt burden today? The graphic below shows the
answer.
In
recent decades, the interest bite has been as high as 19 percent and as low as 9
percent. The chart above shows how the
interest bite has tracked for the last 13 years, through December 2011. Mildly
surprising is the fact that the current interest bite is no higher than it was
ten years ago.
Why is
today’s debt burden—as measured by the “interest bite”—lower than the
headlines and political rhetoric make it sound? Because even though the debt
level is currently growing at a rapid pace, the interest rate on the new
debt we’ve been issuing is as close to zero as it has ever been. A near-zero
interest rate results in a near-zero interest bite on any level of
debt. That’s the good news, but it
carries with it an ominous qualification: when the debt level is skyrocketing,
as it is today, any increase in the interest rate will quickly cause the
interest bite to skyrocket as well—unless it’s offset by additional tax receipts
generated by a rapidly growing economy.
China’s holding of
the total federal debt comes in a distant fourth—behind the U.S. government, the
U.S. public, and the Federal Reserve.
In short, today’s relatively low debt burden is
merely indicating that we have at least some runway left before it starts
challenging the recent high of 19 percent; we would be well advised to use that runway
for getting the private sector economy back to robust growth rates. The intent
of extraordinary fiscal and monetary interventions by the government is to stop
the bleeding in the short run, but the long run depends on the private sector’s
economic health.
‘It’s the economy, stupid’
Notably, everything about keeping the debt
burden at an acceptable level ultimately depends on the health of our economy.
Can we count on China, Japan, the United Kingdom, and OPEC to continue rolling
their maturing T-bonds into new T-bonds? Can we count on continued low interest
rates due to the T-bond’s reputation as a safe haven? We can if the economy gets
back on track. If it does, we can expect the debt burden—the “interest bite”—to
remain at an acceptable level, presumably somewhere between today’s 10 percent
level and the recent high of 19 percent.
Again, all of those factors depend on the size,
health, and growth rate of our economy. The bond market’s judgment as to the
U.S. government’s creditworthiness depends on it, and the bond market “knows”
that growing the U.S. economy is far more important than shrinking the number of
outstanding U.S. Treasury securities—i.e., than “paying down” the federal debt.
In short, what’s important for the sustainability of our creditworthiness is not
the debt level; instead, what’s far more important is to keep the debt
burden—the “interest bite”—inside the guardrails.
The 1992 Clinton campaign had it exactly right:
“It’s the economy, stupid.”
Steve Conover retired recently from a
35-year career in corporate America. He has a BS in engineering, an MBA in
finance, and a PhD in political economy. His website is www.optimist123.com.
Image
by Rob Green / Bergman Group
The disconnect
between technology and Washington is as vast as the gap between rotary phones
and the latest iPad. First there was the clumsy SOPA legislation against online
copyright piracy, killed by objections from Web companies and users. The latest
disconnect is over whether Washington can free up enough bandwidth to keep smart
phones and tablets running.
The two most
prominent voices for more bandwidth are at each other's throats: Federal Communications Commission chairman
Julius Genachowski, who has been warning of spectrum scarcity for several
years, and Randall Stephenson, the chief
executive of AT&T, whose once-monopoly is the underdog in this
dispute.
The FCC has not kept up with the demand for
bandwidth, especially as mobile users
expect to be able to stream video and use other digital innovations. Mr.
Stephenson used his quarterly earnings call with investors last week to lay into
the agency, which is remarkable considering how industry executives usually
steer clear of antagonizing their regulators.
"The last
significant spectrum auction was nearly five years ago, and now this FCC has made it abundantly clear that
they'll not allow significant M&A to help bridge their delays in freeing up
new spectrum," Mr. Stephenson told analysts, referring to how regulators blocked
the AT&T bid to buy T-Mobile as a way to get enough bandwidth to compete
with market-leader Verizon. "It appears that the FCC is intent on picking
winners and losers rather than letting these markets work." The result? "We pile
more and more regulatory uncertainty on top of an industry that is the
foundation for a lot of today's innovation."
Enlarge Image
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Bloomberg
AT&T Randall Stephenson (left) and FCC's Julius
Genachowski agree on need for broadband spectrum auctions—but not on much
more.
Mr. Stephenson
added, "Growth cannot continue without more spectrum being cleared and brought
to market. And despite all the speeches from the FCC, we're still
waiting."
A common theme of
Mr. Genachowski's speeches for several years has indeed been that there is a
"looming spectrum crunch," but he hasn't been able to get congressional approval
to let the FCC hold a voluntary spectrum auction. This would let holders of
underused bandwidth—primarily television stations—sell their rights to
higher-value buyers.
The good news is
that Congress is getting closer to approving an auction, but with restrictions
the FCC is fighting. The question now is whether the FCC will have an open
auction, a rigged auction, or miss this window to have any auction.
Bandwidth auctions were conceived by University of
Chicago economist Ronald Coase more than 50 years ago as a market alternative to
having regulators pick and choose who deserves a license. Past auctions have delivered more than $50 billion to
the Treasury. Congress is close to approving another, if only the FCC can bring
itself to say "yes," perhaps with some adjustments to incorporate technical
issues. This would be attached to a bill extending the reduction in the payroll
tax that would be funded by the billions raised in the
auction.
A House bill would
require the FCC to allow all telecommunications companies to participate in the
auction, without regulators picking winners and losers before the bidding even
begins. The worry is that the FCC is reverting to its old practice of
handpicking preferred owners of broadband, a form of industrial policy
that's bad on principle, and would also reduce the fees going to the Treasury by
limiting bidders.
The FCC is
lobbying against this provision, even though an agency spokesperson assured me
in a phone interview that "the FCC has no intention of keeping either AT&T
or Verizon from participating in the auction." That's good, but the
market-leading firms might still be forced to sell back some of their bandwidth
to meet regulatory views about antitrust.
The FCC is trying to manage competition among
telecommunications providers using 1970s-era antitrust theories. Almost every
American can choose among four or five telecommunications providers, not just
Verizon or AT&T.
The key players in the industry are companies like Apple
that aren't regulated by the FCC but drive bandwidth usage through their mobile
operating systems and bandwidth-hogging apps. Even
market-leader Verizon can't provide the kind of fast connections common in Asia
and even parts of Europe. Instead of bigger being bad, even the biggest U.S.
providers are too bandwidth-constrained to provide world-class
service.
If the FCC misses
this chance to hold an auction, expect a reversal of the trend toward lower
prices and better service. AT&T is already raising rates for its high-volume
users. Mr. Stephenson warned that "in a capacity-constrained environment, we
will manage usage-based data plans, increase pricing and manage the speeds of
the highest-volume users."
It's time for the
FCC to go back to the basic lesson that Prof. Coase taught. His now-famous Coase
Theorem says that without regulatory interference or high transaction costs,
valuable resources will flow to their most valued use. The ownership of
broadband needs to be determined by markets as quickly as technology changes,
not as slowly as Washington decides who deserves to be a winner and who should
be a loser.
Copyright 2012 Dow Jones & Company, Inc.
All Rights Reserved
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·
wsj
FEBRUARY 8, 2012
Reading
about the Facebook IPO and the spectacular payouts coming to its owners and
early investors, I found myself thinking of the five years about a decade ago when I
worked at Facebook. Back then, it was called America
Online.
I
joined AOL as editorial director in 1997. As a journalist, screenwriter and
author with a big Rolodex, I was hired to help transform a technology company
headquartered in a field in Virginia into a media powerhouse. For a year, we had only modest adult
supervision, and we made the most of it.
The
news team created a main screen that was a template for the Huffington Post. The
Love@AOL crew was building what might have become Match.com. The Sports channel
was a fledging ESPN. Classifieds could have morphed into Craigslist. AOL
Instant Messenger was potentially Twitter. Finance, our most profitable
channel, was on course to trump Yahoo's offering.
But
all that really mattered was Facebook before there was Facebook: Community,
which let AOL members group themselves by interest, taste or desire and
communicate via message boards. Critics mocked AOL as "the Internet
with training wheels," yet in the late '90s that was just what Web neophytes
wanted—easy access, and all the neighbors you ever wanted to hang over a
clothesline with.
Those
of us on the editorial team liked to say that "content is king." But coverage of
news and sports and finance was also available elsewhere, and what was on our
Channel screens really didn't matter. Community drove the growth of the service.
And grow AOL did. A million members in 1994. Five million in 1998. And from
there, exponential growth, another million every 125 days, all
of them eventually paying $23.95 a month to enter our walled garden. For the
most part, they stayed there too.
In
1998, a Taliban of white male MBAs swept in and brought the editorial team to
heel. For the rest of my tenure, we made dumbed-down, vanilla fare. The main
screen became what I called "24/7 Britney." The illogical reason? "We're under
more scrutiny now."
Scrutiny
was also internal. Our director of financial coverage, who came to AOL after six
years in Naval intelligence, had created what amounted to a highly profitable
separate company. How to find the finance editors in a sea of editorial workers?
Just look for the large pirate flag—skull and crossbones, the whole bit—hanging
from the ceiling over their pods. When management brought order, the pirates had
to lower the flag.
Enlarge
Image
Bloomberg
News
The
America Online Inc. logo
Community
also came under granular review. I recall a meeting about "Jewish Singles."
There were, as I recall, around 70,000 members in this group, and they were
wonderfully active, with voluminous message-board postings. By the analysis of some VPs, however,
they were a drag on the service. In other words, no one could figure out how to
monetize this area. So maybe we ought to close "Jewish Singles." I did some
quick math. The AOL fee of $24 a month times 70,000 meant that Jewish Singles
generated $1.68 million every 30 days—$20 million in effortless revenue a year.
How many might have left if we had banished their community? Management spared
the Jewish Singles.
I
don't believe management was evil or stupid. The shortsighted approach of the
MBAs had a simpler origin: They didn't use the service the way
members did. They didn't know how often Community leaders
talked would-be suicides off the ledge or how many desperate housewives found
recipes and advice. All
these points of deep engagement were driven from the bottom, from users. (Note
that there
are only two businesses that call the customers "users"—drugs and the Internet.)
For
management, though, AOL was just an Instant Message service by day, an email
service by night. The ultimate verdict: Since advertisers shunned Community,
what was it really worth? Very quickly, Community became AOL's ignored child.
Management
also had fiduciary reasons to nickel-and-dime its editorial and community
maintenance costs. Between March 1998 and November 1999, AOL was the poster
child for the Internet boom. The stock split 2-for-1 four times. This
relentless surge in members and earnings had little connection to anything we
were doing; we just stood under a money shower and got
drenched.
That
kind of growth doesn't need management. But
when has management ever not taken credit for record earnings—or wanted still
more? With hindsight, AOL would have done much better to think long-term, invest
in its assets and turn them into "category killers," brands that rule. Instead,
the company traded its birthright to Time Warner for the most disastrous merger
in media history.
Mark
Zuckerberg had the great good fortune to build Facebook as a private company.
Even better, he's structured his board so he'll be able to manage a publicly
traded Facebook as if it were still private. But he faces some of the same
challenges AOL did at its height.
Like
AOL, Facebook is growing exponentially. Like AOL, it's a walled garden,
committed to keeping its users inside its walls for most of their Internet
needs. Unlike AOL,
though, it doesn't charge its members. And it makes very little money per
member; on a per-user basis, Facebook makes about $1 in profit
yearly.
The
pressure to exploit 845 million users has got to be intense, and by changing its
definition of "privacy" so it can share member information with advertisers,
Facebook has already disappointed some of its users. Perhaps the example of AOL
will remind Facebook's newly rich staffers that the customers, if taken for
granted, move on.
Mr.
Kornbluth was editorial director of America Online from 1997-2003. He now edits
Headbutler.com.
Does
the world need a new trade war? Probably not, though our friends in Brussels
seem to think so: Over intense international protest, they've plowed ahead
with a new tax that
requires airlines to purchase carbon emissions permits for the entirety of any
flight that lands in or takes off from Europe. That goes even if only a fraction
of, say, a Chicago to Frankfurt flight cuts over European
airspace.
So
here we go. On Monday, Beijing forbade its carriers from complying with this
frequent-flyer-in-reverse scheme. Brussels immediately responded by insisting
that noncomplying airlines will face large fines, and even bans on operating in
Europe. The next day a Chinese Foreign Ministry spokesman told reporters that
unless the EU backs down, "China will consider taking necessary steps in
accordance with the way things develop to protect the rights of our nationals
and our companies."
The
Chinese are right to object to this resurgence of Euro-imperialism. And they're
not alone. In a joint
statement in September, 26 governments declared the EU scheme illegal, citing
the 1944 Chicago convention on aviation that gives each signatory "complete and
exclusive sovereignty over airspace above its territory."
The
U.S. Departments of State and Transportation are also mulling "appropriate
action." American, Chinese, Russian, Indian and other national delegates are
expected to meet later this month in Moscow to discuss the threats that have
already been floated: retaliatory taxes, cutting off Airbus orders, overflight
fees against European airlines.
The
charges for Europe's carbon permit scheme won't come due until next year, so
there's still time for Brussels to see reason. Alternatively, Europe can help
spark a global trade war nobody can afford over a tax nobody needs in
furtherance of an anticarbon nirvana that never will come to
pass.
Clint
Eastwood is receiving grief for his Super Bowl ad for Chrysler, which many saw
as an Obama campaign ad trumpeting the president's Detroit
bailout.
Mr.
Eastwood's previously recorded remarks on the subject were: "We shouldn't be
bailing out the banks and car companies."
A
further complication is that Chrysler is now owned by Fiat, an Italian company,
which received its stake largely as a gift of the U.S. taxpayer in return for
meeting fuel-economy goals, not financial goals.
No
political party would have let GM go under because of Lehman, and a column
uninformed by political realism is uninteresting to read or
write. But
a decent bailout would have addressed the structural burdens that Congress,
mostly for its own convenience, inflicted on the homegrown auto makers. That
didn't happen.
If the
U.S. president told the bank holding your mortgage to cancel your debt and hand
you the house free, it wouldn't make you more productive or
efficient.
It just screwed someone
you owed money to.
And clearer than
ever is that GM could have survived the Lehman episode with a simple bridge
loan. America's biggest auto maker could have returned to the slog without
dishonoring billions of dollars in obligations to bondholders and other
creditors.
But
the most egregious aspect of the Obama bailout is its annexation of the auto
sector to the administration's green energy schemes. It's no exaggeration to say the auto
industry is being used to fulfill a throwaway line in an Obama speech calling
for one million electric vehicles on the road by
2015.
We've
often noted the direct handouts, in the form of billions of dollars in subsidies
to both manufacturers and buyers of green cars. But these are only half the
story. Mr. Obama made a
splash last year when he announced that, by 2025, the U.S. fleet would be
required to get 54.5 miles per gallon.
The
corollary of an implausible mandate is a steady traffic in auto industry
lobbyists to Washington, campaign check in hand, to water it down. Of these, the
most important are very large mileage credits awarded to electric cars (though
they basically run on coal), and then the doubling of these credits as an
"incentive multiplier."
In effect, auto
makers have been virtually required to build electric cars and dump them on the
public at a loss in order to create headroom for the cars that actually earn a
profit.
Enlarge
Image
Corbis
The
latter, of course, are pickups in the case of U.S manufacturers. Lo, pickups
have also been quietly showered with special breaks under the broad rule Mr.
Obama announced.
Just
ask Volkswagen and Daimler: Here we have almost
a parody of public choice theory,
which in raw form holds that whatever the stated purpose of government policy,
it usually devolves into an excuse for politicians and bureaucrats to grant
favors and extort tribute from special interests. The
Germans are among the few willing to say publicly that CAFE has degenerated into
a favor factory to protect Detroit's pickup franchise while giving Mr. Obama
subsidized green cars to flaunt in a campaign ad. One measure of the absurdity:
When the loopholes are
factored in, a 54.5 miles-per-gallon standard has become a 40 mpg
standard.
The
coming Obama campaign will make a fuss over the Detroit bailout, helped by
slenderly informed commentators who declare it an amazing success. Car sales are up 20% in two years,
even if still below pre-crash levels. Detroit is adding shifts. GM, Ford
and even Chrysler are reporting profits. Unmentioned in any Obama campaign ad,
though, will be that today's modest sales boom is essentially a horsepower boom.
SUVs and pickups are selling strongly. A run-of-the-mill Ford Fusion would have
been a muscle car two decades ago. Detroit is bouncing back because it's selling
cars the public wants to buy.
This,
in fact, is a great way to run a car business, but will soon become all but
impossible if Mr. Obama's new fuel-mileage rules are not further rolled back.
Hence a glaring anomaly amid the happy talk: GM's stock price is still down 22%
from its public reflotation a year
ago.
As we
noted last year, the
auto industry's strategy for dealing with the administration that bailed it out
has been to pray for the madness to pass. That the Lord has partly answered
those prayers with pickup loopholes, and now talk of a mandatory "midterm
review" of the mileage targets, was politically predictable. And
yet a mystery remains.
No
president in three decades has embraced fuel-economy regulation so fulsomely,
and for good reason: Every study has found the rules to be costly, ineffectual
and perverse.
There is little evidence that Mr. Obama himself has ever given intelligent
analysis to what he's doing or why. His one big speech advanced a perfectly
silly claim that Detroit's troubles stem from building "bigger, faster" cars
that the public manifestly wants and that earn Detroit most of its
profits.
One
explanation for the fuel-economy circus is that President Obama is content to be
a point man for shibboleths. He takes for granted the wisdom of liberal policy
clichés.
A more
likely answer, we suspect, is to be found in public choice
theory.
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President
Barack Obama infamously
killed the multilateral Doha Round last December by instructing his
representative at the World Trade Organisation to be a “rejectionist”
negotiator. He compounded the folly by instead floating the
trans-Pacific Trade Initiative that is conceived in a spirit of confronting
China rather than promoting trade, and is also a cynical surrender to
self-seeking Washington lobbies that would have made John Kenneth Galbraith
blush. Not content with these body blows to the world trading system, which his
predecessors had built up over decades of US leadership, Mr Obama pulled off the
remarkable feat of making things yet worse with his State of the Union
address.
In
particular, he decried outsourcing: “We will not go back to an economy weakened
by outsourcing.” He also celebrated manufacturers: “Tonight, I want to speak
about an economy that’s built to last an economy built on manufacturing.” Both
are costly fallacies that deserve no quarter from our leadership. They hurt the
US economy; they also guarantee that the US will undermine further the world
trading system.
Outsourcing
is a bogeyman. The deception that Mr Obama buys into goes back to the
populist commentator Lou Dobbs, who denounced the companies that bought
components from abroad as Benedict Arnolds – the rogue who became a byword for
treachery when he changed sides during the American war for
independence.
The
fact is that Mr Obama
is guilty of promoting at least two wrong but prevalent notions. When companies
are denounced for “losing” jobs by outsourcing, the fallacy is one of looking at
only primary impacts. When Senator Barbara Boxer blamed her
rival Carly Fiorina in the last election for eliminating 30,000 jobs at Hewlett-Packard,
the proper response would have been: in this fiercely competitive world,
Hewlett-Packard would have lost 100,000 jobs if she had not lost
30,000.
Second,
there is already evidence that significant insourcing is occurring
in parallel. Indian information giants such as Wipro are
increasingly outsourcing to the US. Walk down Madison Avenue and you will find
that trade in variety or “trade in similar products” is now important and almost
everyone is in each other’s markets. Again, Dell has discovered that outsourcing
troubleshooting for its computers does not work well: geographical proximity
works a lot better.
But if
Mr Obama is wet behind the ears on outsourcing, his surrender to the
“manufactures fetish” is a disaster. As Bill Emmott, former editor of The
Economist, once remarked: “Unless one can drop a product on one’s foot many
believe it is not worth making.” The fallacy goes back to Adam Smith
who, in a rare lapse into folly in The Wealth of
Nations, condemned as unproductive the
labours of “churchmen, lawyers, physicians, men of letters of all kinds,
players, buffoons, musicians etc”.
Mr
Obama’s surrender stems from at least four errors. First, he has
bought into the fallacy, promoted by the economist Michael Spence, that
manufactures are declining in the US, but his work suffers from
conceptual flaws. Take just one problem: services splinter off from
manufacturing even as vertical integration yields to specialisation. Over time,
manufacturing yields to services. This gigantic change that is taking place has
nothing to do with outsourcing.
Second,
the notion that manufacturing is more productive than services is not supported
by research. Dale
Jorgenson, a leading researcher on productivity, has shown that the most
progressive sector is retailing, which has been transformed by IT innovation.
Third,
the general disillusionment with the financial sector has been seized on by the
manufacturing lobby to argue that therefore manufacturing should be supported.
But that is a non-sequitur. The
value added in the financial sector is probably a quarter at most of the total
services sector. Why not opt for DHL, transport and communications, for example,
instead of cement mixers?
Finally,
the manufacturing sector in the US is already heavily
subsidised. With
the exception of New Jersey and New York, which compete for the financial
sector, the main
competition among US states is for attracting manufacturers through generous tax
holidays, free land etc. Again a little-known tax provision, Section 199, gives
tax relief for “domestic production activities”, which mostly support
manufacturing.
So the
campaign for more manufacturing is a boondoggle. Jeff Immelt of General
Electric, a splendid businessman and confidant of Mr Obama, has succumbed:
who would look a freebie in the eye? Clyde Prestowitz, a Republican who earned
Bill Clinton’s plaudits in the 1992 campaign, is now celebrating on his blog
that Mr Obama is his new convert. Mr Clinton regained his sanity in a year. This
time it is likely to be a long slog.
The
writer is professor of economics and law at Columbia University
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Financial Times Limited 2012. You may share using our article tools.
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don't cut articles from FT.com and redistribute by email or post to the web.
JAKARTA—Indonesia's
economy grew last year at its fastest pace since the 1997-98 Asian crisis, with
the country's large domestic market helping to shield it from the global
economic turmoil battering its more export-oriented neighbors.
Indonesia
is shining as one of Asia's strongest emerging markets given a healthy boost in
GDP growth. The WSJ's Deborah Kan speaks to Alex Frangos.
Gross
domestic product expanded 6.5% in 2011, affirming Indonesia's position as one of
Asia's fastest-growing economies and highlighting its appeal to investors.
In
recent years, some companies and investors have touted Indonesia as the next
India or China, as strong growth and relative political stability boost
confidence in its fortunes, although its growth has lagged well behind those
regional giants.
Foreign
direct investment in Indonesia grew 20% to a record $20 billion last year as
companies invested in areas such as coal mines and car factories to tap the
country's vast natural resources and 240 million-strong consumer market.
Executives
and investors complain that Indonesia lacks the legal protections and
infrastructure needed to bump growth into double digits. Yet its GDP has grown
more than 5% in seven out of the past eight years, and even in 2009—when many
countries slumped into recession on the heels of Lehman Brothers'
collapse—Southeast Asia's largest economy managed to squeeze out 4.5% growth.
The
Central Statistics Agency announced Monday that the economy expanded 6.5% from a
year earlier in the October-December quarter, driven by strong household
consumption and capital investment. That matched the previous quarter's growth
and was in line with market expectations.
Enlarge
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Bloomberg
News
Fish
at a Jakarta market last week; Indonesia's economic growth could slow to less
than 6% this year if Europe suffers a severe recession, the finance ministry
said.
Economists
generally are optimistic that the economy will remain resilient this year,
especially with the central bank keeping monetary policy easy. Bank Indonesia is
expected to keep its policy rate at 6%, a record low, when it meets Thursday,
but has tinkered recently with deposit rates to boost market liquidity.
"Indonesia's
GDP growth has been remarkably stable and robust in 2011, in line with our view
that Indonesia will remain a beacon of growth in a world where growth is
scarce," Credit Suisse economist Kun Lung Wu said. "We expect real GDP growth to
remain strong at around 6% in 2012, but we think there is a risk that policy
could remain too loose for too long."
The
median forecast of 11 economists polled by Dow Jones Newswires was for 6.48%
year-to-year growth. Eight of the economists forecast an quarter-to-quarter
contraction of 1.52%.
In
sequential terms, the economy contracted 1.3% in October-December from the third
quarter, when it expanded a revised 3.4%. That decline was attributed to slower
economic activity during the year-end holiday season and the hit to exports from
economic struggles in the West.
All
sectors except mining grew last year, said Suryamin, the statistics agency's
acting head, who like many Indonesians goes by a single name.
Telecommunications, hotel and restaurant and financial companies showed the
biggest growth.
Net
profits of companies listed on the Indonesian Stock Exchange may rise an average
of 27% last year and 18% this year, said Ferry Wong, head of Indonesian equity
research at Citigroup.
Indonesia's
stable growth also stands out in comparison to more volatile and disappointing
results from export-dependent neighbors such as the Philippines and Singapore,
highlighting the resilience of its domestic market.
Exports
hit a record of $203.6 billion last year yet their share of Indonesian GDP rose
only marginally—to 26.3% in 2011, from 24.6% in 2010. Consumption still accounts
for more than half of GDP, at 55.5% in 2011 and 56.6% in 2010.
Bambang
Brodjonegoro, head of the Finance Ministry's Fiscal Policy Board, said exports
will likely contribute less to economic growth this year. "Therefore, boosting
private and public investment will be our focus to maintain growth momentum," he
said.
Companies
profiting from the increasingly confident and affluent Indonesian consumer say
times have been good despite the economic turmoil abroad.
Airline
Garuda Indonesia saw the number of passengers it carries jump 37% last year and
expects similar growth this year. The airline is opening new routes and buying
new planes to capture the expected growth.
"The
strong middle-class economy really has really been supporting the Indonesian
aviation industry," said Pudjobroto, a spokesman for Garuda who uses only one
name. "We are optimistic that even with the country's limited infrastructure,
the future of the aviation industry is bright here."
Finance
Minister Agus Martowardojo said he expected total investments made by private
sector and the government to grow as much as 10% this year, after rising more
than 8% in 2011.
Foreign
direct investment is likely to remain robust over the medium term after Moody's
Investors Services and Fitch Ratings recently upgraded Indonesia's credit
ratings to investment grade.
The
passage of a bill in December that aims to expedite land purchases for
infrastructure projects bodes well for investment over the long term.
"We're
laggards in terms of infrastructure. The land bill could spur growth of the
construction sector by around 30% annually," said M. Choliq, chief executive of
unlisted state-owned construction firm PT Waskita Karya.
Gatot
Suwondo, CEO of PT Bank Negara Indonesia, the fourth biggest bank by assets,
said the government can improve the investment climate by revising the country's
rigid labor law, among others. Mr. Suwondo remains optimistic for this year,
forecasting the bank's net profit to grow by "at least 30%" this year, following
an estimated 30% rise in 2011.
"No
matter what, we remain of the view that this year's slower growth is likely to
be temporary in nature," OCBC economist Gundy Cahyadi said. "We remain
fundamentally positive on our medium-term assessment of the Indonesian
economy."
—I
Made Sentana, Eric Bellman and Linda Silaen contributed to this
article.
Then
last month, the December 2011 headline number gapped down to 7.5% year-on-year.
The market heaved a collective sigh of relief, predictions of deep interest-rate
cuts spread like wildfire and the government in New Delhi patted itself on a job
well done.
Investors
should understand that this fall was payback from the spike in inflation the
previous year. As economists say, it is the base effect. This phenomenon will
keep driving down inflation and the headline rate could fall below 7% by March.
But the effect will be fleeting. Underlying inflation in India is
still vicious, judging by core inflation, which strips away food and fuel price
changes, running at an annualized 10%.
Come
May, inflation will likely resurge. By July-August headline inflation could well
print in the 8% range. The good news is that the RBI is aware of this possibility.
That's why it has reserved cutting interest rates so far, though it cut banks'
reserve requirements last month.
This
might come as a surprise to many, who still believe that the "normal" inflation
rate in India is 4-5%. But headline inflation in India has been continuously
high from 2008, with the global financial panic in 2009 just offering an
intermission. Food inflation, the origin for the current spurt in generalized
inflation, last registered below 5% in October 2005, barring four months from
November 2007 to February 2008.
Enlarge
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Associated
Press
A
child in a Hyderabad shanty town.
Inflation
isn't going back to the old normal any time soon, for several reasons. Start
with food. India is structurally short of food supply, the 4-5% annual
agricultural growth not enough to satisfy the surging demand of 1.2 billion
people with real incomes rising at over 5%. Many woes can also be traced back to
an inefficient supply chain, which is severely restraining capacity. Late last
year, the government's effort to partially address this problem with foreign
investment in retail spectacularly tanked. This just raises the stakes to
improve productivity and supply chain efficiency. Without this, some
prices—especially food—will remain sticky, as the same amount of money chases
fewer goods.
Making
matters worse are the government's rural jobs and agricultural procurement
policies. India's expansive rural unemployment assistance program, which
guarantees 100 days of work a year, has pushed up rural wages like nothing
before. Real wages rose 10% year-on-year in January 2010 and accelerated further
to 14% by May 2011. In contrast, they were virtually flat between 1999-05 and
grew at an annual 2% over 2006-09. These wage increases are not because
productivity is increasing, but because the government is handing out more money
without getting much output in return.
Since
these wages got indexed to inflation in 2011, this welfare program has actually
institutionalized a vicious wage-inflation spiral. Higher food inflation now
automatically translates into higher wages that raises input costs for all
goods. This economic shockwave causes a bigger one: The government raises the
administered floor price for many agricultural products and increases food
inflation further. Since rural wages act as the benchmark for construction and
informal workers, wages in urban areas have risen in tandem.
These
are structural problems that need fiscal responses, which is perhaps why
monetary policy hasn't been entirely effective. Take this year. Much of the
impact of the RBI's tightening was undone by the fiscal deficit expanding by
1-1.5% of GDP and adding to demand. In the face of falling inflation and a rise
in growth concerns, the RBI has found it hard to keep monetary policy on a
tightening bias, suggesting that the central bank's target has shifted from a
ceiling on inflation to a floor on growth.
The
fiscal response most necessary is to persuade companies to invest. What kept
headline inflation down in the mid-2000s was a sustained surge in corporate
investment that kept adding to industrial capacity. But since mid-2008,
corporate investment has plunged 4% of GDP with no signs of rebounding.
Turning
around investment sentiment will require a dramatic reduction in domestic
uncertainty. This involves reforms across agriculture and various industries,
but it especially means an end to the political paralysis that has gripped India
in the last 18 months. Meanwhile, New Delhi also has to curb its addiction to
throwingsubsidies at a structural problem.
Inflation-optimists
are quick to note that the monster depreciation of the rupee last year has
started to reverse in recent weeks. That does dampen imported inflation, but
that's unlikely to arrest the momentum in core inflation. More importantly, the
same pace of rupee appreciation won't extend into the second half of this year
when the base effect dissipates, bringing inflation back with a roar.
These
short-term movements in indicators like the exchange rate are less important
because underlying inflation largely reflect delayed structural reforms. A more
permanent decline in inflation requires stronger policy
resolve.
Mr.
Aziz is India chief economist at JP Morgan Chase.
Relative
to Italy's debt problems, the country's biggest impediment to growth gets
relatively little international press. Burdensome labor regulations are nothing
new to Italians. But even discussing the possibility of modernizing these laws
has long been politically taboo.
The
most onerous law is a relic of the 1970s and a touted accomplishment of Italy's
trade unions. Article
18 of the Workers' Statute makes it impossible to fire even the most grossly
incompetent employees. Perversely, it causes that which it seeks
to prevent: unemployment.
According
to the law, employers need to demonstrate not only that a terminated employee
has failed in fulfilling work "objectives" and "expected performance," but also
must prove "the concrete and wanton negligence of the employee in achieving the
work's obligations." The only "just cause" for termination is the deliberate
refusal to perform whatever an Italian labor court deems necessary to fulfill
"the work's obligations." Could a law be any vaguer?
If the
court determines the employer has insufficient evidence, the employer must
rehire the employee, fork over lost salary and pay a fine. Businesses with fewer than 15
employees have a choice between rehiring the employee or paying him 15 months of
vacation—er, severance—before being able to send him on his
way.
The
courts aren't exactly impartial, either. Andrea Ichino, an economist at the
European University Institute, found that justices sided with the terminated
employee much more frequently in regions with high unemployment than in regions
with low unemployment. With a court system slanted against business,
entrepreneurs just don't want to take the risk of hiring new employees whom they
may not want or need in the future.
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Press
Italian
welfare minister Elsa Fornero.
This
perverse regulatory environment has helped Italy earn the World Bank's
second worst "Doing Business" ranking out of all OECD countries. Only Greece
is worse. Dr. Stefano Scarpetta of the OECD
found that new Italian firms increase their headcounts by 20% in their first two
years, compared to 160% in the United
States.
Italy's
labor laws favor insiders who already have jobs at the expense of outside job
seekers. Ironically, these laws hurt the very people upon whom those insiders
will depend to support their pensions when they retire—the young. Italy's youth
unemployment rates consistently rank among the highest in the EU. It averaged
5.8 percentage points above the EU average from 2001 to 2010, according to
Eurostat.
Meanwhile,
the labor force is getting older by the year. Between 2001 and 2010, the share
of total employment among Italian workers between ages 50 and 70 steadily
increased, while it decreased among workers younger than 50, according to OECD
data.
Facing
these trends, former Prime Minister Silvio Berlusconi in 2002 proposed a
temporary four-year suspension of Article 18's rehiring clause, though employers
still would have had to pay the 15 months of severance. Even this minor change
proved impossible. Italy's most powerful trade union assembled one million
protestors to march in Rome against any such reforms.
Now,
Prime Minister Mario
Monti and Labor Minister Elsa Fornero have pledged to make labor reforms in an
effort to put an indebted and economically stagnant Italy on a path to
sustainable growth. That's more easily said than
done.
Ms.
Fornero recently suggested an extension of the "trial" employment period—the
time before an employee is entitled to the benefits within Article 18—to three
years. A political firestorm ensued, as unions loudly decried the proposal and
continued to deny Article 18's negative impact on employment. Ms. Fornero backed
down but has not shelved the issue just yet. In a recent television appearance,
she said she was "saving it for last."
But
most past attempts at reform have run up against Italian politicians' cowardice
in taking on the country's powerful unions. Mr. Monti and Ms. Fornero are
setting the stage for a major battle this month, when they will try to reform
Article 18 as well as other archaic labor laws that have been an anchor on
Italy's growth for almost half a century.
Mr.
Monti and Ms. Fornero will encounter enormous opposition, and success is by no
means guaranteed. But the mere fact that they and other Italian politicians are
even talking about such a taboo topic may finally signal the change Italy so
badly needs.
—Mr.
Melchiorre is an adjunct analyst at the Competitive Enterprise Institute who
resides in Bologna, Italy. He blogs at OpenMarket.org.
The
Cato Institute's Walter Olson writing at cato-at-liberty.org, Jan.
30:
Pietro
Ichino, a professor of labor law at the University of Milan and a senator in the
Italian legislature, is known as the author of several "neoliberal" books and
studies recommending that the Italian government relax its extraordinarily
stringent regulation of employers' hiring and firing decisions. As Bloomberg
Business Week reports, that means that Prof. Ichino must fear for his life: "For
the past 10 years, the academic and parliamentarian has lived under armed
escort, traveling exclusively by armored car, and almost never without the
company of two plainclothes policemen. The protection is provided by the Italian
government, which has reason to believe that people want to murder Ichino for
his views."
They're
not just being alarmist. In 1999 and 2002 leftist gunmen associated with the Red
Brigades murdered two other reformist labor law professors, Massimo D'Antona and
Mario Biagi. Prof. Biagi, a well-known figure nationally, was shot as he arrived
at his Bologna home and dismounted his bicycle. While five members of the Red
Brigades are serving prison sentences for his murder, sympathizers remain at
large, and Ichino's name appears on a Brigades hit list. . .
.
Like
his slain colleague Biagi, Ichino started out as a man of the Left—a Communist
parliamentarian, in fact—who became convinced that the state-enforced equivalent
of lifetime job security actually worked against the interests of ordinary young
workers, who were increasingly frozen out from being offered jobs in the first
place. Increasingly, moderate European opinion is coming to see that view as
persuasive—even if few show as much courage as Prof. Ichino in voicing
it.
Oklahoma
Governor Mary Fallin is starting to feel surrounded. On her state's southern
border, Texas has no
income tax. Now two of
its other neighbors, Missouri and Kansas, are considering plans to cut and
eventually abolish their income taxes. "Oklahoma doesn't want to end up an
income-tax sandwich," she quips.
On
Monday she announced her new tax plan, which calls for lowering the state
income-tax rate to 3.5% next year from 5.25%, and an ambition to phase out the
income tax over 10 years. "We're going to have the most pro-growth tax system in
the region," she says.
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Associated
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Oklahoma
Gov. Mary Fallin
She's
going to have competition. In Kansas, Republican Governor Sam Brownback is also
proposing to cut income taxes this year to 4.9% from 6.45%, offset by a slight
increase in the sales tax rate and a broadening of the tax base. He also wants a
10-year phase out. In Missouri, a voter initiative that is expected to qualify
for the November ballot would abolish the income tax and shift toward greater
reliance on sales taxes.
South
Carolina Governor Nikki Haley wants to abolish her state's corporate income tax.
And in the Midwest, Congressman Mike Pence, who is the front-runner to be the
next Republican nominee for Governor, is exploring a plan to reform Indiana's
income tax with much lower rates. That policy coupled with the passage last week
of a right-to-work law would help Indiana attract more jobs and investment.
That's
not all: Idaho, Maine, Nebraska, New Jersey and Ohio are debating income-tax
cuts this year.
But it
is Oklahoma that may have the best chance in the near term at income-tax
abolition. The energy state is rich with oil and gas revenues that have produced
a budget surplus and one of the lowest unemployment rates, at 6.1%. Alaska was
the last state to abolish its income tax, in 1980, and it used energy production
levies to replace the revenue. Ms. Fallin trimmed Oklahoma's income-tax rate
last year to 5.25% from 5.5%.
Enlarge
Image
Close
The
other state overflowing with new oil and gas revenues is North Dakota thanks to
the vast Bakken Shale. But its politicians want to abolish property taxes rather
than the income tax.
They
might want to reconsider if their goal is long-term growth rather than
short-term politics. The American Legislative Exchange Council tracks growth in
the economy and employment of states and finds that those without an income tax
do better on average than do high-tax states. The nearby table compares the data
for the nine states with no personal income tax with that of the nine states
with the highest personal income-tax rates. It's not a close
contest.
Skeptics
point to the recent economic problems of Florida and Nevada as evidence that
taxes are irrelevant to growth. But those states were the epicenter of the
housing bust, thanks to overbuilding, and for 20 years before the bust they had
experienced a rush of new investment and population growth. They'd be worse off
now with high income-tax regimes.
The
experience of states like Florida, New Hampshire, Tennessee and Texas also
refutes the dire forecasts that eliminating income taxes will cause savage cuts
in schools, public safety and programs for the poor. These states still fund
more than adequate public services and their schools are generally no worse than
in high-income tax states like California, New Jersey and New York.
They
have also recorded faster revenue growth to pay for government services over the
past two decades than states with income taxes. That's because growth in the
economy from attracting jobs and capital has meant greater tax collections.
The
tax burden isn't the only factor that determines investment flows and growth.
But it is a major signal about how a state treats business, investment and
risk-taking. States like New York, California, Illinois and Maryland that have
high and rising tax rates also tend to be those that have growing welfare
states, heavy regulation, dominant public unions, and budgets that are subject
to boom and bust because they rely so heavily on a relatively few rich
taxpayers.
The
tax competition in America's heartland is an encouraging sign that at least some
U.S. politicians understand that they can't take prosperity for granted. It must
be nurtured with good policy, as they compete for jobs and investment with other
states and the rest of the world.
"Our
goal is for our economy to look more like Texas, and a lot less like
California," says Mr. Brownback, the Kansas Governor. It's the right goal.
European
leaders' laser-like focus on muddling through has brought the euro zone this far
into 2012 without disaster.
Assuming
the new bailout and debt-restructuring agreement for Greece are finally agreed
on, the biggest near-term risk to the euro zone should be erased. A messy default on €14.5 billion
($19.2 billion) of Greek government bonds coming due March 20 now looks
significantly less likely. A sense of moderate optimism has even
suffused financial markets.
Enlarge
Image
European
Pressphoto Agency
European
Economy Commissioner Olli Rehn with Greek Finance Minister Evangelos Venizelos
in Brussels on Thursday.
The
restructuring could still be awkward—the reaction of investors to the likely
strong-arming of unwilling bondholders into the restructuring has the capacity
to unsettle bond markets in the weeks ahead, bond analysts say, and there are
risks that national politicians in Greece and outside may balk—but the worst
case appears to be off the agenda.
An
agreement between the Greek government and its creditors is "essential to ensure
that the euro zone can manage an orderly default in Greece and stay in its
current shape. It is a huge relief that the negotiations have finally reached a
conclusion," said Marie Diron, senior economic adviser to Ernst & Young.
The
main game changer has been the actions of the European Central Bank and its new
president, Mario Draghi. Financial-market sentiment has been shifted
particularly by the ECB decision to provide three-year funding to euro-zone
banks.
That
action in December, to be followed by a further dose later this month, appears
to have broken for now the negative feedback loop between weak banks and weak
governments that undermined confidence last year.
With
ECB funding keeping banks above water, anxiety about sovereign borrowers has
eased—and further ammunition to boost the region's crisis funding should be
forthcoming soon.
Germany
secured an agreement for a fiscal pact at the end of last year that increases
European Union control over euro-zone government budgets and provides for more
automatic punishment of rule breakers. With that in hand, European officials say
they hope German Chancellor Angela Merkel will feel she has more political space
to increase her backing for weak economies.
Enlarge
Image
Associated
Press
Workers
from Greece's public power utility protest austerity measures in
Athens
It
should allow her to signal support for Portugal and other struggling governments
that are obediently swallowing their economic medicine—and to further emphasize
that Greece's failure to pay its bondholders back in full is a special
case.
It
should also allow her, they hope, to give the nod to boosting fiscal firewalls
to prevent further financial contagion. This would be done by joining the
resources of the current temporary bailout fund and the permanent fund, now
expected to come into being this summer. That boost could then unlock further
resources through the International Monetary Fund.
There
are plenty of risks to this moderately rosy scenario. The chief one is
complacency. With the
crisis fires no longer licking at Spain and Italy's portals, governments may use
the time bought for them by Mr. Draghi to do nothing.
"I
fear that the ECB's support for the banking system may be making the EU
complacent," writes Sony Kapoor, managing director of Re-Define, a financial
think tank. It isn't clear, he says, how and when banks will be able to wean
themselves off their increasing dependence on the ECB.
Economists
also argue that the new fiscal rules constitute a recipe for continued low
growth across the euro zone for several years, and will prove increasingly
unpalatable for governments.
But
the greatest risk is still perceived to be in the country where the whole crisis
started: Greece. Even publicly optimistic officials don't claim privately that
the second bailout program will clear Greece from radar screens for long. With
the country now entering its fifth year of recession, keeping to the hard-won
austerity agreement hashed out over recent weeksis regarded as a near
impossibility.
That
suggests Greece will be back to the negotiating table with its official
creditors in months rather than years, which—amid growing impatience among
Greece's paymasters—will again raise the question of whether the country can
stay in the euro zone.
In a
research note this week, Willem Buiter and Ebrahim Rahbari of Citigroup raised their estimate of
the chance of a Greek exit from the euro zone to 50% over the next 18 months—up
from 25% to 30% in September.
Part
of the reason is their view that the perceived costs of its departure from the
euro to the rest of the region are moderating over time. There are signs, they
argue, that sentiment in the financial markets is increasingly differentiating
Greece from other struggling euro-zone members—as are policy statements from
German Chancellor Angela Merkel and others. They also argue that the likelihood
of policy action by the ECB and euro-zone creditor governments to support
vulnerable euro-zone economies has increased over the past six months.
Says
Mujtaba Rahman, a former EU official who is now an analyst with Eurasia Group in
New York: "The interesting question was not whether a second program would be
agreed, but what happens when it fails, as it inevitably will."
Over
time, he says "the possibility of a Greek exit becomes more plausible as its
costs become more negligible."
Write
to Stephen
Fidler at stephen.fidler@wsj.com
A
cover story in the Economist in May 2000 struck a dispiriting note. "Africa,"
the magazine declared with great authority (and more than a ring of truth), "the
hopeless continent."
As
Rwandans, however, we know a thing or two about the resiliency of hope. We have
learned it can endure and thrive in the most difficult conditions imaginable.
While
the world's attention has been gripped by the global financial crisis, another,
more uplifting narrative has been taking hold in Africa. With fitting irony, it
was the Economist who
once again summed up this new zeitgeist when it revisited the continent for its
December 2011 edition. This time the cover read, "Africa Rising."
There
are few places that bear this out more vividly than Rwanda. Earlier this week,
the remarkable story of my country's social and economic progress has come into
renewed focus. On Tuesday, we released findings from the Household Living Conditions Survey
conducted last year that revealed a reduction in the poverty rate to 45% from
57% since 2006. In other words, over just a five year period, 200,000 Rwandan
families—or approximately one million of our 11 million citizens—have emerged
from poverty.
During
the same period, the proportion of Rwandans classified as living in conditions
of "extreme poverty" dropped to 24% from 37%, one of the steepest declines
witnessed by any nation since such records have been kept. It should also be
noted that the poorest of our population benefited most from the poverty
reduction. As measured by the Gini coefficient, inequality decreased to 0.49
from 0.52 in the same period.
Enlarge
Image
Getty
Images/Gallo Images
The
same report, endorsed by the United Nations and Oxfam, shows extraordinary
progress against other benchmarks as well. Child and maternal mortality rates
dropped by 41% and 35% respectively since 2006. The fertility rate has dropped
to 4.6 from 6.1 largely as a result of the rapid and widespread adoption of
modern contraceptive methods. Primary school enrolments stand at more than 90%,
while the numbers attending secondary school have doubled.
All of
this has taken place, it seems worth repeating, while the rest of the world has
endured the deepest and most sustained economic downturn since the Great
Depression.
Figures
like these may explain why the word "miracle" is often applied to Rwanda's
social and economic resurgence. It is not, however, a term you will hear from
Rwandans.
We
know full well that there is nothing supernatural about what we have achieved to
date, and that it represents a mere fraction of the ambitions we hold for our
country. We understand that our accomplishments are the result of unrelenting
focus by our country's
leaders and citizens on getting the fundamentals right: government
accountability and transparency, policies that attract trade and investment, a
healthy and educated population.
While
Rwanda has implemented vital reforms across each of these areas, they alone
would have amounted to little without the visionary cooperation of our development partners: the U.K.,
the World Bank, the European Union and the African Development Bank, among
others. The channeling of most of their development assistance through budget
support ensured attainment of superior
results.
As we
briefly take stock of progress to date before setting out toward the next
horizon, it is only fair to note that the success so far of our economic
development and poverty reduction strategy is owed to good policy both in Kigali
and among our partners. We have been heartened, to say the least, by the courage
displayed by our partners in their unwavering commitment to our country and
continent during a period of great fiscal constraint.
For
these reasons, whatever good news that can be gleaned from findings such as
those released this week should be rightly considered yours as well as ours.
After all, what is the price tag for a stable and prosperous Rwanda? What value
can we place on a million lives that, in five short years, have shifted from
deprivation to opportunity—or the millions more for whom that moment, yet to
come, now seems within reach?
—Mr. Rwangombwa is Rwanda's minister of
finance and economic planning.
If
Mexico's drug violence is so relentless and gruesome, then why are Marriott,
Hilton, InterContinental and other hotel chains piling into the
market?
Largely
because tourists and business travelers keep piling in too. Shootouts
notwithstanding, Mexico is benefiting from a tide that is raising many boats
around the world.
The globe's new nouveau
riche are going to Mexico to vacation, taking vodka to Veracruz and kung pao to
Cancun. And international companies continue to build factories in the country,
albeit sometimes more slowly than before.
If
Mexico's drug violence is so pervasive and gruesome - and it is gruesome - then
why are Marriott, Hilton, Intercontinental and other hotel chains piling into
the market? John Bussey has details on The News Hub.
Mexico,
in other words, is reaping the benefits of globalization. Companies have figured
that out, and they are making a bet: Long term, those benefits will transcend
the country's current violent convulsion.
And
that's likely a good bet to make.
The
last five years have clearly been rough for Mexico. More than 50,000 people have been
killed in the explosion of violence tied to the country's warring drug
cartels. The headlines capture the savagery. "Fifteen Beheaded
in Acapulco"; "Deaths of Americans Raise New Concerns Over Mexico's Drug War";
and "Dismembered Bodies Found All Over Juarez."
U.S.
officials have wondered aloud about the stability of Mexico. Think tanks have
flirted with the term "failed state." Last April, the State Department
expanded its already extensive travel warning for anyone venturing to the
country.
But
despite all those troubles, here come the hotels.
"Mexico
is an important strategic location for IHG, and the company works with
franchisees to develop hotels for the long term," says Stephen Boggs of InterContinental Hotels
Group, whose brands include Holiday Inn.
IHG expects to launch 46 new hotels in Mexico by the end of 2014. It has 120 in
Mexico now.
Enlarge
Image
Marriott
says its new Courtyard Mexico City Airport Hotel opens in May and is aimed at
the business traveler. It has 19 properties in Mexico, with nine more scheduled
to open by 2016.
And
the new DoubleTree by Hilton near the Mexico City Airport opens next
fall. Hilton Worldwide
has 23 hotels and resorts in Mexico. It is planning a 35%
expansion.
Mexico
is banking on tourists filling those rooms, especially new ones from developing
economies such as Brazil, China and Russia.
The
country is still ranked 10th globally in the number of visitors it receives, and
it is still the most popular destination for Americans, who account for the vast
majority of tourism visits.
The
trend line is also looking up. Even after periods in which hotel rooms went
vacant and cruise ships canceled port calls, tourism picked up at the end of
2011. The government
believes 2012 will be a record for the sector, which accounts for 9% of GDP.
Expedia
says it has seen a surge in travelers to Mexico from emerging markets. They are
travelers who like to spend. The average Russian will stay nine
nights compared with an American's three and a half.
And
whereas the American might spend $1,000 a week, the Russian will drop that in a
day on spa treatments at Le Blanc and the wine cellars of Cancun, says Gloria
Guevara, Mexico's tourism secretary.
Mexico
is chasing that new business. It has opened or is planning to open tourism
promotion offices in Beijing, Seoul, Moscow and Brussels. It has simplified its
visa-approval process. And it has counseled hotels and tour
operators on what this new global audience wants in a Mexico vacation (Chinese:
archeology. Brazilians: shopping. Russians:
bling.)
As for
the drug violence? "We say that those are very selective locations in Mexico,"
often near the border with the U.S. and far from the tourist centers, says
Gerardo Llanes of the Mexico Tourism Board.
"That
isn't all Mexico," he says in a phone conversation from China, where he is
pitching Mexico.
But
the violence has
spilled into storied Acapulco, and visitors can no longer drive the country, as
they might have years ago, without navigating around new danger
zones.
What's
more, much can still go wrong with Mexico's optimistic plans. The drug wars
could worsen, and unemployment and instability could, too.
For
the moment, though, Mexico's focus on tourism is bearing fruit, a reflection of
the broader engagement the country has with the global economy. That engagement
is the backbone of Mexico's economic growth, particularly in manufacturing.
In
addition to its trade pact with the U.S. and Canada, Mexico has dozens more
trade and investment treaties with other countries. Corporate investment
continues to flow in—$18 billion of foreign direct investment in 2010 alone, a
large chunk of that from the U.S.
Many
of those international companies operate behind security fences in the region
bordering the U.S.—the thousands of maquiladoras that employ hundreds of
thousands of Mexicans.
And
like the hotel chains, they all contend daily with the array of problems vexing
developing markets like Mexico. But they have nonetheless taken a stake in
Mexico's future because the country is a cheap place to make things, with easy
access to the U.S. market.
That's
a big, stabilizing counterweight to the chaos of the drug
wars.
That's
the upside of globalization.
Economist Feb 11th 2012 | HELSINKI | from the print edition
AS GUARDIANS of the EU’s longest border with Russia, the Finns tend to make prudent choices. So they did in the second round of their presidential election on February 5th. Sauli Niinistö, a centre-right former finance minister, romped home with 63% of the vote, against 37% for the Greens’ Pekka Haavisto. Mr Niinistö will be Finland’s first conservative head of state since the 1950s. He will also become the first president to come from the same party as the sitting prime minister.
Mr Niinistö’s popularity owes much to his reputation as a pragmatist who kept a tight rein on state finances (and also saw Finland into the euro). His appeal was enhanced by his devotion to raising two young children alone after his wife died in a car crash, and by his improbable survival of the 2004 Indian Ocean tsunami. But if there was a controversial issue in the election, it was the EU and the euro. Although the run-off was between two pro-EU, pro-euro candidates, Finland still has a Eurosceptic undercurrent. Euroscepticism may, however, have peaked. Timo Soini, leader of the anti-euro True Finns, who took 19% of the vote in last April’s general election, was trounced into fourth place in the first round of the presidential election.
In this section
Related topics
Even so Finnish voters remain, as one minister puts it, “pissed off” about the way in which other euro countries have broken the rules. Finland is one of only two original euro members to have stuck throughout to the Maastricht treaty’s fiscal limits. That makes it harder for the government to support bailing out Greece, which has never once observed those limits. Mr Soini’s diatribes against “shipping Finnish money out of Finland” to Greece continue to resonate. So Finnish negotiators will continue to be tough over the terms of rescues for weaker euro countries. And the six-party coalition Jyrki Katainen, the prime minister, formed last June to exclude the True Finns will remain both awkward and potentially fractious.
At one time the Finnish president had a big role in foreign and EU affairs, but recent constitutional changes have made the job more ceremonial. Yet Mr Niinistö’s victory could change debate on one area: defence. His predecessor, Tarja Halonen, was fiercely against NATO membership. But Finns are aware that just across the sea all three Baltic countries are in. Mr Katainen’s government has agreed not to consider joining NATO in its current term, and Mr Niinistö is cautious about the issue. But he says he favours more Nordic defence co-operation as well as moves to strengthen Europe’s defence role. The idea of joining NATO may not stay taboo for much longer.
As a big exporter,
Finland suffered badly in the 2009 recession and the country’s biggest company,
Nokia, has had a hard time recently as mobile-phone users migrate to hipper
appliances. But the underlying
economy remains strong and Finland scores exceptionally well in surveys of
education, health care and high technology. It always comes near the top of the
World Economic Forum’s annual rankings for competitiveness. And although, like
other Nordic countries, it also has a generous welfare state, it is keen to stay
there.
This election has
confirmed that, as in Sweden (if not Denmark), the centre-left in much of Europe
is weak and it is the conservatives who are making the running on policy. Finns
are more concerned to boost jobs and growth than to protect welfare, reinforcing
the strong economic performance of the Nordic model that has made their region
into one of the world’s richest and most successful.
By
-
Feb
8, 2012
Clint
Eastwood has been busy fending off critics
who posit that the Super Bowl commercial he made for Chrysler represents
election-year propaganda for President Barack
Obama.
The
long clip, “Halftime in America,” features the Hollywood star walking around the
automobile factory floor and talking about how recoveries like Chrysler’s are a
model for the rest of the country. Eastwood later shot back on Fox News that he was “not
politically affiliated with Mr. Obama” and that the commercial was “about job
growth.”
The
trouble with Eastwood’s commercial is not that it looks like one for the Democratic Party. Both
parties have bailed out automakers.
In
fact, if you squint at them right, Eastwood’s themes in the ad are also
Reaganite: the “halftime” theme evokes the 1980 commercial, “Morning in
America.” The trouble is not even that this commercial makes Eastwood look
hypocritical, though it does. As recently as this winter, Eastwood was telling
the Los Angeles Times that “we shouldn’t be bailing out the banks and car
companies.”
Rather,
the Super Bowl ad
infuriates because Eastwood, like so many others before him, gets the story
backward. What’s
wrong with the auto industry is not that it failed to create jobs. What’s wrong
is that it emphasizes jobs over general growth itself.
There’s
a reason they call employment a “lagging indicator.” Jobs
(USCUDETR)
follow growth, but, alas, growth doesn’t always follow
jobs. When
general growth doesn’t yield jobs in a certain sector, it suggests the sector
may not ever produce jobs. Postponing shop closings means prolonging pain for
both employer and employee.
Nothing
makes this as clear as the sorry record of the industry that is the topic of
this commercial.
Back in the early years, in the teens and 1920s, automakers had a goal: profit.
To gain profit, they focused on productivity, the famous assembly line. Yet even
with selfish profit-oriented
ATHENS—The
Greek economy continued to show signs of erosion under the pressure of
government austerity toward the end of last year, marked by an accelerating rise
in unemployment and a deepening slump in industrial production.
Greece's
unemployment rate soared in November to 20.9% compared with an 18.2% rate just a
month earlier and up sharply from one year ago. The total number of unemployed
reached 1.029 million, up by 126,062 from October, the Hellenic Statistical
Authority, or Elstat, reported Thursday.
Greece
also reported that industrial output fell 11.3% in December compared with the
year-earlier period, after declining by 7.8% in November. Austerity measures
introduced last year as part of a €110 billion ($145.87 billion) bailout plan
have taken a heavy toll on Greek economic activity, weighing on consumption and
investments and leading to Greece's fifth year of economic recession in
2012.
Further
cuts demanded by international creditors for a second bailout this year has the
country's unions up in arms. Greece's public and private sector umbrella unions,
ADEDY and GSEE, Thursday called a 48-hour general strike to protest new
austerity measures demanded by the country's international creditors in exchange
for a fresh €130 billion bailout.
With
demand for Greek goods and services from abroad dropping in the last quarter of
2011 and domestic political turmoil in October and November damaging confidence,
economists say deteriorating economic conditions hit the job market in the last
few months of the year.
Greece
is now in the fifth year of a recession that has led to soaring unemployment and
rising business bankruptcies, made worse by tough austerity measures aimed at
narrowing the government budget gap.
Compared with a year earlier, Greece's unemployment situation has deteriorated
sharply.
In
November 2010, the unemployment rate was just 13.9% and
the number of jobless at 692,577. In its 2012 budget, the Greek government
estimates that unemployment will have averaged 15.4% in 2011 and rise to 17.1%
this year.
But
Greece's private-sector umbrella union has predicted that one million Greeks
will have been jobless by the end of 2011, representing a 20% unemployment rate,
and foresees that increasing further this year.
According
to the Elstat data, young people remain the hardest hit by Greece's deepening
recession. A staggering 48% of those aged between 15 and 24 were without a job
in November, a sharp increase from the 35.6% rate recorded a year earlier.
Women
also continued to see fewer job opportunities than men, with the number of
unemployed women at 24.5% in November, compared with 17% a year
earlier. By
region, the highest unemployment rate was in the northern Greek provinces of
Macedonia and Thrace, where the unemployment rate reached 23.8% in November.
In the
Attica region, the
province that includes Athens and is home to about half the country's
population, the unemployment rate soared to 21.1%—versus 19.2%
in October and 13.9% a year earlier.
Write
to Alkman
Granitsas at alkman.granitsas@dowjones.combosses,
and even without unions, workers benefited. In fact, in the teens and 1920s,
hours worked fell even as pay rose. A workday called Saturday became a day off.
The
job growth that Eastwood so longs for now materialized then. Henry Ford singlehandedly
caused a recession in 1927 when he idled his plants to build the Model A, the
Model T’s successor. Unemployment rose. But the country pulled out of the slump
when the Model A’s became available, not when Ford created jobs programs. An
innovation, a car that started with a crank, found new customers. Supply created
its own demand. Then came jobs, for a year or two.
Another
period of automaking was the 1950s and 1960s, when Eastwood appeared in the
series ”Rawhide,” and Westerns like “For a Few Dollars More” and a “A Fistful of
Dollars.” There were jobs in that period. But the jobs were there, just as the
titles of the movies suggest, because of dollars, growth and profits. In 1959,
the year “Rawhide” had its TV debut, real growth in the auto industry was more
than 7 percent, according to Series CA9 of the Millennial Edition of Historical
Statistics of the United
States. In 1966, the year of “The Good, the Bad and the Ugly,” it was 6.6
percent, real.
Scholars
debate the reasons for the growth. One was a lack of competition. In the 1950s,
Germany, Italy, France and the U.K. -- the most
likely competitors -- were still recovering from World War II. For U.S.
automakers, this period was the equivalent of a one-team Super Bowl.
The lack of competition
permitted an emphasis on unions and jobs. Without competition, companies could
afford high wages.
More
recently, though, the emphasis on jobs became expensive. The famous Chrysler
bailout of the 1970s created a hero lionized almost as much as Clint is today:
Lee Iacocca. As Chrysler’s chief executive, Iacocca put jobs front and center.
“I’m playing with live bullets, with people’s jobs and their lives,” he told
reporter Judith Miller in early 1980, after Congress adopted and Jimmy Carter signed
legislation providing more than a billion dollars in loans to the company.
The
jobs that Iacocca and other automobile executives protected were supposed to
save the company and the industry. They didn’t. Supporting a troubled company
like Chrysler merely postponed a crisis. It turned out that the auto industry generally
couldn’t keep jobs even in prosperity. From 2000 to 2008, the year Eastwood
produced and directed “Gran Torino,” an epic movie about the decline of Motor
City, auto manufacturing employment nationally dropped by a
third, according to a report by the Congressional
Research Service.
More
evidence: There are
states where policy emphasizes jobs less and profit more. Those are the
so-called right-to-work states, whose number just increased to
23 from 22. Decade in, decade out, growth in real manufacturing gross domestic
product is stronger in these states than in those without right-to-work laws; so
is growth in nonfarm employment.
It’s
easy to understand why Chrysler and Eastwood, not to mention schoolteachers and
screenwriters, opted to perpetuate the old “jobs above all” myth. It’s the
dominant storyline, so powerful that it obscures reality.
But does it have to be?
Even
as the Super Bowl commercials were being readied, lawmakers in Indiana acted on the evidence
and passed a right- to-work law. Indiana has plenty of union members, and it
hurts to shut out union friends. The governor, Mitch Daniels, came under
ferocious attack for backing this bill. The move took as much guts as any stunt
in a Western. Yet Daniels, a gubernatorial Eastwood, signed the legislation. In
other words, he stared the unions down.
Go
ahead, make my day.
Indiana
needs the growth. Now there’s a storyline for a Super Bowl commercial.
(Amity Shlaes is a Bloomberg
View columnist and the director of the Four Percent Growth Project at the Bush
Institute. The opinions expressed are her own.)
Read
more opinion online from Bloomberg View.
To
contact the writer of this article: Amity Shlaes at amityshlaes@hotmail.com
February 10, 2012
Attention, online shoppers. The days of tax-free online shopping may be coming to an end. More than a dozen states have enacted legislation or rules to force online retailers to collect sales taxes on purchases, according to tax publisher CCH. Similar legislation is pending in 10 states, says USA Today.
Below are the main drivers behind the push for such legislation:
Budget shortfalls.
Heavy lobbying from retailers.
Gridlock.
In 1992, the Supreme Court ruled that states couldn't require retailers to collect sales taxes unless the retailers had a physical presence in the state. Increasingly, though, states have interpreted that requirement to include subsidiaries or affiliates of online retailers, or online retailers with a warehouse or distribution center in the state.
Critics say the measures would force online retailers to collect sales taxes in dozens of states and jurisdictions, with different rates and definitions of which products are taxable. The administrative burden would be particularly difficult for small businesses that sell their products online.
Source: Sandra Block, "Momentum Growing for Sales Taxes on Online Purchases," USA Today, February 9, 2012.
For text:
http://www.usatoday.com/money/perfi/taxes/story/2012-02-08/online-sales-taxes/53015142/1
February 13, 2012
Congress is currently debating whether to
extend throughout the year the payroll tax holiday, which is currently set to
expire at the end of February. Proponents of the holiday argue that the
economic recovery is fragile, that continued short-term stimulus is in order as
a result, and that the payroll tax holiday is particularly effective in this
regard because it puts cash in the pockets of those most likely to spend it.
While there is a certain appeal to this argument, many economists have a
different view of the short-run dynamics of stimulus measures in general and
this payroll tax holiday in particular, says William McBride, an economist at
the Tax Foundation.
The
long-term growth effects of a payroll tax holiday extension are worth
considering as well, as the United States appears mired in a long run of slow
growth.
Personal income taxes on high incomes also have a
significant negative effect on growth, such that cutting the rate by 10
percentage points is associated with an increase in total real GDP growth of 7.5
percentage points over the period. This would bring the United States to
roughly an average level of growth relative to OECD peers.
If lawmakers want to have the biggest impact on
boosting long-term economic growth in the United States, they should turn their
attention to cutting tax rates on corporate and individual
income.
Source: William McBride, "Global Evidence on
Taxes and Economic Growth: Payroll Taxes Have No Effect," Tax Foundation,
February 8, 2012.
For text:
http://www.taxfoundation.org/publications/show/27959.html
ATHENS—After
an epic political effort to pass another harsh austerity program into law,
Greece faces still more tests to secure a new financial bailout as its euro-zone
partners press for swift implementation of the new budget cuts in the face of
intense popular opposition.
Enlarge
Image
Reuters
Greek
Finance Minister Evangelos Venizelos, above left, applauds Premier Lucas
Papademos in Parliament ahead of the vote that passed new austerity measures on
Sunday, as violent clashes gripped Athens.
Getty
Images
Young
people walked amid debris during a demonstration in Syntagma Square in Athens
Sunday. Early Monday, lawmakers approved painful austerity measures that the
country must take to gain a fresh €130 billion bailout.
See
economic, political and markets news from across Europe as governments and
financial institutions deal with the continuing debt crisis.
European
financial markets responded with modest gains early Monday after Greece got a
step closer to receiving a second rescue package to avoid defaulting on its
debts next month.
A next
big step in the cluttered approval process for the aid package is a meeting of
euro-zone finance ministers, tentatively set for Wednesday, to sign off on cuts
contained in Greece's austerity legislation to clear the way for the €130
billion ($171.59 billion) aid deal. A final decision on the new bailout isn't
expected until March.
The
euro rose against most of its major trading currencies.
European stocks opened broadly higher and the cost of insuring euro-zone
government debt against default eased. But market watchers remained
cautious.
"There
is no cause for major relief: In effect parliament only decided not to denounce
further aid payments at this stage," Commerzbank foreign-exchange analysts said
in a note Monday. In particular, the analysts worried whether there would still
be the political will to follow through on reforms when Greece gets a new
government after fresh elections, which could come as early as
April.
As
thousands of protesters clashed with riot police outside, the Greek parliament
overnight approved a deeply unpopular package of spending and wage cuts to fill
demands set by the European Union and the International Monetary Fund for more
aid.
The
package passed by a 199-74 vote, despite defections from the government ranks in
the days leading up to vote.
The two largest Greek
parties—the socialist Pasok and conservative New Democracy—backed the measures,
which include cuts in the budget, pensions and the minimum wage.
The
Wednesday meeting of euro-zone finance ministers could coincide with the release
of a revised assessment of Greece's debt sustainability, followed by the
resumption of talks between Greece and its private-sector creditors to write 50%
off the face value of their Greek bondholdings. A number of euro-zone
parliaments, including Germany's, would then have to sign off on further aid
before it can be paid out.
Germany's
parliament will only vote on a second Greek bailout package after Athens'
official lenders—the EU, the IMF and the European Central Bank, known as the
troika—have presented their report on Greece's debt sustainability.
"We
expressly welcome the decision of the Greek parliament," Chancellor Angela
Merkel's spokesman said, adding the vote shows how Greece is able to take
difficult measures.
Yet
despite Sunday's vote, euro-zone finance ministers are expected to make a final
decision on the €130 billion second rescue program only in early March, finance
ministry spokeswoman Marianne Kothe said.
Furthermore,
a written statement from the leading Greek political parties to support reform
pledges after coming elections remains another prerequisite for the approval of
further aid, she added, with ministers Wednesday evaluating the significance of
the exit of the small, separatist Laos party from the government.
German
Economics Minister Philipp Rösler Monday kept up the pressure on Greece to
follow through with budget reforms in the face of social unrest.
"We
took a step in the right direction, but are still far from the goal," Mr. Rösler
told Germany's ARD television channel. "The implementation of structural reforms
is crucial."
The
vote by Greece's parliament wa a "crucial step" toward winning a second bailout
program from its European partners, European economics affairs Commissioner Olli
Rehn said Monday. However, Mr. Rehn said there is still further work to do for
the new bailout package to be agreed.
"Yesterday's
vote is a crucial step…toward the adoption of the second program," he told
reporters. "I am confident that the other conditions, including…the
identification of the concrete measures of the €325 million will be completed by
the next meeting of the Eurogroup, which will then decide on the adoption of the
program."
Greek
political leaders last week refused to sign up to pension cuts, but identified
measures to find alternative savings. However there was a €325 million shortfall
they must still fill.
Mr.
Rehn warned against Greece leaving the common currency: "[A] Disorderly fault of
Greece would be a much worse outcome, with devastating consequences for
society," he said, "especially [for] the weakest members."
In the
aftermath of the angry clashes in Athens before the vote Mr. Rehn said: "I also
wish to join my voice to the Greek government in condemning the violence that
took place yesterday in Athens," which is in no way representative of the Greek
population as a whole, he added.
Speaking
shortly afterward, Mr. Rehn's spokesman said Greece's political party leaders
still needed to give clear commitments that they will stick to the austerity
measures agreed after an coming election.
"We
expect to receive clear assurances from political party leaders before they
embark on the political campaign for next election," spokesman Amadeu Altafaj
Tardio said.
—Frances
Robinson and Laurence Norman contributed to this article.
Is Democracy the Best
Setting
For Strong Economic
Growth?
WSJ March 13, 2007
Hoping to counterbalance the economic populism of Venezuela President Hugo Chavez, President Bush is on a weeklong tour of Latin America, bearing a message of optimism about democracy, trade and economic prosperity.
But what exactly do we know about the relationship between democracy and economic growth? Economies of less-than-democratic nations such as China have surged in recent years. Does a country's brightening economic picture boost the chance democracy may eventually blossom? Or is it the other way around? Are democratic institutions a key component of long-term economic growth? And what's the role of education?
WSJ.com asked economists Daron Acemoglu of the Massachusetts Institute of Technology and Ed Glaeser of Harvard University to discuss the delicate relationship between economic growth and broader political freedoms.
What do you think? Share your comments on our discussion board.
* * *
[Glaeser]
Ed Glaeser writes: Rich countries are stable democracies. Poor countries tend to be political basket cases, careening between brutal dictatorships and unstable semi-republics. The relationship between democracy and wealth might suggest democracy naturally leads to prosperity. This view is comforting and also gives us another reason to enthusiastically try to export democracy globally.
While I yield to no one in my
passion for liberty, the view that democracy is a critical ingredient for
economic growth is untenable. There is no robust statistical relationship to
back it up, and Robert Barro actually found democracy reduces growth, once he
statistically controls for the rule of law.
It is, however, true that growth rates vary much more under dictatorships than under democracies. Anti-development autocrats, such as Mobutu Sese Seko or Kim Jong Il, are about the worst thing for economic growth, other than civil war. But many of the best growth experiences have been in less-than-democratic regimes that invest in physical and human capital such as Lee Kwan Yew's Singapore or post-Mao China. Some dictators are even better than democrats at restraining the growth-killing practice of expropriating private wealth. I think the relationship between democracy and wealth reflects the power of human capital -- education -- to make countries both rich and democratic. If you put enough smart people together, they'll figure out how to govern themselves and gravitate towards democracy.
* * *
[Acemoglu]
Daron Acemoglu writes: I agree with Ed on many points. In the postwar era, it's true that democracies haven't grown faster than autocratic regimes. Plus, there are clear examples of fast growth under dictatorships; see South Korea under Gen. Park Chung Hee. So, why haven't democracies been more successful? I believe the answer lies in recognizing two things. First, there are different kinds of democracies. And second, it's important to consider that economic growth and democracy have a very different relationship over the long term -- that is for periods as long as 100 years -- than over the short or medium term.
Article
From Education to
Democracy?
http://econ-www.mit.edu/faculty/download_pdf.php?id=1189
Many societies counted as "democratic" using standard measures are really "dysfunctional democracies" where traditional elites dominate politics through control of the party system, political influence, vote buying, intimidation and even assassination. Colombia, which has had regular democratic elections for the past 50 years, is a typical example. In others, democratic institutions survive, but there is significant in-fighting between ethnic groups, religious groups or social classes. The situation in Iraq would be the most extreme -- but not a unique -- example. Finally, many democracies suffer economically from populist and irresponsible macroeconomic policies, which are often adopted after transitions from repressive dictatorships and during periods when politics are turbulent and conflicts over wealth distribution are strong.
On the second point, it's true that autocratic regimes can generate growth for certain periods of time by providing secure property rights and good business conditions to firms
Entrepreneurs
are my heroes because of their optimism. Instead of seeing problems, they see
opportunities. And "enviropreneurs" can give us cause to celebrate the future of
our planet by finding ways to ameliorate or solve environmental problems.
But
we'll have to beware of environmental Luddites who can thwart even the best of
positive steps. Like their 19th-century counterparts who opposed
industrialization by destroying machines, they see solutions as
problems.
Consider
the recent story on CBS's "60 Minutes" showing the proliferation of exotic and,
in some cases, endangered African wildlife on Texas ranches. These ranches have
switched from raising cattle to raising wildlife. As a result, Texas now has
more than a quarter million exotic animals, mostly from Africa and Asia, of
which three—the scimitar-horned oryx, the addax, and the Dama gazelle—have been
brought back from the brink of extinction.
Some
ranchers made the switch because they liked having exotic wildlife on their
property, but if wildlife ranching was to be sustainable, ranchers had to find a
way to make it pay. And it is paying because hunters are willing to fork over as
much as $50,000 for a hunt. Moreover, these forays are not at all like "shooting
fish in a barrel." The bush is thick and the ranches large enough so that not
every hunter goes home with a trophy.
A
similar business model is at work in Africa where landowners in South Africa and
Namibia, who could barely eke out a living with livestock grazing, are
sustaining wild game populations on their land for a profit. They market the
wildlife to hunters, photo safaris and other ranchers wanting wild stock for
their land.
As
South African economist Michael 't-Sas Rolfes points out, "Strong property
rights and market incentives have provided a successful model for rhino
conservation, despite the negative impact of command-and-control approaches that
rely on regulations and bans that restrict wildlife
use."
Who
could be opposed to environmental entrepreneurship that has successfully
propagated endangered species, even if a few animals are hunted so that the
populations will be sustained? Priscilla Feral, president of Friends of Animals,
is one. She condemns having African animals on U.S. soil.
Though
the scimitar-horned oryx went extinct in Africa, Ms. Feral believes the species
found on Texas ranches should only live on African reserves, which are neither
natural (many of them are fenced) nor sustainable. "I don't want to see them on
hunting ranches," Ms. Feral said on "60 Minutes" on Jan. 29. "I don't want to
see their value in body parts. I think it's obscene."
Unfortunately,
environmental Luddites often prevail by using the power of government.
For years the U.S. Fish
and Wildlife Service lauded Texas ranchers for their conservation efforts,
saying in the Federal Register in 2005, that "Hunting . . . provides an economic
incentive for . . . ranchers to continue to breed these species" and that
"hunting . . . reduces the threat of the species' extinction."
Now,
however, the U.S. Fish and Wildlife Service must require a permit to hunt three
endangered antelope species thanks to a lawsuit decided in federal district
court for the District of Columbia, led by Ms. Feral using the Endangered
Species Act.
Everyone
agrees that obtaining these permits will be virtually impossible—based on
similar past experience, they're very hard to get, and they're also subject to
objections by groups like the Friends of Animals. As a result, Charly Seale, a
fourth-generation rancher and the executive director of the Exotic Wildlife
Association, speculates that there will be half as many of these antelope in
five years and none in 10 years.
If
enviropreneurs are thwarted at every turn by environmental Luddites, we have
reason to be pessimistic about our environmental future. Instead of celebrating
the fruits of human ingenuity, we will have to watch wildlife and its habitat
suffer. In this political season, let us hope that some leaders are willing to
unshackle entrepreneurs from the red tape of governmental regulation, not just
for the sake of the economy, but for the sake of nature,
too.
Mr.
Anderson is the executive director of the Property and Environment Research
Center (PERC) in Bozeman, Mont., and a senior fellow at Stanford University's
Hoover Institution.
Forty
years ago this week, leaders from the United States and China broke decades of
estrangement and ushered in a new era of relations between the two countries.
That act of enormous courage and wisdom changed the world forever.
Now,
on the eve of the 40th anniversary of Nixon's historic visit to China, and as
Vice President Xi Jinping embarks on an important visit to the U.S., never
before has there been such urgency to move the relationship forward to solve the
many common challenges we face.
Today,
whether the subject is nonproliferation of nuclear weapons, energy security,
climate change, global economic recovery or financial stability, China and the U.S. have a common
interest in working together on these and other transnational challenges.
Yet
barriers on both sides prevent the relationship from fully developing. In China,
many citizens and leaders question America's commitment to China. In America,
nearly 60% of its people say they feel threatened by China's economic progress,
according to a recent CBS News/New York Times poll.
In
reality, these concerns overlook the substantial benefits both countries have
received as a result of increased economic and trade cooperation.
Inexpensive
products imported into the U.S. from China have kept inflation low, saving the
average American household $1,000 each year, according to an Oxford Economics
study. China's investment of its surpluses into U.S. Treasury bonds has also
lowered American interest rates.
The
decline of America's manufacturing industry took place long before China's
economic rise, and there are dozens of developing countries ready to replace
China in manufacturing these goods. This is globalization at
work.
Furthermore, U.S. exports to China have risen at
an astonishing pace, growing at a compound annual rate of 35%, a trend that is
set to continue. The U.S. Export-Import Bank estimates that for every $1 billion
in exports to China from the United States, 8,000 new jobs are
created.
The
Chinese market presents a tremendous opportunity to American businesses.
Brand-name American companies such as UPS, KFC, McDonalds, Wal-Mart and many
others operate freely in China, and have won substantial market shares and
become household names. The continued growth of the Chinese middle class, and
the government's focus on domestic consumption, will present new opportunities
for these companies and for others.
In
addition, the U.S. government has announced plans to attract more Chinese
tourists. A record number of tourists from mainland China visited the U.S. in
the first 10 months of 2011, a 36% year-over-year increase. In 2010, Chinese
tourists spent $5 billion in the U.S. The International Trade Administration of
the Department of Commerce has estimated that for every one million additional
Chinese tourists, at least 100,000 new jobs can be
created.
With
regard to the value of the yuan, the last four years have seen a 20%
appreciation in the currency, and Chinese manufacturing workers have received
substantial salary increases. These factors, together with increased imports,
have caused the trade- and current-account surpluses in China to rapidly
diminish.
To be
sure, there are areas where China can improve. On intellectual property protection,
we need to do better. The Chinese government has committed the
nation to do this. This is not only a promise made to the world; it is also in
China's own national interest.
The
U.S. and China share a symbiotic, mutually beneficial and inextricably linked
economic relationship that both countries benefit from greatly. This
relationship is not a zero-sum game. A vigorous America is good for China. A
successful China is good for America.
As we
look forward to what the U.S. and China can achieve during Vice President Xi
Jinping's American visit this week, I believe he will bring with him the
goodwill and the friendship of the people of an entire nation.
Like
other senior leaders in China, Vice President Xi is broad in his outlook and
takes long-term views in pursuit of objectives. Through his experience running
large provinces, he is adept at formulating and implementing macroeconomic
policies, and he is familiar with the challenges of governing. Above all, he is
sensitive to the needs of the people and has placed improving people's
livelihoods at the center of the government's agenda.
Let us
hope that the vice president's visit to America will boost this important
relationship to a new level of collaboration and partnership, so that the
peoples of the two countries, and the world at large, can all share in the
greater benefits of enhanced cooperation.
Mr.
Tung is founding chairman of the China-United States Exchange Foundation, and
vice chairman of the National Committee of the Chinese People's Political
Consultative Conference (CPPCC).
So
Mitt Romney doesn't "care about the very poor." But what about the rest of the
American political class who jumped all over him for his recent gaffe? Its loud
protestations aside, how truly interested is Washington in reducing
poverty?
That
question occurred to me during an interview with Puerto Rican Gov. Luis Fortuño
here 10 days ago. If
his plan to boost the island's competitiveness by switching electricity
generation from oil to natural gas is to succeed, he's going to need relief from
the pernicious 1920 Jones Act. It prohibits any ship not made in the U.S.
from carrying cargo between U.S. ports. There are no liquefied-natural-gas (LNG)
tankers made in the U.S. Unless Puerto Rico gets a Jones Act exemption, it
cannot take advantage of the U.S. natural gas bonanza to make itself more
competitive.
The
Jones Act is good if you are a union shipbuilder who doesn't like competition,
or a member of Congress who takes political contributions from the maritime
lobby. But it's bad if you are a low-income Puerto Rican who needs a job. And
there are plenty of those.
Puerto
Ricans are American citizens but they are significantly poorer than the rest of
the country. Per capita income on the island in 2010 was roughly $16,300
compared to just over $47,000 for the nation as a whole.
Life
on the island is also expensive, in part because of the high price of
electricity, 68% of which is produced using imported oil. The governor's office
says that the price of electricity here went up 100% from 2001 to
2011.
Enlarge
Image
Associated
Press
Gov.
Louis Fortuño's efforts to reduce Puerto Rico's high electricity prices are
opposed by environmentalists.
Mr.
Fortuño made a name for himself by refusing to raise taxes when he inherited a
welfare-state basket case in 2009. Instead he eliminated 21,000 government
jobs—13% of the total central government work force—cut taxes and began
aggressively deregulating. For the record, he did impose a temporary excise tax
(set to expire in 2016) on multinational corporations because, he says, Puerto
Rican companies pay much higher rates and it was the only fair way to spread the
pain during the fiscal emergency.
His
reforms have paid off. In a ranking of budget deficits as a percentage of
revenues with the 50 states, the island now places 15th, up from 51st three
years ago, according to the governor. Unemployment is "down" to 13% from a high
of almost 17% in July 2010 and after six straight years of economic contraction,
Mr. Fortuño expects 2012 economic growth to be 1%-1.25%. With
the U.S. economy expected to grow at only around 2.5%, he says that will put
Puerto Rico close to its long-term historical relationship with the mainland.
His polls show it might even be enough to get him re-elected in November,
something that he admits looked impossible only one year
ago.
The
governor knows that Puerto Rico ought to be growing faster than the national
economy, and he recognizes that won't happen unless he can make it a more
promising destination for capital. His tax cuts and regulatory
streamlining have had some effect. The Economist Intelligence Unit reported in
November that it expects gross fixed investment to "rebound by a modest 2% in
2011-12, the first growth in several years." But Puerto Rico needs
more.
Public-private
infrastructure projects may help: A $1.5
billion toll-road concession from San Juan west to Hatilo and Aguadilla;
public-private partnerships in education bringing $878 million to the island for
the modernization of 100 schools; and bidding is now under way for a concession
to modernize the Luis Muñoz Marín Airport in San Juan.
But
bringing down high energy costs remains a fundamental challenge, and one that is
exacerbated by new costly federal regulations on emissions that would require
the installation of scrubbers on oil-fired electricity plants. To meet those regulations affordably,
Mr. Fortuño wants to convert the island's oil-fired plants to cheaper, cleaner
natural gas. To that end, he proposes a pipeline from the southern LNG terminal
at Punta Guayanilla across the island to San Juan. The U.S. Army
Corps of Engineers has assessed the proposal and said it would produce no
significant environmental impact.
It
sounds like a plan to help the poor and unemployed. There are only two problems.
First, the Sierra Club and local environmentalists have ginned up fears about
the project and promised to sue to stop construction. Second, the Jones Act is
still in the way.
The
governor admits that his administration could have done a better job
communicating the pipeline plan to Puerto Ricans, but he also points out that
"some of the same groups that have opposed the pipeline have also opposed
wind-power and solar projects. They are opposing everything, including
waste-to-energy" projects which he maintains are less polluting than landfills.
Mr.
Fortuño says that he expects Washington to give him a carve-out for LNG tankers,
but he doesn't have it yet. He also says that a large part of the
environmentalist push-back is political, suggesting to me that he ought to be
more worried than he is. This kind of politics needs to preserve the status quo
of the welfare state. And that implies blocking Mr. Fortuño's development agenda
no matter what it means to the poor.
Write
to O'Grady@wsj.com
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February
12, 2012 7:25 pm
http://www.ft.com/intl/cms/s/0/3ee53014-531b-11e1-950d-00144feabdc0.html#ixzz1mDyMBd4X
When
rumours spread recently that Mexico’s antitrust body would block a media group’s
purchase of a 50 per-cent stake in a small telecoms operator, it seemed that the
door had slammed shut on the country’s highly-concentrated telecoms market,
which is dominated by billionaire
Carlos Slim and his Telcel group.
Last week though, that door edged open a
little. The Federal Competition Commission (Cofeco) denied Televisa’s
$1.6bn acquisition of Iusacell,
which has about 5 per cent of the mobile market. However, it did say that it
might approve the deal on appeal if the two companies could provide solutions to
several of its concerns.
The ruling
keeps alive the possibility of fostering more competition in Mexico’s
$35bn a year telecoms sector, long considered bereft of powerful companies to
take on 72-year-old Mr Slim, who dominates the industry with 70 per cent of the
mobile market through Telcel. Movistar, owned by Spain’s Telefónica,
is a distant second with about 20 per cent of the
market.
“The deal is a critical element in changing the
telecoms ecosystem,” says Ernesto Piedras, director-general of the Competitive
Intelligence Unit (CIU) in Mexico City. “And if it doesn’t change, the consumer
will lose.”
The
Organisation for Economic Co-operation and Development last month criticised the
lack of competition as leading to an “inefficient” Mexican telecoms
sector. Critics of Mr Slim, who made
much of his $63bn fortune – as estimated by Forbes – through his telecoms
businesses, say that his dominance has led to unnecessarily high prices and a
lack of competition. Mr Slim disputes this, arguing that his company has
invested billions of dollars in modernising Mexico’s telecoms infrastructure,
and that prices are reasonable.
Televisa, headed by Emilio Azcarraga Jean is
just the sort of powerful company that many observers would like to see go
head-to-head with Mr Slim. The company, which has annual sales of about $4.7bn,
enjoys its own dominance in another industry with an estimated 70 per-cent share
of Mexico’s commercial free-to-air broadcasting market, making Televisa the
world’s largest Spanish-language media company by revenue.
But it is precisely that broadcasting dominance
that is proving to be the obstacle in Televisa’s bid for Iusacell.
Cofeco denied Televisa an immediate purchase of
the mobile operator over concerns about its effect on competition in television
advertising. Iusacell is controlled by Ricardo Salinas Pliego, who would retain
a 50 per cent stake in Iusacell, and also controls Azteca,
Mexico’s second-largest broadcaster.
Add
their market shares together and Televisa and Azteca control virtually all of
Mexico’s commercial free-to-air broadcasting. Cofeco is concerned that an
alliance between the two – even in a different market – could have the knock-on
effect of diluting their competitive relationship in broadcasting; a worry that
underscores the oligopolistic nature of many industries in Mexico, not just
telecoms. Mr Slim has been trying for years to gain permission to
enter the TV market but the government has so far turned him down,
fearing this would make him too powerful. However, many analysts hold out hope that a
Televisa/Iusacell deal can still be struck. José Manuel Mercado, a senior
analyst at Pyramid Research, a US-based telecoms consultancy, argues that
Televisa and Iusacell, which have until March 15 to appeal, have several
options.
Those include modifying the proposed 50-50
share ownership of Iusacell between Televisa and Mr Salinas Pliego and excluding
Totalplay, a relatively new Iusacell service offering Mexicans a “triple-play”
of internet, telephone and television, from the deal. Totalplay competes with
Cablevision, owned by Televisa.
“It may take a while but there are many reasons
for thinking that the deal will eventually go through,” says Mr Mercado.
Analysts have also pointed out that Cofeco’s
split decision – three commission members against and two in favour – means that
the companies only have to persuade one more member for the deal to get the
green light.
Even so, some analysts question the deal’s
potential impact on the telecoms market. Mr Mercado notes that even if
Televisa’s involvement produced a doubling of Iusacell’s 5.2m roughly subscriber
base, the company would still be a minnow compared with Telcel’s 68m
subscribers.
Moreover, the structure of the deal means that
Televisa is now committed to Iusacell, regardless of Cofeco’s final decision,
argues Tomás Lajous, a UBS analyst. This is because Televisa has already handed
the $1.6bn asking price to Iusacell in the form of debt convertible into equity
upon approval of the deal. But the debt has no maturity which means that
Televisa cannot just walk away from the deal with its money if it is not
approved.
“The Iusacell investment really is kind of like
equity either way,” concluded Mr Lajous in a recent research note. Eduardo Ruiz
Vega, director of regulatory compliance at Iusacell, insists that regulatory
approval would make a profound difference, in effect converting the debt into a
vital company asset. With Televisa holding half the company’s shares, “it would
give Iusacell an injection of oxygen” needed to keep growing, he told the
Financial Times.
Mr Piedras of the CIU agrees. With Televisa’s
involvement formalised, it would bring one of Mexico’s most powerful companies
into direct competition with Mr Slim in the arena of mobile telephony. “It may
not lead to a change overnight,” admits Mr Piedras. “But it’s an important
start.”
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Indonesia is
flavor of the month among foreign manufacturers, but policy makers can't afford
to become complacent. A labor law from 2003 remains on the books, restricting
companies' ability to hire and fire. This has given unions inordinate power
to disrupt operations, demand large wage increases —and diminish Indonesia's
attractiveness to would-be foreign investors.
Worker unrest
has risen over the past year, and a major union strike has finally alarmed
Japanese, Korean and Taiwanese representatives enough to file complaints to the
government this month. Unions angry with a court's cancellation of a
minimum-wage increase rallied on Jan. 27 and cut off access to a major toll road
in West Java. As workers walked off the job, 3,000 factories in the area came to
a halt. The South Korean Embassy complained that Korean properties were
vandalized. Japan, Korea and Taiwan are the largest investors in Indonesia's
labor-intensive businesses.
Foreign investors
have been spooked by the government's capitulation to union pressure. The Jan.
27 mayhem had central-government ministers scrambling to negotiate with workers.
Meanwhile, unions in a district in Banten province were encouraged to threaten
strikes. Both local governments then forced employers to grant a 30% wage
increase in one district and 36% in the other. Indonesian consumer prices are
rising 3.7% year-on-year.
Enlarge
Image
Reuters
Protesters from
Freeport-McMoRan Copper & Gold Inc's Grasberg march during a demonstration
in Timika of Indonesia's Papua province October 10, 2011.
The 2003 Manpower Act set the stage for this unrest.
Along with other benefits, employers can be liable to pay 32 months' wages as
severance, which makes them think twice about firing
workers. Meanwhile, unions are
growing in number—and hence voice—because the law allows them to be established
easily. Another fault with the 2003 act is that businesses can't negotiate wages
directly with unions—the government is given the role of intermediary in what is
supposed to be a "tripartite process." As last month showed, however, employers
(particularly foreign ones) often have no voice, as governments respond directly
to unions and compel companies to hike wages.
These
regulations are so strict that most local employers just don't hire permanent
employees. Some 92% of Indonesians work in the informal economy or in an
intermediate status under short-term contracts. In January, a court ruled that contract-based
workers had to be paid the same wages as permanent employees, which could now
threaten even contract work.
President Susilo
Bambang Yudhoyono put reform of this law on his government's agenda when he
assumed office in 2004. He backed down two years later after strong opposition
from trade unions. The issue has been relegated in recent years as growth and
investment soared.
Last month's
strikes may have finally created a sense of urgency, and policy makers are again
making noises about overhauling the labor code. But investors may lose patience
if Jakarta kicks the labor-deregulation can down the road once more. One of
Indonesia's draws is its young and large population. It's time the
government allowed businesses to unlock that
potential.
Following 12 straight years of declines, U.S.
manufacturers added 109,000 workers to their payrolls in 2010 and another
237,000 in 2011. And in January of this year, the number of manufacturing jobs
increased by 50,000.
Yet this vibrant sector is being held back—and not by
imports. Instead there is a serious labor shortage. In an October 2011
survey of American manufacturers conducted by Deloitte Consulting LLP,
respondents reported that 5% of their jobs remained unfilled simply because they
could not find workers with the right skills.
That 5% vacancy rate meant that an astounding 600,000
jobs were left unfilled during a period when national unemployment was above 9%.
According to 74% of these manufacturers, work-force
shortages or skills deficiencies in production positions such as machinists,
craft workers and technicians were keeping them from expanding operations or
improving productivity.
A majority of U.S. manufacturing jobs used to involve
manual tasks such as basic assembly. But today's industrial workplace has
evolved toward a technology-driven factory floor that increasingly emphasizes
highly skilled workers.
As Ed Hughes, president and CEO of Gateway Community and
Technical College in Kentucky, accurately described the trend, "In the 1980s,
U.S. manufacturing was "80% brawn and 20% brains, " but now it's "10% brawn and
90% brains." This new trend, widely known as "advanced manufacturing," leans
heavily on computation and software, sensing, networking and automation, and the
use of emerging capabilities from the physical and biological sciences.
Enlarge
Image
Getty
Images
Faced with the shortage of skilled workers, manufacturers
have begun joining with high schools, trade schools, community colleges and
universities to train men and women with the right skill sets. In-house
apprenticeship programs, a staple of the past, have largely disappeared,
according to Dr. Peter Cappelli, director of the Wharton School's Center for
Human Resources. They're too costly and time-consuming. Instead, he notes,
companies are seeking out "just-in-time" employees who are already technically
trained and ready to hit the ground running.
As one solution, the National Association of
Manufacturers (NAM) has endorsed a national Manufacturing Skills
Certification System developed and administered by the Manufacturing
Institute, a nonprofit affiliated with NAM that operates as part think tank and
part solutions center. Seventeen states have national philanthropic funding for
deploying the Manufacturing Skills Certification System, and 18 states have
grass-roots efforts and strategic partnerships advocating deployment.
In June 2011, President Obama announced a national goal
of credentialing 500,000 community-college students with skill certifications
aligned to American manufacturers' hiring needs, citing the Manufacturing Skills
Certification System as a model.
The Manufacturing Institute has so far developed
credentials for advanced manufacturing in Production, Machining &
Metalworking, Welding, Technology & Engineering, Automation, Die Casting,
Fabrication, Fluid Power, and Distribution & Logistics. It's also developing
new certification programs in Aviation & Aerospace, Bioscience and Energy.
Recently, the Manufacturing Institute piloted a "Right
Skills Now" accelerated program with the private, nonprofit Dunwoody College of
Technology and South Central Community and Technology College, both in
Minnesota. It focuses on career training in critical machining skills in a
24-week training period. There's a great need for more such programs around
the country.
The private-sector driven Manufacturing Skills
Certification System, embracing private-public partnerships with community
colleges and trade schools, offers a relatively inexpensive path to meet the
human capital demands of U.S. advanced manufacturers.
Output in manufacturing expanded by 4% in 2011, more than
twice the 1.7% overall growth rate of the U.S. economy. For manufacturers to
continue this remarkable expansion, it's critical that our shortage of skilled
workers be addressed.
We cannot afford to let this economic opportunity slip
away.
Mr. Hemphill
is professor of strategy, innovation and public policy at the University of
Michigan, Flint, and Mr. Perry is a scholar at the American Enterprise
Institute.
There
is no shortage of Latin American politicians, who, having been staunch advocates
of the war on drugs during their time in power, suddenly find enlightenment
about the futility of drug prohibition once they leave office.
Guatemalan
President Otto Pérez Molina is
the opposite. During his campaign for president last fall he talked about
escalating the drug war. Now, weeks into his presidency he is talking up legalization as the
only way to reduce violence, and he is trying to rally other Latin American
governments to join him in challenging the doomed U.S. policy.
In an
interview at the national palace here earlier this month, Mr. Pérez Molina told
me that he believes at least some of his counterparts in the region are ready to
join him in pressuring Washington to rethink an agenda that has fueled a boom in
criminality in their countries while doing nothing to contain American drug
consumption.
"The
president of Mexico [Felipe Calderón], after five years of the effort he has
made, has told me that he believes we have to sit down and talk seriously about
decriminalization in order to find an alternative approach." The president of
Colombia [Juan Manuel Santos] "has more or less" the same view, Mr. Pérez Molina
said.
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Getty
Images
President
Otto Pérez Molina of Guatemala
It is
notable that the rhetoric we are hearing against the drug war is not coming from
anti-American, left-wing demagogues trying to promote populist, nationalist
ideals by stirring up the mob. Today's most vocal proponents of a
change in regional drug policy are center-right governments. Their proposals are
driven by observing 40 years of failure.
Mr.
Pérez Molina puts it this way: "What I have seen is that we do not have the
necessary forces nor the capacity to reduce drug trafficking." Take the case of Colombia: "Everyone
talks about how the big cartels have disappeared. But they have multiplied into
small cartels, and the drugs keep coming out of Colombia. If in
so many years we have not managed to achieve the desired results, we have to
think about how we have failed and about a different approach."
For
now, Mr. Pérez Molina says he will try to raise the cost for traffickers of
passing through Guatemala. He is deploying the military along key transit
routes—in the Péten jungle and on the Suchiate River—with the goal of forcing
the gangsters to use other pathways to the north.
"In
Mexico, he says, "the cartels must control the territory because it is obvious
that they need it to reach and get across the U.S. border. Here in Guatemala
things are different, because [traffickers] can look for an alternate route.
They are agile, and when there is pressure in one place they shift to another."
Since Guatemala has increased the pressure, the president says, they "now find
the north of Honduras easier."
To be
sure, not all crime here is a direct result of drug-trafficking cartels.
But the violence has a
connection to cartel activity because the presence of powerful
mafiosos implies a collapse of the state, a
breakdown of institutions, an increase in impunity and, therefore, an expansion
of all crime. To get an idea of how bad things have gotten, consider that the
murder rate here in 2011 was 41 per 100,000 inhabitants versus 20 per 100,000 in
Mexico.
Get the latest information in Spanish from
The Wall Street Journal's Americas page.
Re-establishing
state authority in urban areas is key to bringing down the nation's high rates
of homicide, extortion and kidnapping. To attack these problems the president
says that he will add 10,000 recruits to the police force of 25,000 over the
next four years and create an oversight unit designed to monitor police
activity. A special
task force and a new special prosecutor will target criminal rings operating out
of prisons, where an estimated 60%-80% of extortions originate.
There will also be more money in the judiciary budget.
Restoring
order is, on some level, a matter of political will, and Mr. Pérez Molina says
he is committed to personally monitoring the effort to recover public trust in
institutions. Until now, he says, "there has been a great lack of
confidence in which the people say don't go to the police to make an accusation
because [the police] are protecting the extortionists." In this environment,
gangsters feel free to demand payments from individuals across the
socio-economic spectrum. Bus drivers have been favorite targets and those who
won't pay end up dead.
The
president's ideas sound like progress. Yet he admits that drug money will remain
a problem. "They have every opportunity to penetrate and corrupt the police,
prosecutors and judges, and it gets into other institutions" as well. Money
laundering, he points out, means banking systems are also corrupted.
The
president says that "as long as you maintain the demand there will be supply,"
but that's not his only gripe with the U.S. It identifies the cartels and thugs
in Latin America. But "who in the U.S. is receiving and distributing the drugs,"
he asks, and why don't we ever hear about them? Mr. Pérez Molina is not the only
Latin American who wants to know.
Write
to O'Grady@wsj.com
February
26, 2012
Hauser's
law is one of the stranger phenomenons in economic data. It was
originally proposed by Kurt Hauser, who observed back in 1993 that:
No
matter what the tax rates have been, in postwar America tax revenues have
remained at about 19.5% of GDP.
We
decided to put Hauser's Law to the test to see if it holds up. To do that, we
turned to the National Taxpayers Union, which maintains a
table showing the level of the topmost marginal income tax rates for
individuals from 1913 through the present. Looking just at the postwar period,
we find that the marginal tax rate that applies for the U.S.' uppermost income
tax bracket has ranged from a high of 92% in 1953 and 1954 to a low of 28% from
1988 through 1990. The current top rate is 35%, which is scheduled to increase
after 2010 to 39.6% when the tax cuts of the 2003 Jobs
and Growth Tax Relief Reconciliation Act expire.
We
next turned to the Table 1.2 Summary of Receipts, Outlays, and Surpluses or
Deficits as Percentages of GDP: 1930-2014, which is produced by the
White House's Office of Management and Budget, since this Excel spreadsheet
contains both the amount of total federal government tax revenues (aka
"receipts") and the value of GDP for each of our years of interest, including
forecasts for these values from 2009 through 2014.
But
that's not all. It occurred to us that those total tax receipts include money
from a lot more tax sources than just personal income taxes. Things like Social
Security taxes, Medicare taxes, corporate income taxes, capital gains and excise
taxes all contribute to the governments total tax collections. We wanted to also
see how changing the individual income tax rates affected personal income tax
collections, so we extracted the historic
data on personal income tax collections provided by the Center on Budget
and Policy Priorities through 2003, updated with data from the IRS for 2004, 2005
and 2006, the most recent year for which we could obtain
the data and calculate the corresponding percentage share of GDP.
What
we find in looking at the lower chart is that the federal government's tax
collections from both personal income taxes and all sources of tax revenue are
remarkably stable over time as a percentage share of annual GDP, regardless of
the level to which marginal personal income tax rates have been set.
We
also find that both total and personal income tax receipts appear to follow a
normal distribution with respect to time. We calculate that personal income tax collections as a
percentage share of GDP from 1946 through 2006 has a mean of
8.0%, with a standard deviation of 0.8%, which we've indicated
by the horizontal orange band on the chart. We would expect that annual personal
income tax collections would fall within the range indicated by the orange band
some 68.2% of the time. We've also indicated upper and lower limits for personal
income tax receipts, which correspond to the mean value we observe plus or minus
three standard deviations, as we would expect personal income tax collections in
any given year to fall within this range some 99.6% of the time.
Likewise,
we see a similar pattern in total tax receipts. Here, we observe
that total tax
collections as a percentage share of annual GDP over the historic and forecast
period have a mean value of 17.8% with a standard deviation of 1.2%.
We
also observe that the three periods in which the federal government's tax
receipts have risen above the orange bands marking a one-standard deviation
difference from the mean value, each of which coincide with unusual
circumstances, which we've indicated in the double chart with the light green
vertical bands:
Now,
what about those other taxes? Zubin Jelveh looked at the data back in 2008 and found that as
corporate income taxes have declined over time, social insurance taxes (the
payroll taxes collected to support Social Security and Medicare) have increased
to sustain the margin between personal income tax receipts and total tax
receipts. This makes sense given the matching taxes paid by employers to these
programs, as these taxes have largely offset a good portion of corporate income
taxes as a source of tax revenue from U.S. businesses. We also note that federal
excise taxes have risen from 1946 through the present, which also has
contributed to filling the gap and keeping the overall level of tax receipts as
a percentage share of GDP stable over time.
More
practically, Hauser's Law provides a method we can use to anticipate the likely
range for how much money the U.S. government will collect in any given year,
from just personal income taxes or in total, given that year's level of
GDP
Here is a piece on "economics and
morality" that struck me as thought provoking.
For an operational/analytical
definition of "economic development" I prefer: "An expanding range of available
opportunities" (not my definition) --the operative word being
"avialable".
bd
January 11, 2006
Is
Economic Growth Morally Uplifting?
By Robert
Samuelson
WASHINGTON
-- What's the dominant religion of the past 100 years? The answer isn't
Christianity with its 2.1 billion followers or Islam with its 1.3
billion. It's the idea of economic growth,
the
Church of GDP. Countless countries have embraced rapid
growth as a cure to their ills. Getting richer is now an almost
universal craving. And yet, the worship of growth inspires enormous
ambivalence. It is widely seen -- especially in wealthy societies -- as morally
corrupting: the mindless pursuit of materialism (do flat-panel TVs make us
better off?) that drains life of spiritual meaning and also wrecks the
environment.
Exactly wrong, says Benjamin Friedman.
Friedman, a Harvard economist, has written
a hugely provocative book (``The Moral Consequences of Economic
Growth'')
arguing that rapid growth is morally uplifting. ``Economic
growth -- meaning a rising standard of living for the clear majority of citizens
-- more often than not fosters greater opportunity, tolerance of diversity,
social mobility, commitment to fairness, and dedication to democracy,'' he
writes. Further, the opposite is true. Poor growth feeds prejudice, class
conflict and anti-democratic tendencies.
Look at history, he says. In the United
States, exploding economic growth after World War II coincided with a broad
expansion of rights for women, blacks and the poor. During the prosperous
Progressive Era, from roughly 1895 to 1919, the ``idea of mass high school
education first took hold.'' In 1912, the federal government created a
Children's Bureau to discourage child labor. In the same year, Congress passed
the 17th Amendment switching the election of senators from state legislatures to
popular vote. In 1919, it passed the 19th Amendment giving women the vote.
Good times often played out similarly in
Europe. From 1850 to 1870, Britain's per capita incomes rose 35 percent. In
1870, the government opened civil service jobs -- until then reserved ``for
candidates with family connections'' -- to competitive testing. Comparable
reforms broadened the military's officer corps. Religious tolerance improved; no
longer was membership in the Church of England required to teach at Oxford and
Cambridge. After the Franco-Prussian War of 1870, France also prospered: in
1875, it adopted universal male voting; in 1881 and 1882, it embraced compulsory
schooling up to age 13.
Nazi Germany is, of course, the classic
case of the converse: that growth's absence is morally destructive. From 1929 to
1932, German industrial production dropped 42 percent; in 1932, unemployment was
44 percent. The rest is history.
People, Friedman argues, instinctively
compare themselves to ``two separate benchmarks: their own (or their family's)
past experience, and how they see people around them living.'' When living
standards rise rapidly, more people feel optimistic, unthreatened and tolerant.
Economic growth isn't mainly about greed.
Case closed? Well, not exactly.
One problem is that Friedman's meticulous
scholarship unearths much contrary evidence. In the United States, the Great
Depression didn't diminish democracy; instead it ``fostered a broader commitment
to opportunity and mobility for all citizens.'' Britain passed momentous reforms
(unemployment insurance, old-age pensions) from 1908 to 1911, a period of weak
growth. Among poorer countries, many (Chile, South Korea, China) achieved rapid
growth under authoritarian regimes, though Chile and South Korea are now
democratic.
Up to a point, Friedman's moral case for
economic growth is solid. True, growth alone rarely creates happiness. Beyond a
certain income, happiness depends on family relationships, a sense of belonging,
personal beliefs. But growth sure can cure misery. In the 1700s, life
expectancy in France was 25 years, and about 30 percent of infants died before
their first birthday. Now, life expectancy in advanced countries is almost 80,
and infant mortality is usually less than 1 percent.
Anyone who
cares about world poverty must favor economic growth.
Another moral plus: societies whose
politics focus on the sharing of prosperity can promote their own stability.
First,
everyone can win. Second, though remaining economic
conflicts can be nasty, they're easier to mediate than religious or ethnic
differences -- where one side must face eternal
damnation or discrimination. It's no accident that the United States and Britain
are the oldest successful democracies.
But Friedman mostly misses the real growth
predicament facing most advanced societies. It's not environmental spoilage. As
he notes, most rich societies protect their environments through tougher
anti-pollution regulations. In the last two decades, U.S. emissions of sulfur
dioxide are down 54 percent, he reports. Whether global warming breaks this
environmental truce remains to be seen.
The immediate dilemma involves the welfare
state. It requires fast economic growth to generate the income and government
revenues to pay all the promised benefits. But the mounting costs of those
benefits -- especially as populations age in the United States, Europe and Japan
-- may stifle growth through higher taxes and budget deficits. If so, the
welfare state may cause the stagnation and strains against which Friedman warns.
Author’s
book ignores history and unfairly pits white, blue collar folks against each
other
Posted:
Saturday, February 25,
2012 6:00 am | Updated: 10:11 pm, Fri Feb 24, 2012.
WASHINGTON
— In 1924, the sociologist couple Robert and Helen Lynd arrived in a small
Midwestern city they called Middletown (it was Muncie, Ind.) to study and survey
the place. Their classic 550-page “Middletown” described a community starkly
split between a “working class” (factory workers and laborers totaling 71
percent of the population) and a “business class” (owners, managers and
professionals comprising 29 percent). This division, the Lynds wrote, was
Middletown’s “outstanding cleavage” and influenced work, marriage, religion,
leisure – almost everything.
The
Lynds now have a provocative successor: Charles Murray of the American
Enterprise Institute, whose new book – “Coming Apart: the State of White
America, 1960-2010” – argues that today’s class separations threaten America’s
very nature. On the one hand is a growing lower class characterized by insecure
work, unstable families and more crime. On the other is a highly educated elite
that dominates our commercial, political and nonprofit institutions but is
increasingly isolated from the rest of America, particularly the lower
class.
Note:
Murray is describing white America. In his main analysis, he omitted Latinos and
African-Americans to debunk the notion that the country’s serious social
problems are just the result of immigration or the stubborn legacy of slavery
and racism. Murray finds America’s evolving class structure threatening in two
ways. First, it’s bad for the people involved. The lower class is less capable
of caring for itself. The powerful elite is disconnected. Second, new classes
subvert social cohesion by weakening shared values that Murray calls America’s
“founding virtues” – industriousness, commitment to marriage, etc.
Unlike
the Lynds, Murray did not embed himself in a representative city. Instead, he
constructed artificial communities – one of the upper-middle class, the other of
the working class – based on existing social and economic surveys (far more
extensive than in the Lynds’ day). Then he recorded how behaviors – again, using
surveys – have changed since 1960. People in his upper-middle-class community
had to be college graduates and hold managerial or professional jobs. Those in
the working-class community have no more than a high-school diploma and work in
lower-paying jobs.
Plenty
has changed since 1960, especially in the blue-collar world. “Marriage has
become the fault line dividing American classes,” writes Murray. Among those 30
to 49 in the blue-collar community, 84 percent were married in 1960 and only 48
percent in 2010. In 1962, 96 percent of children were living with both
biological parents; by 2004, the proportion was 37 percent. Meanwhile, the share
of households with someone working at least 40 hours a week dropped from 81
percent in 1960 to 60 percent in 2008.
Jobs
and marriages are more stable for the better educated. But they live in an
“upper-middle-class bubble,” says Murray. The danger is that “the people who
have so much influence on the course of the nation ... make their judgments
about what’s good for other people based on their own highly atypical
lives.”
Up to
a point, Murray’s analysis rings true. “Unwed Mothers Now a Majority Before Age
of 30,” The New York Times headlined its lead story the other day, confirming
that out-of-wedlock births are concentrated among women without college degrees.
It cannot be a good thing that fathers are becoming optional. Men’s work ethic
and self-respect erode. Sure, many marriages are tumultuous and some
destructive; but they generally stabilize society and benefit
children.
Similarly,
the political and social consequences of class stratification seem apparent. The
tea party and the Occupy Wall Street movements are not just a reaction to the
Great Recession. They also reflect a resentment against “elites” that seem too
sheltered and too controlling.
What’s
missing in Murray’s account is history. He acknowledges that class differences
are not new but asserts that today’s “degree of separation” is more exaggerated
than “anything that the nation has ever known.” Dubious. Read “Middletown”: The
contrasts between the “business” and “working” classes seem as great, if not
greater. Our past includes not just class differences but social hatreds: whites
against blacks; ethnic groups against each other; union members against business
owners. By comparison, today’s tensions are mild.
America’s
distinctive beliefs and values are fading, says Murray. Maybe. But our history
is that the bedrock values – the belief in freedom, faith in the individual,
self-reliance, a moralism rooted in religion – endure against all odds. They’ve
survived depressions, waves of immigration, wars and political
scandals.
There
is such a thing as the American character and, though not immutable, it is
durable. In 2011, only 36 percent of Americans believed that “success in life is
determined by outside forces,” reports the Pew Global Attitudes survey. In
France and Germany, the responses were 57 and 72 percent, respectively. America
is different, even exceptional, and it is likely to stay that
way.
February 23,
2012
In his State of
the Union Speech, President Obama made the claim that the United States
possesses within its borders enough natural gas to supply the country for 100
years. This statement has come under scrutiny by a number of researchers,
as the amount of natural gas, future demand and technological advances are
difficult to calculate. Nevertheless, most reports of geological surveys
seem to support the president's assertion, says Ronald Bailey, Reason Magazine's
science correspondent.
In terms of
estimating unproven resources, such as the vast amount of natural gas available
in the Marcellus Shale deposits, various research teams have arrived at highly
variable figures.
It bears
mention that projections regarding future technology and demand are difficult to
estimate, but that past estimates have almost without fail been upwardly
adjusted. This suggests that there is a natural, conservative bias in
estimating procedures.
Furthermore, the
price for natural gas will affect research money that is allocated to the
natural gas sector, along with efforts by suppliers to discover additional
deposits. Because price is a constantly varying figure (it fell from
$12 as recently as 2008 to about $2.50 today), projections will always be
variable.
Source: Ronald
Bailey, "100 Years of Natural Gas," Reason Magazine, February 14,
2012.
For
text:
http://reason.com/archives/2012/02/14/100-years-of-natural-gas
February 27, 2012
We're Already Europe
With seemingly every day bringing more bad news from
Europe, many are beginning to ask how much longer the United States has before
our welfare state follows the European model into bankruptcy. The bad
news: It may already have, says Michael Tanner, a senior fellow at the Cato
Institute.
And as bad as things are right now, we are on an even
worse course for the future.
Perhaps we can take some solace in the fact that our
welfare state is not yet as big as Europe's. But the key word here is
"yet," says Tanner.
At that point does the United States cease being the
United States as we have known it? At the very least, can our economy
survive such a crushing burden of government spending, and its attendant level
of taxes and debt?
Source: Michael Tanner, "We're Already Europe," National
Review, February 22, 2012.
For text:
http://www.nationalreview.com/articles/291628/we-re-already-europe-michael-tanner
MEXICO
CITY—Officials from the world's leading
economies deferred for months key decisions on international aid for Europe as
they awaited more euro-zone action to fight the Continent's debt
crisis.
Enlarge
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Reuters
Timothy Geithner, center,
said Europe must continue its crisis efforts.
Finance
ministers and central bankers from the Group of 20 advanced and developing
economies, after a two-day meeting here, indicated they anticipate an agreement
to expand Europe's rescue fund next month.
That move "will
provide an essential input in our ongoing consideration to mobilize resources"
to the International Monetary Fund, the G-20 officials said in a joint statement
Sunday.
The lack of
significant progress effectively punts further discussion of new international
support until the G-20 ministers' next gathering in April. Officials hoped that
could lead to a final, confidence-boosting agreement at a summit of world
leaders in June.
USHUAIA,
Argentina—Question: Why is it so
difficult to buy an iPhone in Argentina?
Answer: For
incredibly convoluted political and economic
reasons.
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Facundo
Santana
A television assembly plant
in Argentina's remote Tierra del Fuego.
Argentina
manufactures electronics in frigid Tierra del Fuego, the gateway to Antarctica
and home to penguins and sea lions at the southern tip of the Americas.
In 2009, Cristina Kirchner,
Argentina's leftist president, sought to create jobs by reviving a protectionist
industrial policy that Argentina's military government initiated in
1972.
She imposed what's
known as el
impuestazo, or The Big
Tax, a doubling of the value-added tax on imported electronics, later backed up
with restrictive import-licensing requirements. She also lowered
the already rock-bottom taxes paid by electronics companies that assemble
products in Tierra del Fuego, where the government has offered an array of
incentives to lure industry for four decades.
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President Kirchner
said the moves to strengthen the "special customs area" would mean "fewer
dollars that leave the country to pay for imports and more jobs for all
Argentines."
Over the past three years, Argentina has added nearly
10,000 jobs on assembly lines that turn out TVs by Samsung Electronics Co.,
notebooks by Lenovo Group
But the moves have had a downside for Argentines seeking
the world's hottest gadgets. Some devices made outside of Argentina are hard to
come buy and the price Argentines must pay for electronics products, either
imported or assembled at home, tends to be very high.
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Alamy
The port of Ushuaia in
Argentina's Tierra del Fuego has long been the gateway to
Antarctica.
Multinational
electronics companies have had to either find local partners to assemble their
products in Tierra del Fuego or be largely shut out of an Argentine economy that grew around 9%
last year. As companies like Sony Ericsson, Research in Motion
"It gets real cold
here, but there are lots and lots of jobs," says 25-year-old Alejandro Cisterna,
who came from Buenos Aires province and found work repairing machinery for
Digital Fueguina, which assembles Samsung products. With a salary nearly double
what he would have earned back home, Mr. Cisterna has quickly bought a car and a
host of electronic toys.
But most economists, techies and consumers are critical
of the program, saying it misdirects public funds toward an uncompetitive
economic sector while forcing consumers to pay higher prices for less
cutting-edge products. The fiscal benefits for Tierra del Fuego manufacturers,
including exemptions from the income tax, value-added tax, and import taxes on
parts, will cost the Argentine treasury about $1.3 billion, according to the
2012 budget, or around $100,000 for every plant job
created.
Eduardo Levy
Yeyati, an economist at Torcuato di Tella University in Buenos Aires, says the
subsidies effectively amount to a transfer of income from Argentina's
internationally competitive farmers, who are heavily taxed for their exports, to
the less competitive industrial sector.
The Tierra del
Fuego workers "insert tab A into slot B and apply a sticker saying 'Made in
Tierra del Fuego,'" says Mariano Amartino, a tech consultant and blogger. The
bulk of the parts are imported from Asia. Argentina produces some plastic TV
frames, as well as memory modules, but the latter are made in central Argentina,
not Tierra del Fuego. Much of the remaining domestically produced content
consists of packaging material, user manuals and
screws.
Alejandro Mayoral,
head of the trade group for Argentina's electronics manufacturers, says that
when labor is factored in, the Tierra del Fuego plants contribute about 30% of
product value. He adds that critics are also giving short shrift to the $400
million to $500 million in investment that has poured into the zone in recent
years to make the assembly plants as modern as those anywhere in the world.
Employment is a little off its seasonal peak of 13,500 in December, but it's up
markedly from 3,500 before el impuestazo. Mr. Mayoral says the customs
area also generates many thousands more indirect
jobs.
Critics say the program restricts Argentines' access to
products from companies like Apple
Meanwhile, Argentine consumers have to pay dearly for
products made in Tierra del Fuego. A
Sony 32-inch LCD television costs about $800 in Buenos Aires—around twice as
much as in neighboring Chile, where an increasing number of Argentines go to
shop because of its low taxes on imports.
Argentine
government officials respond that they are trying to create jobs, and tech fans
will just have to sacrifice for the broader national interest. "You can't base
an entire economic policy on the tyranny of consumers," says Juan Ignacio
Garcia, Tierra del Fuego's secretary for industry.
Contributing
heavily to Tierra del Fuego's high operating costs are logistical hurdles that
would make corporate-efficiency experts tear their hair out. Components are
shipped from Asia to Buenos Aires and then usually trucked—Argentina's rail
system is in tatters, and the port in Ushuaia is often overwhelmed—the 1,900
miles to Tierra del Fuego. Trucks then carry the finished goods back north, over
icy, potholed roads, to Buenos Aires. The entire process, from ordering a
product to stocking it on Argentine store shelves, takes three months, says
Edgardo Rodriguez, industrial manager of the Digital Fueguina
plant.
Mr. Rodriguez, who
has worked as a plant manager on the island for more than 20 years, concedes
that "from a strictly economic standpoint, it's very hard to justify this." But
he says the special customs area has made contributions that don't show up on a
spread sheet. He notes that it has helped populate and sustain a once barren
part of the country that has been subject to territorial disputes with
neighboring Chile.
Indeed, the
special customs area was introduced in 1972 by an Argentine military government
that was suspicious of the intentions of a rival Chilean dictatorship. But in
the 1990s, Argentina began reducing import barriers, which eroded the captive
domestic market Tierra del Fuego needed to thrive.
Mrs. Kirchner's
impuestazo has returned dynamism to Tierra del Fuego's job market, but
it hasn't produced the promised reduction in Argentina's import bill. Through
the first nine months of 2011, Argentina posted a trade deficit of some $7
billion in the electronics sector—which included components headed to Tierra del
Fuego—making it the biggest single weight on the country's deteriorating trade
balance.
Federal officials
recently called upon Tierra del Fuego manufacturers to start exporting to offset
the zone's negative effect on the trade balance. But export success stories in
the extreme south are rare. Famar Fueguina, a car-radio producer owned by
Delphi Automotive
In the meantime, residents in the region that proudly
calls itself "the last place on earth" are enjoying the good times. Range Rovers
prowl the streets and new buildings are sprouting up on every block. The
pharmacy run by the Metallurgical Workers Union not only sells band aids and
iodine, but also other necessities for the Tierra del Fuego working man, such as
Antonio Banderas's "The Secret" cologne.
Less than a year
after the union opened up a new $3 million recreational center, it is now
breaking ground on an even gaudier, $7 million multipurpose building that
includes a restaurant, medical clinic, retail shops and guest rooms. "We have to
do something with all of the dues coming in," said union official Normando
Lopez.
Write to
Matt Moffett at matthew.moffett@wsj.com
G-20 finance ministers
meeting in Mexico failed to agree on an increased contribution from the IMF
towards the euro zone debt problem. Was
this all about Germany? WSJ's Charles Forelle discusses. Photo:
Reuters
G-20 officials
acknowledged a long list of potential obstacles ahead. Greece must meet numerous
conditions for its latest bailout within weeks. European officials recognized
German reluctance to quickly raise the capacity of a euro-zone financial
firewall—a rescue fund large enough to reassure markets that other troubled
euro-zone economies will be able to manage their debts. The G-20 set that
expansion as a condition for increasing IMF resources to support Europe. At the
same time, officials noted that surging oil prices, partly due to tensions with
Iran, threatened to depress a global recovery already weakened by European
turmoil.
G-20 officials
encouraged European leaders to move quickly even as improved market conditions
relaxed pressure on the euro zone. Over the past two years, European leaders
have routinely slowed their efforts once markets
improved.
"It would be a
mistake to take too much comfort from the cumulative impact" of efforts to date,
U.S. Treasury Secretary Timothy Geithner said. "Part of the progress we've seen
with confidence in markets is based on the expectation, that Europeans have
created themselves, that they have more to come."
Hear six
families—from Greece, Spain, France, Germany, Italy and the Netherlands—tell
their stories.
See economic,
political and markets news from across Europe as governments and financial
institutions deal with the continuing debt crisis.
European
leaders this week plan to discuss combining money left in a temporary bailout
fund with a permanent facility launching this summer, to create a combined €750
billion ($1 trillion) fund that could support struggling economies such as Italy
and Spain. But Germany's reluctance is likely to push that decision later into
March, or further into the spring.
At the same
time, the IMF wants to expand its lending capacity by $500 billion to almost $1
trillion by raising money from its member nations. Together, the European and IMF funds could provide $2
trillion in rescue capacity to guard against further global
turmoil.
"The global
economy is not out of the danger zone," IMF Managing Director Christine Lagarde
said. "There are still major economic and financial
vulnerabilities."
The European
crisis has left the G-20, which serves as a board of directors for the world
economy, pushing off other debates about longer-term problems. Officials here
touched on other concerns such as currency volatility and imbalances between
advanced and developing nations. But worries about growth in the short run make
nations reluctant to make longer-term moves.
"There's a vicious
circle here where each is waiting for the other to do the right thing," Bank of
Canada Gov. Mark Carney said at a conference for the Institute of International
Finance, a banking group, alongside the G-20
meeting.
Former Mexican
central banker Guillermo Ortiz said Europe's short-term problems had "hijacked"
longer-run concerns, and called Europe's bailout of Greece "badly conceived,
badly designed and badly implemented."
Euro-zone
officials are trying to implement Greece's latest rescue deal in the coming
weeks. German lawmakers will debate the controversial plan on Monday, and Greece
also must complete other steps, including a debt restructuring with
private-sector bondholders.
European Union
economics chief Olli Rehn said Greece's deal still faces "implementation risks"
due to "lack of political unity and weak administrative capacity." He said the
European Commission, the EU's executive arm, would be installing its own
officials at Greek ministries to provide technical assistance and monitoring on
a permanent basis on the ground in Athens.
At the G20 meeting in
Mexico City, Colombian Finance Minister Juan Carlos Echeverry discusses the
conditions asked of the European countries for more IMF resources, inflation in
Colombia and the risk of further appreciation of the
peso.
Talks were
continuing with the IMF to share the burden of the Greek bailout. The fund had
contributed roughly one-third of Greece's first €110 billion bailout, but it has
signaled that its participation will be lower in the second €130 billion rescue.
Its contribution was said to be roughly 10%, or €13 billion, with the matter
expected to be discussed March 13 by the Fund's executive
board.
Ms. Lagarde said
Tuesday the IMF wouldn't decide the amount of its financing for Greece until the
second week of March, after euro-zone leaders discuss whether to strengthen
their emergency rescue funds—an effort seen as the IMF trying to pressure Europe
to build a bigger firewall.
Nations outside
the euro zone are holding back firm commitments to the IMF until Europe expands
its firewall.
Officials said the
amounts "being circulated" at the meeting are that China would contribute around
$100 billion, and Japan would contribute around $50 billion. Chinese and
Japanese officials and a spokesman for the IMF declined to
comment.
—Ian Talley, Matthew
Cowley and Tom Fairless contributed to this article.
Write to
Sudeep Reddy at sudeep.reddy@wsj.com and Costas Paris at
costas.paris@dowjones.com and
Matina Stevis at matina.stevis@dowjones.com
Now
that the smiles have faded, what should American business make of the just-ended
visit by China's rising star, Xi Jinping?
After
all, Mr. Xi, who is
expected to become head of the Communist Party in China soon, told corporate
CEOs in Washington that relations between the U.S. and China are at "a new
historical starting point" and are "an unstoppable river that surges
ahead."
But
expectations in the U.S. are less effervescent. That's because of who Mr. Xi is,
and what China does, not says.
Mr.
Xi, the son of a revolutionary hero, is first and foremost a company man. He
advanced through the Party's ranks over decades, and he is now the product of
the Party's consensus. Little is known about his views on reforms that might
make it easier for U.S. companies to compete in China. But there's a best
guess.
Enlarge
Image
Bloomberg
News
China's
Xi Jinping addressed the U.S.-China Business Council last
week.
"Will he steer the ship into a new
direction, i.e., away from a heavy emphasis on state capitalism and
industrial policy?" asks Myron Brilliant of the U.S. Chamber of Commerce.
"Unlikely in the short term."
"American
business has presumably wised up after fawning over Hu Jintao in 2002 and then
getting burned," says Derek Scissors of the Heritage Foundation, referring to
China's current Party chief. "The safe bet is that very little is going to
change beyond the optics."
"These
are the folks who basically own and reap the profits of production in China,"
says an industry observer. "The idea that the Party would put someone at its
head that would undermine all of that is highly unlikely."
Mr.
Xi's visit was something of a first date, and it wasn't designed to tackle the
big issues. The trip ideally built "greater trust and confidence in the
relationship, even if just incrementally," said John Frisbie, president of the
U.S.-China Business Council.
But
throughout the visit, a separate and disturbing narrative on China played out—a
familiar one that's likely to continue.
On
Tuesday, The Wall
Street Journal's Siobhan Gorman reported that a cyber-espionage group had
drained Nortel Networks, the onetime telecom giant, of technical papers,
business plans and other documents. The group appeared to be working from China.
U.S. officials have said the most "persistent" industrial spies globally are
those operating out of China, both government-affiliated and
private. China has denied any involvement in the
spying.
On
Wednesday, the U.S.-China Economic and Security Review Commission, which reports
to Congress, heard testimony on Beijing's control of industry in China and the
competitive threat this poses to U.S. companies.
On
Thursday, word came of a new agreement under which China will buy oil from Iran.
The purchase runs counter to U.S.-led sanctions designed to deny Iran money it
needs for its nuclear-weapons program.
And on
Friday, DreamWorks
Animation said it will make movies with two
state-owned companies in China. This sounds like a coup for U.S. business. But
China is also charging its standard "toll" for this market access: a transfer
of DreamWorks production technology to the venture. Similar transfers of
know-how have been exacted in a range of industries and then used by Chinese
companies to compete in global markets.
Jeffrey
Katzenberg, chief executive of DreamWorks Animation, says he isn't worried
about losing a competitive edge. "Animation continues to be a combination of
great story telling supported by great technology—it's not the other way
around," he says. It will take "years" for top-flight animators to emerge in
this new market. "Our technology is useless if it's not in the hands of the most
talented artists in the world."
If Mr.
Xi does prove the reformer, he would have a slight tailwind at his back.
Many people in China's
private sector and academia believe the country isn't liberalizing fast enough.
Even the Politburo recently abandoned a set of government procurement rules that
discriminated against foreign firms.
For
his part, Mr. Xi is
seen as more personable and accessible than the wooden Mr. Hu.
He got out of Washington to visit other parts of the U.S. And he helped broker
expanded access to the China market for U.S. movie makers.
The
headwind, however, could be more problematic. China is at the beginning of a new
five-year plan, written and launched by the leadership. There are some
liberalization themes in the plan. But it also expands the government's role in
key industries, and it promises big new subsidies for domestic enterprise. Those
subsidies will ultimately help Chinese concerns undercut the competitiveness of
U.S. companies.
Mr. Xi
will be expected to implement this road map, not rip it up. That's today's more
consequential "historical starting point."
Write
to John
Bussey at John.Bussey@wsj.com
Search
Southeast Asia Real Time
Reuters
A
man works at a construction site of a bridge crossing in
Hanoi.
[wsj-more=in
tag="Vietnam"]
The
experts at global consulting firm McKinsey & Company have a message for
Vietnam: Speed up economic reforms, or you’ll get left
behind.
In a
new report issued this week, the firm’s research arm – The McKinsey Global
Institute – concluded Vietnam needs to do more to shake up
its state-owned enterprises and boost labor productivity, among
other steps – challenging tasks that if not executed could saddle Vietnam with
sub-par growth for years to come.
According
to the report, two main
engines have driven Vietnam’s remarkable economic growth of recent years: an
expanding labor pool, and a structural shift away from agriculture into more
productive sectors such as manufacturing and services. Those factors combined to
put more people to work, often in more-advanced jobs than farming, and together
accounted for about two-thirds of Vietnam’s gross domestic product growth from
2005 to 2010, it said.
But
now those two drivers are expected to fade. As Vietnam’s population ages, the
growth in its labor force is likely to slow to around 0.6% a year over the next
decade, from annual growth of 2.8% between 2000 and 2010, the
report said. Moreover, the country can no longer count on the migration of
people from farms to factories to drive productivity gains, since so many people
have already completed that transition.
The
solution, according to the report, is that Vietnam must find other ways
to boost its labor productivity growth — by more than 50%, from 4.1% annually to
6.4% — if the government wants to meet its target of 7% to 8% annual economic
growth by 2020. Without such productivity gains, it said, Vietnam’s annual
growth will likely wind up closer to 4.5% to 5% — not bad, but below the levels
many economists think Vietnam needs to dramatically boost incomes and living
standards.
“Deep
structural reforms within the Vietnamese economy will be
necessary, as
well as strong and sustained commitment from policy makers and firms,” to get
the kind of productivity growth it needs, the report said.
The
needed reforms include steps to encourage more business innovation and bring
change to the country’s many state-owned enterprises, which account for 40% of
Vietnam’s output but in many cases have a reputation for
inefficiency.
Although Vietnamese leaders have long talked about prodding state enterprises
into becoming more efficient or even privatizing them, the efforts to date have
fallen far short of targets suggested by private-sector
economists.
Other
possible reforms could include steps to promote Vietnam as a global outsourcing
hub, upgrade technology
in industries such as fish farming, expand telecommunications and electricity
infrastructure, improve education to get more skilled workers, and push
factories to embrace more value-added manufacturing. At the moment, Vietnam’s
exports tend to be relatively “low-value” compared to other Southeast Asian
countries and China, the report said.
The
McKinsey folks also identified other long-term risks to the Vietnamese economy,
including an overall
lack of transparency and a rapid expansion of bank lending that leaves the
country vulnerable to financial-sector distress. Bank lending expanded 33% a
year over the past decade in Vietnam, the highest growth rate in Southeast
Asia, the report said. Although reported data indicate
non-performing loans are not a serious issue, McKinsey – echoing other experts
–said the latest figures likely understate the problem. There’s also a concern
that state banks may at times lend based on political grounds instead of
financial merit, the report said, further exposing them to
losses.
Vietnam
policymakers say the McKinsey experts aren’t telling them anything they haven’t
heard already.
“I
totally agree with what is mentioned in the report,” said Vo Tri Thanh, vice
director of the Central Institute for Economic Management, a government think
tank. “These are not
new discoveries, however. Where Vietnam should start, and how to do it, is still
a question.”
–With
contributions from Nguyen Anh Thu
wsj
February 23, 2012, 9:28 AM
Things
aren’t looking good for European governments’ balance sheets. Today’s European
Commission forecasts foresee even more doom and gloom. Which is why,
to paraphrase
Beyoncé’s Single Ladies: “If you buy it then they’re gonna raise the VAT on
it.”
VAT –
value-added tax – is a European favourite. Roughly similar to sales tax in the
U.S., it differs in that it is included in the prices consumers see when
browsing goods instore or prices on a menu. The increases are also set to cost
every European Union household an average €500 a year, according to
research by accounting firm TMF Group.
“With
financial markets continuing to worry over the state of sovereign debt, European
countries continue to raise Value Added Tax as they look to rebalance the tax
burden from income and investment onto consumption,” Richard Asquith, head of
VAT at TMF says. “In
the past three months Italy, France, Ireland and Cyprus have joined 14 other EU
countries that have announced increases in their standard rates of
VAT.”
When
‘growth and jobs’ is the commission’s mantra, it makes little sense to raise
taxes on employers or wages. With
Angela Merkel banging the drum of fiscal consolidation louder than ever before,
it also makes sense to try and balance things with a sneaky tax
rise.
This
is why Nicolas Sarkozy has taken the unprecedented step of mentioning a tax rise
going into an election, promising to cut payroll taxes and increase VAT to 21.2%
from 19.6% in order to shift part of social-welfare costs from companies onto
consumers. It’s also a remarkably similar move to Germany’s tax and labour
market reforms in the last decade, which are partly credited with its resilient
economic performance now.
There’s
even another benefit, according to Mr. Asquith:
“For
euro currency countries, VAT offers an effective internal currency devaluation.
Raising VAT, which is not charged on exports, to pay for cuts in labour charges
makes the country’s goods cheaper to the outside world. This simulates a
reduction in their foreign currency exchange rate – a measure which countries
like Italy and Greece relied on heavily before they were locked into the strong
euro.”
Obviously,
it’s not without controversy. From a certain point of view, VAT is
inherently unfair, because it hits the poor, who spend nearly all of their
income, harder than the rich,who don’t–though exemptions for food may soften the
impact.
It’s
also tough if, like
a typical Belgian, your employer has paid tax on your salary, you’ve handed
over around 50% of it in tax and social costs, and then the new mascara you
buy to cheer yourself up after all this is taxed
again.
Moreover,
VAT rises feed into inflation–both by pushing listed prices up, and giving
shopkeepers a chance to round them up when the rise is implemented–hence stern
words from the EU in today’s forecasts that indirect taxes are fuelling
inflation in the bloc. To return to Belgium as an example, the commission
notes:
“Inflation
has been revised upward compared to the autumn forecast, from 2% to 2.7%. The
impact of the consolidation measures in the 2012 budget, in particular the
increased VAT rates on tobacco, pay-television and some professional services
such as notarial services, is estimated at 0.2%.”
Still,
this isn’t likely to dissuade EU members from this quick-to-implement,
currency-friendly tax- TMF has even drawn up a handy cut-out-and-keep of which
countries are next. Note Luxembourg’s ultra-low 15%, which
keeps online giants such as Amazon and Skype in the Grand
Duchy…
Changes
in EU VAT Rates in Past 2 Years
|
2010 |
2012 |
||||
|
1 |
Austria |
20.0% |
20.0% |
Discussing
rise in 2012 | |
|
2 |
Belgium |
21.0% |
21.0% |
||
|
3 |
Bulgaria |
20.0% |
20.0% |
||
|
4 |
Cyprus |
15.0% |
18.0% |
From
March 2012 | |
|
5 |
Czech |
19.0% |
20.0% |
||
|
6 |
Denmark |
25.0% |
25.0% |
||
|
7 |
Estonia |
20.0% |
20.0% |
Discussing
rise in 2012 | |
|
8 |
Finland |
22.0% |
23.0% |
||
|
9 |
France |
19.6% |
21.2% |
Scheduled
Oct 2012 | |
|
10 |
Germany |
19.0% |
19.0% |
||
|
11 |
Greece |
19.0% |
23.0% |
||
|
12 |
Hungary |
25.0% |
27.0% |
||
|
13 |
Ireland |
21.5% |
23.0% |
||
|
14 |
Italy |
20.0% |
23.0% |
From
Sept 2012. Further rise to 23.5% in 2014 | |
|
15 |
Latvia |
21.0% |
21.0% |
||
|
16 |
Lithuania |
19.0% |
21.0% |
||
|
17 |
Luxembourg |
15.0% |
15.0% |
||
|
18 |
Malta |
18.0% |
18.0% |
||
|
19 |
Netherlands |
19.0% |
19.0% |
||
|
20 |
Poland |
22.0% |
23.0% |
Further
rise in 2013 to 24% | |
|
21 |
Portugal |
19.0% |
24.0% |
||
|
22 |
Romania |
19.0% |
24.0% |
||
|
23 |
Slovenia |
20.0% |
20.0% |
||
|
24 |
Slovakia |
19.0% |
20.0% |
||
|
25 |
Spain |
16.0% |
18.0% |
||
|
26 |
Sweden |
25.0% |
25.0% |
||
|
27 |
United
Kingdom |
17.5% |
20.0% |
||
|
Switzerland
(non-EU) |
7.6% |
8.0% |
The
European Commission expects Greece, Portugal, Spain and the Netherlands to be
Europe’s weakest economies in 2012. Wait a minute. The Netherlands? That
stalwart of the euro zone? The same Netherlands that’s lending billions of euros
to Greece, Portugal and Ireland?
Yes
indeed: The commission
on Thursday said it expects the Dutch economy to
contract 0.9% this year, the lowest growth rate in the 27-nation European
Union apart from Greece, Portugal and
Spain.
“The
growth rate of private consumption – already negative for four consecutive
quarters in 2011 – is expected to remain negative in 2012, as a result of
government consolidation measures, mainly affecting households, and negative
wealth effects,” the forecast says. “The latter mainly emanate from falling
prices in the housing market.”
Why is
private consumption so weak? The Netherlands’s very high household debt level,
due mainly to large Dutch mortgages, is one culprit — something, I’ve written
about before here and here. The burden of financing debts
crowds out other spending, while falling house prices make many households wary
of spending when their homes can only be sold for less than the mortgage
value–and often much less given that Dutch mortgages during the boom years
routinely exceeded 125% a home’s purchase
price.
Strongly
rising wages would help Dutch households buy what they want while also paying
down their debts, but wage inflation in the Netherlands has been less than the
euro-zone average in recent years.
The
low level of Dutch wage inflation is something of a puzzle, given the
Netherlands’ low unemployment rate (around 5%). Shouldn’t the tight labor market
be driving up wages? Not necessarily. First, the low unemployment rate obscures
the prevalence of part-time work in the Netherlands, implying that if people
worked more hours, the unemployment rate would be higher. Second, Dutch
wage-setting mechanisms have been remarkably effective in keeping wages from
rising.
That’s
helped Dutch competitiveness, causing the Netherlands to run large trade and
current account surpluses over the previous decade. Right now, though, the Dutch
economy has a private-sector debt problem that stronger wage growth could help
solve. Wage growth would also reduce the country’s persistent current account
surpluses and provide a bigger market for countries in the struggling euro-zone
periphery seeking to export their way back to economic
health.
Follow
@DJMatthewDalton on
Twitter.
wsj
Feb 23, 2012
2:56 PM
By
Kathleen Madigan
The
U.S. tax code is a mess. Favoring one sector over others will only make it
messier.
U.S.
President Barack
Obama and GOP candidate Rick Santorum
recently released proposals that would give manufacturing enterprises a tax
break. Santorum advocates factories pay no federal income tax at
all.
The
goal is to make manufacturing a contributor of economic growth and a provider of
middle-class paying jobs.
The
unintended consequences, however, are likely to be businesses gaming the system
for a cheaper tax rate and a government policy that values some jobs over ones
that are more needed. While certain employees, companies and regions will
benefit, the U.S. economy as a whole is unlikely to be better off from the
proposed tax changes.
After
seven years of trying to rebuild the iconic retailer Sears, hedge-fund manager
Edward
S. Lampert reversed course on Thursday, announcing that Sears
Holdings Corp. will unload more than 1,200
stores in an effort to raise up to $770 million of much-needed
cash.
Many
on Wall Street interpreted the move as the beginning of the breakup of the
company. Sears on
Thursday reported a loss of more than $3 billion for 2011, and same-store sales
have fallen for six straight years. The company's shares, which fell below $30
last month, rose almost 19% on Thursday to $61.80 on news of the asset
sales.
Mr.
Lampert likely had something else in mind seven years ago when he combined
Kmart, which he helped steer out of bankruptcy, and Sears, which was struggling.
Mr. Lampert, 49 years old, has compared his investment approach to Warren
Buffett's, and analysts have suggested that Sears was to be Mr. Lampert's
Berkshire Hathaway, an investment vehicle for bigger
things.
Friends
and associates say Mr. Lampert was confident he could succeed by applying the
lessons of investing to retailing. He pledged to spend capital only on projects
that yielded measurable returns, and not to put sales growth ahead of profits.
But
that plan hasn't worked. Now, in the face of mounting concerns about its
liquidity—its cash shrank to $754 million at year-end, from $1.4 billion a year
earlier—Sears is selling 11 stores to General
Growth Properties Inc., the company that owns the malls they anchor, for
$270 million. Sears also intends to raise $400 million to $500 million through a
rights offering, spinning off a company that will control roughly 1,250 small
but profitable franchised stores that sell Sears products.
The
moves didn't answer questions about the long-term viability of the 126-year-old
retail brand, and its executives offered few new specifics about their plans for
Sears over the next couple of years, reiterating their intention to use
technology to revive the fortunes of the more than 2,000 remaining Sears and
Kmart stores.
Mr.
Lampert, a onetime Goldman Sachs arbitrager, controls roughly 61% of Sears
through his hedge fund, ESL
Investments Inc., and
he serves as Sears's chairman. In a letter to Sears shareholders Thursday, he
said: "We will make the difficult decisions required to position Sears Holdings
for the future." He didn't rule out selling or spinning off other assets, such
as the company's successful Lands' End clothing business, which it
acquired before he bought Sears.
Chief
Financial Officer Robert Schriesheim said in an interview that the money
generated by Thursday's deals "should demonstrate that we have significant
potential to unlock value" to raise cash if necessary.
A
spokesman for Mr. Lampert didn't reply to requests for comment. In recent years,
Mr. Lampert's comments about Sears have been restricted mainly to the company's
shareholders' meetings and his annual letters to
shareholders.
Long
before Mr. Lampert got involved in the chains, both Sears and Kmart were losing
market share to rivals such as Wal-Mart
Stores Inc., Macy's Inc. and
Home
Depot Inc. After he took charge, the
recession hit, making both retailing and commercial real estate much tougher
businesses. Bigger companies such as Wal-Mart have struggled with slipping
sales.
Unlike
many retailers, which lease space in malls, Sears owns many of its stores. It
has an array of venerable in-house brands, including Craftsman tools, and it
remains the largest seller of appliances in the
U.S.
In a
2006 letter to Sears shareholders, Mr. Lampert wrote: "My goal is to see Sears
Holdings become a great company whose greatness is sustainable for generations
to come."
Mr.
Lampert discontinued widely used retailing tactics such as selling DVDs below
cost as "loss leaders" to drive customers into stores, and he restructured the
retail operations into several dozen business units that former executives say
were expected to turn profits on their own.
Some
former executives say some of the moves caused Kmart to become less competitive
with other chains, at one point selling milk for 30% more than
Wal-Mart.
From
his hedge-fund offices in Greenwich, Conn., Mr. Lampert presided over a Sears
committee known as "CapCon." Executives had to get approval from the committee
for contracts or capital expenditures, even minor ones, former executives say.
Sears spends less than the industry average fixing up stores, which its critics
said need work.
Profits
initially rose, then began falling.
Mr.
Lampert expressed confidence in his approach. In a February 2008 shareholder
letter, after the underdog New York Giants won the Super Bowl, he made reference
to the Giants' quarterback: "Like Eli Manning, we know what it's like to be
underestimated and questioned, but we intend to keep working on our game to
achieve our full potential."
Enlarge
Image
Mr.
Lampert recruited young M.B.A.s and flew in analysts from his hedge fund to help
run the retailer. But Sears's results didn't improve. The company has had four
chief executives and five chief financial officers since it was created. Last
year, Lou D'Ambrosio, the former chief executive of technology company Avaya
Inc., who had no experience running stores, took over as chief
executive.
Mr.
D'Ambrosio said in a recent interview that Mr. Lampert is misunderstood. "The
first time I met with Eddie, we were scheduled to meet for an hour and we met
for seven hours," he said. "And what I found was authenticity, passion,
exceptional intelligence and somebody who was incredibly committed to this
company."
Enlarge
Image
REUTERS
People
walk past the Sears store in downtown Vancouver, British
Columbia.
Mr.
D'Ambrosio says Mr. Lampert is giving him plenty of latitude to make decisions.
He and former Brookstone Inc. Chief Executive Ron Boire, who was
hired last month to oversee the Sears and Kmart store formats, have said they
have a technology-focused comeback strategy that includes better integrating
store and Web operations and expanding a loyalty program that rewards customers
who share shopping data with the company.
Credit-ratings
firms have downgraded debt in Sears Holdings into "junk"
territory. Fitch
Ratings said in December that the company's liquidity would be "inadequate" in a
year and that "there is a heightened risk of restructuring over the next 24
months." One lender, CIT
Group Inc., has stopped financing loans to its suppliers as they await
payment from the company for their goods. Sears played down the CIT action,
saying it financed less than 5% of its inventory.
Some
retail analysts worry that unloading assets could ultimately hurt Sears's
prospects. Although the franchised stores Sears is spinning off, called
Hometown, accounted for only about $2.6 billion of its $41 billion in revenue
last year, they made up a disproportionate share of its earnings before
interest, taxes, depreciation and amortization—nearly 25%, according to Credit
Suisse analyst Gary Balter.
Getting
rid of them, he said, "actually makes the situation more precarious
long-term."
—Joann
S. Lublin
and Gregory Zuckerman contributed to
this article.
Write
to Miguel
Bustillo at miguel.bustillo@wsj.com
and Dana Mattioli at dana.mattioli@wsj.com
FRANKFURT—European Central Bank President Mario
Draghi warned beleaguered euro-zone countries that there is no escape from tough
austerity measures and that the Continent's traditional social contract is
obsolete, as he waded into an increasingly divisive debate over how to tackle
the region's fiscal and economic troubles.
Mario
Draghi, president of the European Central Bank, on the importance of austerity
in Europe, the Greek bailout deal and the ECB's recent decision to exempt its
Greek bond portfolio from losses.
In a
wide-ranging interview with The Wall Street Journal at his downtown office here,
Mr. Draghi reflected on how the region's travails were pushing Europe toward a
closer union. He said Europe's vaunted social model—which places a premium on
job security and generous safety nets—is "already gone," citing high youth
unemployment; in Spain, it tops 50%. He urged overhauls to boost job creation
for young people.
There
are no quick fixes to Europe's problems, he said, adding that expectations that
cash-rich China will ride to the rescue were unrealistic. He argued instead that
continuing economic shocks would force countries into structural changes in
labor markets and other aspects of the economy, to return to long-term
prosperity.
"You
know there was a time when [economist] Rudi Dornbusch used to
say that the Europeans are so rich they can afford to pay everybody for not
working. That's gone," Mr. Draghi said.
"There
is no feasible trade-off" between economic overhauls and fiscal belt-tightening,
Mr. Draghi said in the interview, his first since Greece sealed its second
bailout.
"Backtracking
on fiscal targets would elicit an immediate reaction by the market," pushing
interest-rate spreads higher, he said.
Mr.
Draghi's comments come amid an intensifying debate in Europe over whether deeper
austerity is the best prescription for countries facing substantial economic
contraction and place him squarely in the hard-line camp, alongside Angela
Merkel and other German officials.
WSJ's
Brian Blackstone joins Mean Street to discuss a Wall Street Journal exclusive
interview with ECB chief Mario Draghi, in which the central bank leader issued a
stern warning to Eurozone countries. Photo: Reuters.
They
also come against a backdrop of a gloomier European Union economic forecast that
shows the euro zone at risk of recession. Some governments, meanwhile, have
resisted emphasizing spending cuts in favor of tax increases, though those can
stifle enterprise. Boosting consumption taxes can also increase inflation, which
makes it harder for the ECB to keep interest rates low and spur growth.
Though
Mr. Draghi welcomed the relative calm that has descended on European debt
markets in recent months, he said credit remained scarce, especially in Europe's
struggling southern fringe.
Despite
Europe's vast wealth, it has gone to the International Monetary Fund three times
for aid—for Greece, Portugal and Ireland—and is going back again for additional
assistance for Greece. Euro-zone officials have pressed emerging markets such as
China for help by having these countries purchase euro-zone debt or bonds issued
by the bailout fund.
"There
have been lots of talks and conversations. I hear about them but I haven't seen
any official investment [from China] in European financial markets," Mr. Draghi
said.
Greece,
despite its latest, €130 billion ($172.24 billion) bailout, remains a major
risk, he said. While Athens has agreed to rein in its debt and overhaul its
economy, the country's leaders now need to show that they will follow through
and implement the measures.
"It's
hard to say if the crisis is over," he said.
The
ECB chief's views on austerity programs will be tested at the voting booth in
coming months. Greece and France are due to hold elections this spring, which
may result in new leaders less willing to fully embrace the bank's
stance.
A
number of European leaders, led by Italian Prime Minister Mario Monti, want to
shift Europe's focus away from spending cuts toward stimulating
growth.
Mr.
Monti and Spanish Prime Minister Mariano Rajoy, who met in Rome on Thursday,
urged EU countries to work harder at making their local economies more
competitive as a way to encourage growth and counter harsh austerity measures.
Mr.
Draghi argued that austerity, coupled with structural change, is the only option
for economic renewal. While government spending cuts hurt activity in the short
run, he said, the negative effects can be offset by structural
overhauls.
His
view was supported on Thursday by the European Commission. Despite forecasting a
recession for the euro zone this year, the commission said governments under
financial stress "should be ready to meet budgetary
targets."
But
critics have blasted
Europe's austerity-heavy focus, saying it is causing the euro zone, which makes
up about one-fifth of world output, to stagnate or contract, threatening the
global recovery.
Mr.
Draghi's contention that overhauls will offset the negative effects of austerity
has also been met with some skepticism. Rooting out inefficiencies in labor
markets or cutting government bureaucracies subtract from growth in the short
run whatever the longer-term benefits, some economists
say.
Enlarge
Image
Don
McNeill Healy for The Wall Street Journal
European
Central Bank President Mario Draghi, speaking in Frankfurt, said Europe must not
divert from its austerity measures.
"He's
just sugar coating the message," said Simon Johnson, former chief economist at
the International Monetary Fund.
"A lot
of this structural reform talk is illusory at best in the short run…but it's a
better story than saying you're going to have a terrible 10 years," he
said.
In the
interview, Mr. Draghi
defended the ECB's decision to shield its €50 billion Greek bond portfolio from
the steep losses private-sector bondholders face as part of a separate deal
between Greece and its creditors to write down €107 billion in debt. He said the
ECB "is committed to protect the taxpayers'
money."
On
Thursday, Commerzbank AG Chief Executive Martin Blessing criticized the
ostensibly voluntary haircut for private investors holding Greek bonds in
unusually blunt language, calling it "as voluntary as a
confession during the Spanish Inquisition."
On
other matters related to Europe's two-year-old debt crisis, Mr. Draghi—who took
the helm of the ECB less than four months ago after heading the Bank of Italy
for six years—was more upbeat. After a weak fourth quarter, the overall
euro-zone economy is stabilizing, he said.
Governments
have made progress on deficit reduction, making economies more competitive.
Banks have stabilized and bond markets are reopening. Portugal, which many
analysts think is next in line after Greece for another bailout, won't need to
be rescued again, Mr. Draghi said.
Mr.
Draghi has earned praise from investors for his handling of the crisis in recent
months. He lowered interest rates back to record lows with back-to-back cuts.
The ECB in December flooded banks with €489 billion in cheap, three-year loans,
and expanded the types of collateral banks can post.
Taken
together, the moves
have led to a rally in equity markets and helped bring government-bond yields
down in Italy and Spain, countries seen as critical to keeping Greece's debt
crisis from spreading throughout the euro bloc.
Despite
the ECB's efforts, however, credit has tightened throughout the euro area,
particularly in southern parts of the region. Banks appear to have used a
significant share of the three-year loans to buy back their own bonds coming
due, Mr. Draghi said.
The
Greek crisis has laid bare many of the structural weaknesses in the setup of the
euro, which is governed by a single interest-rate policy yet has no common
finance ministry to steer money from rich countries to
poor.
Mr.
Draghi, whose comments came ahead of this weekend's meeting of finance officials
from the Group of 20 major developed and emerging economies, dismissed criticism
that Europe can't get a handle on its debt crisis. Recent steps by governments
to create binding deficit controls are "a major political achievement" and the
"first step" toward fiscal union, he said.
He
also brushed back concerns that the ECB's aggressive crisis measures are
distancing the central bank from its most powerful member, Germany.
Two of Germany's top
officials at the ECB resigned last year in opposition to the ECB's purchases of
government bonds, concerned that the central bank was effectively rewarding
profligacy. The Bundesbank's current president, Jens Weidmann,
has warned of risks associated with the ECB's generous lending
programs.
"One
of my objectives is that we have as much consensus as possible. We have to do
the right things, and we have to do them together," Mr. Draghi said. The ECB's
decision to lend banks money for three years was unanimous, suggesting there
isn't as much division within the ECB as some observers
think.
Write
to Brian
Blackstone at brian.blackstone@dowjones.com
and Matthew Karnitschnig at matthew.karnitschnig@wsj.com and
Robert Thomson at Robert.Thomson@wsj.com
The
World Bank says that China's economy will be derailed by 2030 if it doesn't
commercialize its powerful state-owned enterprises. The
WSJ's Deborah Kan speaks to Senior Editor Bob Davis.
BEIJING—An
exclusive preview of an economic report on China, prepared by the World Bank and
government insiders considered to have the ear of the nation's leaders, offers a
surprising prescription: China could face an economic crisis unless it
implements deep reforms, including scaling back its vast state-owned enterprises
and making them operate more like commercial firms.
"China
2030," a report set to be released Monday by the bank and a Chinese government
think tank, addresses some of China's most politically sensitive economic
issues, according to a half-dozen individuals involved in preparing and
reviewing it.
It is
designed to influence the next generation of Chinese leaders who take office
starting this year, these people said. And it
challenges the way China's economic model has developed during the past decade
under President Hu Jintao, when the role of the state in the world's second-largest economy has
steadily expanded.
Enlarge
Image
Reuters
A
Chinese mine, a sector where state-run firms employ 44% of
workers.
The
report warns that China's growth is in danger of decelerating rapidly and
without much warning. That is what has occurred with other highflying developing
countries, such as Brazil and Mexico, once they reached a certain income level,
a phenomenon that economists call the "middle-income trap." A
sharp slowdown could deepen problems in the Chinese banking sector and
elsewhere, the report warns, and could prompt a crisis, according to those
involved with the project.
It
recommends that state-owned firms be overseen by asset-management firms, say
those involved in the report.
It also urges China to
overhaul local government finances and promote competition and
entrepreneurship.
Enlarge
Image
"China's
state-owned sector is at a crossroads," said Fred Hu, chief executive of
Primavera Capital Group, a Beijing investment firm. The Chinese government must decide
"whether it wants state-led capitalism dominated by giant state-owned
corporations or free-market entrepreneurship."
It
isn't known whether "China 2030" will project a certain growth rate when it is
released next week. But current forecasts by the Conference Board, a U.S. think
tank, see the Chinese
economy growing 8% in 2012, and slowing to an average annual growth rate of 6.6%
from 2013 to 2016. Economists Barry Eichengreen of the University of California
at Berkeley, Donghyun Park of the Asian Development Bank and Kwanho Shin of
Korea University, after studying the history of other onetime growth champs,
argue that China's annual growth rate will begin to "downshift" by at least two
percentage points starting around 2015.
While
some reduction in growth is inevitable—China has been growing at an average
of 10% a year for 30 years—the rate of decline matters greatly
to the world economy.
With Europe and Japan fighting recession and the U.S. experiencing a weak
recovery, China has become the most reliable source of growth globally.
Commodity producers in Latin America, Asia, North America and the Middle East
count on China for growth, as do capital goods makers, farmers and fashion
brands in the U.S. and Europe.
State-Run
Firms Are the Giants of China's Economy
How
much the report will help reshape the Chinese economy is unclear. Even ahead of its release, it has
generated fierce resistance from bureaucrats who manage state enterprises,
according to several individuals involved in the discussions.
China's
political heir apparent, Xi Jinping, now vice president, has
given few clues about his economic policies. Analysts expect the
high-profile report will encourage Mr. Xi and his allies to discuss making
changes to a state-led economic model that has alarmed Chinese private
entrepreneurs while creating tension between China and its main trading
partners, including the U.S.
The
report's authors argue that having the imprimatur of the World Bank and the
Development Research Center, or DRC—a think tank that reports to China's top
executive body, the State Council—will add political heft to the proposals.
The World Bank is
widely admired in Chinese government circles, particularly for its advice in
helping China design early market reforms.
They
are also counting on the clout of the No. 2 official at the DRC, Liu
He, who is also a senior adviser to the all-powerful Politburo
Standing Committee, to help ensure that its findings are considered seriously by
top leaders. Mr. Liu declined to comment.
Enlarge
Image
Mr.
Liu was among the top Chinese staffers who drafted China's current five-year
economic plan and is considered close to China's current leaders as well as Mr.
Xi, the presumptive next leader of China's government and party. Mr. Liu, who
meets regularly with U.S. officials, has argued publicly that foreign pressure
and ideas can help build momentum for change in China.
"Liu
decides the flow of information, gives policy makers recommendations and
organizes meeting agendas," said Cheng Li, a China scholar at the Brookings
Institution in Washington, D.C.
World
Bank President Robert Zoellick, in a statement announcing the report would be
released, said, "The report lays out recommendations for a development growth
path for the medium term, helping China make the transition to become a
high-income society."
Neither
the World Bank nor DRC would comment specifically on the "China 2030"
findings.
Chinese
Vice Premier Li Keqiang, who is expected to be named premier next year, endorsed
the Chinese-World Bank project when Mr. Zoellick proposed it during a trip to
Beijing in September 2010—another hint that the new crop of leaders will closely
examine the report.
Currently, state-managed enterprises tower over
the Chinese economy, dominating the nation's energy, natural resources,
telecommunications and infrastructure industries. Among other things, they have
easy access to low-interest loans from state-owned
banks.
Enlarge
Image
Zuma
Press
Chinese
Vice President Xi Jinping recently visited an Iowa farm.
U.S.
Treasury Secretary Timothy Geithner and other Western officials argue that the
subsidies to those firms distort international competition. Domestically,
critics complain that the firms choke off internal competition, use monopoly
profits to expand into other businesses and pay only meager dividends. A U.S.
Treasury official said Wednesday the U.S. supports reforms that increase the
ability of private firms to compete with state-owned enterprises.
The
World Bank and DRC argue that asset-management firms should oversee the
state-owned companies, say those involved in the report. The asset managers
would try to ensure that the firms are run along commercial lines, not for
political purposes. They would sell off businesses that are judged extraneous,
making it easier for privately owned firms to compete in areas that are spun
off.
"China
needs to restrict the roles of the state-owned enterprises, break up monopolies,
diversify ownership and lower entry barriers to private firms," said Mr.
Zoellick in a talk to economists in Chicago last month.
Currently,
many state-owned firms have real-estate subsidiaries, which tend to bid up
prices for land, and have helped to create a housing bubble that the Chinese
government is trying to deflate.
The
report also recommends a sharp increase in the dividends that state companies
pay to their owner—the government. That would boost government revenue and pay
for new social programs, said those involved with the report.
"It's
an innovative proposal," said Yiping Huang, a Barclays Capital economist.
Neither the World Bank
nor the DRC proposed privatizing the state-owned firms, figuring that was
politically unacceptable.
Chinese
and U.S. economists say that dividend money from profitable state-owned firms
now is often directed to unprofitable ones by the State-owned Assets Supervision
and Administration Commission, or SASAC, which regulates the firms and tries to
ensure their profitability.
Enlarge
Image
Reuters
A
customer pays for her vegetables at a local market in Shanghai February 9, 2012.
SASAC
and the Communist Party's personnel agency name heads of state-owned firms and
can replace them, giving the government great sway over the firms'
decision-making. It isn't clear whether the report recommends changing that
arrangement or proposes how the asset managers should be hired and fired.
How to
handle such personnel "was the most contentious issue and was debated until the
last hour," said a "China 2030" participant, who added that participants often
differed on how much credit should be given to the state for China's economic
development and how big a role the government and party should continue to play.
Even
so, said individuals involved with the report, SASAC bitterly criticized the
proposal in meetings of the "China 2030" group and is expected to try to block
its adoption, out of concern it could lose power. Indeed, many of the
recommendations are considered so politically fraught that the Chinese insisted
that the report be labeled a "conference edition"—meaning that it is subject to
change after comments at the Beijing conference where it will be presented
Monday.
SASAC
didn't immediately respond Wednesday to a request for
comment.
In a
signal of the challenges now faced by Chinese businesses, a gauge of nationwide manufacturing
activity was slightly higher in February but remained in contractionary
territory for the fourth straight month. The preliminary HSBC China
Manufacturing Purchasing Managers Index was 49.7 in February, compared with a
final reading of 48.8 for January, HSBC Holdings PLC said on Wednesday. A
reading below 50 indicates contraction from the previous
month.
China
is vulnerable to a sharp slowdown, said Jun Ma, a Deutsche Bank China economist,
because it relies too heavily on industries that copy foreign technology and
doesn't produce enough breakthroughs of its own.
South Korea was able to
keep growing rapidly after it hit a per-capita income level of $5,000—about
where China is today—because it pushed innovation. However, China lags behind
South Korea badly in patents produced per capita, he
said.
Chinese
local governments often draw much of their revenue from the sale of land, rather
than from taxes. The
report urges that Chinese social spending be funded more by dividends from
state-owned firms and by property, corporate and other taxes. "We'll be
recommending that all resources be put on budget," Mr. Zoellick said in his
Chicago talk, and "that public finance needs to be transparent [and]
accountable."
—Kersten
Zhang and Aaron Back contributed to this article.
Write
to Bob
Davis at bob.davis@wsj.com
AMSTERDAM—While mobile phones are becoming ever
smarter, the batteries that power them are not.
While
this looks unlikely to change any day soon, new technologies to be unveiled at
next week's Mobile World Congress in Barcelona could soon take some of the
stress out of recharging.
Enlarge Image
Close
Bloomberg News
A Duracell Powermat wireless charging dock, shown during
the 2012 International Consumer Electronics Show in
January.
Those
halcyon days, when phones were only used for placing calls and sending texts and
their batteries lasted for more than a week, are gone. New smartphones allow us
to stay in touch with work and friends, contain boarding passes and train
tickets and are likely to become debit and credit cards in the near future, but
they sport batteries that fade within hours.
Duracell, famed as the company of choice for powering
small toy rabbits and part of Procter
& Gamble Co., has been in the battery business for almost a century.
Duracell's President Stassi Anastassov says the main stumbling block to
extending battery life is size.
There
is too little space for the battery in smartphones, he says. "Consumers wants
slim phones and the consumer is king."
The
main reason tablets have a longer working life is that there is enough space for
a powerful battery, he explains.
But Duracell is working on a novel option to
improve the customer experience.
In September, Duracell joined forces with U.S.-Israeli
company Powermat Ltd. Their joint venture, Duracell Powermat, is producing
ultra-thin recharging mats. Duracell plans to equip public places as well as
cars, homes and offices with the special surfaces, allowing mobile phones to
charge wirelessly by simply placing them on the wired mat.
The
firm has ambitious plans: "We start in New York and in five years we want to be
everywhere," Powermat Chief Executive Ran Poliakine said. It plans a launch in
the U.S. this summer and intends to equip the indoor sports arena at New
York's Madison Square Garden so New York Knicks fans "have the opportunity to
charge their smartphones while they cheer for their favorite basketball
team."
The technology is set to reach Europe early
next year.
Duracell Powermat will make announcements about
handsets, supporting the technology in the coming months, Mr. Poliakine says.
In the
U.S., for example, Verizon
Wireless is offering an alternative battery door option on some of its
fourth-generation smartphones which allows wireless charging on Powermats.
The Verizon battery door offer is "an
intermediate step", according to Menno Treffers, senior director of
standardization at Philips Electronics NV. Mr. Treffers is also chairman of the
Wireless Power Consortium, an
organization grouping 107 companies, among them mobile phone makers like HTC
Corp. Google
Inc.'s Motorola, and Samsung Electronics Co. Ltd.
One
of the biggest names in the industry, however, is missing from the Wireless
Power Consortium's member list—iPhone maker Apple
Inc., the top seller of smartphones last year.
While
new regulations have encouraged makers of the latest smartphones to use a
micro-USB port to connect the handset to the charger, Apple alone continues to
use its own port.
While
Mr. Treffers is convinced that long-term there will be just one standard for
wireless charging, as it is for WiFi networks today, he worries Apple may
persist with its own wireless charging standard in the near term, posing a
problem for wireless charging in public spaces.
Apple
didn't reply to an e-mailed request for comment.
In
Japan, the leader in the field, around half of new smartphones are now fitted
for wireless charging. Mr. Treffers estimates some 200 million wireless charging
facilities would be needed to allow consumers to charge virtually anywhere,
requiring an investment of around $1 billion. Restaurants, coffee shops and hair salons are showing
interest as a way to improve customer loyalty much like many bars and coffee
shops now offer free WiFi, he says.
Still, extensive networks of wireless charging
facilities are likely to be a number of years away.
In the meantime another Duracell Powermat
product could prove more popular—a back-up battery that can be charged on the
Powermat and clicked onto smartphones in an emergency. The backup has 1.5 times
the energy of a typical iPhone battery, Mr. Poliakine says and, importantly, it
works with all smartphones including the iPhone.
Write to Archibald Preuschat at archibald.preuschat@dowjones.com
Joel Kotkin and Shashi Parulekar
The
State of the Anglosphere
The
decline of the English-speaking world has been greatly
exaggerated.
The world financial crisis has provoked a stark feeling of decline among many in the West, particularly citizens of what some call the Anglosphere: the United States, Canada, the United Kingdom, Ireland, Australia, and New Zealand. In the United States, for example, roughly 73 percent see the country as on the wrong track, according to an Ipsos MORI poll—a level of dissatisfaction unseen for a generation.
Commentators across the political spectrum have described the Anglosphere as decadent, especially compared with the rising power of China. New York Times columnist Thomas Friedman praises the “reasonably enlightened group of people” who make up China’s one-party autocracy, which, he feels, provides more effective governance than the dysfunctional democracy of Washington, a point echoed in a recent Wall Street Journal op-ed by former Service Employees International Union boss Andy Stern. On the conservative side, author Mark Steyn sees the U.S. and its cultural mother in England as “facing nothing so amiable and genteel as Continental-style ‘decline,’ but something more like sliding off a cliff.” Even Australia, arguably the strongest economy in the Anglosphere, is increasingly troubled, with local declinists decrying the country’s growing dependence on commodity exports to developing nations—above all, to China. “We are to be attendants to an emerging empire: providers of food, energy, resources, commodities and suppliers of services such as education, tourism, gambling/gaming, health (perhaps), and lifestyle property,” frets the Australian’s Bernard Salt.
It’s indisputable that the Anglosphere no longer enjoys the overwhelming global dominance that it once had. What was once a globe-spanning empire is now best understood as a union of language, culture, and shared values. Yet what declinists overlook is that despite its current economic problems, the Anglosphere’s fundamental assets—economic, political, demographic, and cultural—are likely to drive its continued global leadership. The Anglosphere future is brighter than commonly believed.
Start with economics. Like Germany in the
1930s or Japan in the 1970s, China has found that centrally directed economic
systems can achieve rapid, short-term economic growth—and China’s has indeed
been impressive. But over time, the growth record and economic power achieved by
the free-market-oriented English-speaking nations remain peerless. A
little-noted fact these days is that the Anglosphere is still far and away the
world’s largest economic bloc. Overall, it accounts for more than one-quarter of
the world’s GDP—more than $18 trillion. In contrast, what we can refer to as the
Sinosphere—China, Hong Kong, Taiwan, and Macau—accounts for only 15.1 percent of
global GDP, while India generates 5.4 percent (see Chart 1). The Anglosphere’s
per-capita GDP of nearly $45,000 is more than five times that of the Sinosphere
and 13 times that of India (see Chart 2). This condition is unlikely to change
radically any time soon, since the Anglosphere retains important advantages in
virtually every critical economic sector, along with abundant natural resources
and a robust food supply.
Graphs by Robert Pizzo
Not surprisingly, Anglosphere countries retain
close cultural and economic ties with one another. In making foreign direct
investments, the United States shows a strong preference for Anglosphere
countries, especially the United Kingdom and Canada (see Chart 3). The same is
true for Australia, a nation whose economic future might seem to lie with Asia’s
budding economic superpowers. Notwithstanding its worries about becoming a mere
attendant to a rising China, Australia tilts its overseas investment heavily
toward the United Kingdom, the United States, Canada, and New
Zealand.
Anglosphere countries possess overwhelming military superiority to protect their economic interests. While the United States dominates military technology and hardware, Britain ranks fourth in military spending, with both Australia and Canada ranking in the top 15. The U.S. is headquarters to the world’s three largest defense companies: Lockheed, Northrop Grumman, and Boeing. America’s Anglosphere ally Australia has joined informally with Singapore and the Philippines (both are nations where English is spoken widely) to provide a potential regional military counterweight to China.
Anglosphere economic and
military leadership is reflected in, and grows out of, the English-speaking
world’s remarkable technological leadership. The vast majority of the world’s
leading software, biotechnology, and aerospace firms are concentrated in
English-speaking countries. Three-fifths of global pharmaceutical-research
spending comes from Britain and America; more than 450 of the top 500 software
companies in the world are based in the Anglosphere, mainly in the U.S., which
hosts nine of the top ten. Out of the ten fastest-growing software firms, six
are American and one is British. Internet giants like Apple, Google, Facebook,
Microsoft, and Amazon have no foreign equivalents remotely close in size and
influence.
English is an ascendant language, the primary global language of business
and science and the prevailing tongue in a host of key developing countries,
including India, Nigeria, Pakistan, South Africa, Kenya, Malaysia, and
Bangladesh. Over 40 percent of Europeans speak English, while only 19 percent
are Francophone. When German,
Swedish, and Swiss businesspeople venture overseas, they speak not their home
language but English.
Long-run trends in the developing world also point to the expansion of the English language. French schools have been closing even in former French colonies, such as Algeria, Rwanda, and Vietnam, where students have resisted learning the old colonial tongue. English is becoming widely adopted in America’s biggest competitor, China, and it dominates the Gulf economy, where it serves as the language of business in hubs such as Dubai. The Queen’s tongue is, of course, broadly spoken in that other emerging global economic superpower, India, where it has become a vehicle for members of the middle and upper classes to communicate across regional boundaries. In Malaysia, too, English is the language of business, technology, and politics.
With linguistic
ascendancy comes cultural power, and the Anglosphere’s remains uncontested. In
total global sales of media, movies, television, and music, it has no major
competitor. Its exports of movies and TV programs dwarf those of established
European powers like France and Germany and upstarts such as China, Brazil, and
India (see Chart 5). Exports from Hollywood and the cultural capitals of
other Anglosphere countries are growing enormously in developing countries:
Hollywood box-office revenues grew 25 percent in Latin America and 21 percent in
the Asia-Pacific region (with China accounting for 40 percent of that region’s
box office). The hit movie Avatar made over $2 billion outside North
America; in Russia, Hollywood films earn twice as much as their domestic
counterparts. Anglophone preeminence extends to pop music, with Americans
Eminem, Lady Gaga, and Taylor Swift, along with the U.K.’s Susan Boyle, ruling
global charts. Japanese, Korean, and Chinese pop artists do have large
followings in Asia, but the biggest global stars continue to originate in the
Anglosphere. This is true of fashion trends, too: Los Angeles, New York, and
London dominate fashion for everything from sportswear to lingerie in the
increasingly global “mall world.”
Much has been made of the aging of the West, but the English-speaking countries are not graying as rapidly as their historical European rivals are—notably, Germany and Italy—or as Russia and many East Asian countries are. Between 1980 and 2010, the U.S., Canada, and Australia saw big population surges: the U.S.’s expanded by 75 million, to more than 300 million; Canada’s nearly doubled, from 18 million to 34 million; and Australia’s increased from 13 million to 22 million. By contrast, in some European countries, such as Germany, population has remained stagnant, while Russia and Japan have watched their populations begin to shrink.
The U.S. now has 20
people aged 65 or older for every 100 of working age—only a slight change from
1985, when there were 18 for every 100. By 2030, the U.S. will have 33 seniors
per 100 working Americans. But consider the numbers elsewhere. In the world’s
fourth-largest economy, Germany already has 33 elderly people for every 100 of
working age—up from only 21 in 1985. By 2030, this figure will rise to 48,
meaning that there will be barely two working Germans per retiree. The numbers
are even worse in Japan, which currently has 35 seniors per 100 working-age
people, a dramatic change from 1985, when the country had just 15. By 2030, the
ratio is expected to rise to 53 per 100.
Meanwhile, the nation that so many point to as the
twenty-first-century superpower—China—now has a fertility rate of 1.6, even
lower than that of Western Europe. Over the next two decades, its ratio of
workers to retirees is projected to rise from 11 to 23. Other countries, such as
Brazil and Iran, face similar scenarios. These countries, without social safety
nets of the kinds developed in Europe or Japan, may get old before they can get
rich.
These figures will have an impact on the growth of the global
workforce. Between 2000 and 2050, for
example, the U.S. workforce is projected to grow by 37 percent, while China’s
shrinks by 10 percent, the EU’s decreases by 21 percent, and, most strikingly,
Japan’s falls by as much as 40 percent.
In this respect,
immigration presents the most important long-term advantage for the Anglosphere,
which has excelled at incorporating citizens from other cultures. A remarkable
14 million people immigrated to Anglosphere countries over the last decade. The
United States, in particular, remains a powerful magnet: in 2005, it swore in
more new citizens—the vast majority from outside the Anglosphere—than the next
nine countries put together. The U.K. last year also experienced the strongest
immigration in its history.
In sum, post-financial-crisis reports of the Anglosphere’s imminent irrelevance have been exaggerated—wildly.
February
25, 2012, 7:01 am
http://krugman.blogs.nytimes.com/2012/02/25/european-crisis-realities/
European
Crisis Realities
This is not
original, but for reference I find some charts useful. In what
follows I show data for the euro area minus Malta and Cyprus
— 15 countries. I
use red bars for the GIPSIs — Greece, Ireland, Portugal, Spain, IrelandItaly —
and blue bars for everyone else.
There
are basically three stories about the euro crisis in wide circulation: the
Republican story, the German story, and the truth.
The
Republican story is that it’s all about excessive welfare states. How does that
hold up? Well, let’s look at public social expenditures as a share of GDP in
2007, before the crisis, from the OECD Factbook:
Hmm,
only Italy is in the top five — and Germany’s welfare state was
bigger.
OK,
the German story is that it’s about fiscal profligacy, running excessive
deficits. From the IMF WEO
database, here’s the average budget deficit between 1999 (the
beginning of the euro) and 2007:
Greece
is there, and Italy (although its deficits were not very big, and the ratio of
debt to GDP fell over the period). But Portugal doesn’t stand out, and Spain and
Ireland were models of virtue.
Finally,
let’s look at the balance of payments — the current account deficit, which is
the flip side of capital inflows (also from the IMF):
We’re
doing a lot better here — especially when you bear in mind that Estonia, a
recent entrant to the euro, had an 18 percent decline in real GDP between 2007
and 2009. (See Edward
Hugh on why you shouldn’t make too much of the
bounceback.)
What
we’re basically looking at, then, is a balance of payments problem, in which
capital flooded south after the creation of the euro, leading to overvaluation
in southern Europe.
It’s not a perfect fit — Italy managed to have relatively high inflation without
large trade deficits. But it’s the main way you should think about where we
are.
And
the key point is that the two false diagnoses lead to policies that don’t
address the real problem. You
can slash the welfare state all you want (and the right wants to slash it down
to bathtub-drowning size), but this has very little to do with export
competitiveness. You can pursue crippling fiscal austerity, but this improves
the external balance only by driving down the economy and hence import demand,
with maybe, maybe, a gradual “ internal devaluation” caused by high
unemployment.
Now,
if you’re running a peripheral nation, and the troika demands austerity, you
have no choice except the nuclear option of leaving the euro
FEBRUARY
23, 2012
David
Henderson
Over
the years, In
discussing the alleged decline in real U.S. median wages, I've pointed out that
there are two important ways in which the growth in real wages has been
understated:
(1) The inflation adjustment used to
compare wages over time is the Consumer Price Index. As Michael
Boskin has shown, the CPI overstates the increase in
the cost of living.
(2) The wage data typically exclude
non-monetary benefits, one of the main ones of which is health insurance. Of
course, health insurance has been getting more expensive but one reason is that
we're getting more for it.
But I
had an interesting conversation with one of my favorite liberal economists
("liberal" in the statist sense of that word), Ken Judd, at Hoover a couple of
weeks ago. Ken grew up on a farm in Wisconsin and worked 7 days a week from a
fairly early age: milking cows, etc. This was in all types of weather: cold,
heat, rain, snow, etc. But now, he pointed out, so many jobs are so much more
comfortable: workers in manufacturing plants who have air conditioning, etc.
This, he noted, is an increase in real wages.
Moreover,
there's been a secular decline in fatality rates on most jobs. That doesn't get
captured in wage data. In fact, all else equal, wages are lower when jobs get
safer.
|
Printable Format for http://www.econlib.org/library/Enc/JobSafety.html | |
Job
Safety
by W.
Kip Viscusi |
Related CEE Articles:
Related CEE Biographies:
Many people believe that
employers do not care about workplace safety. If the government were not
regulating job safety, they contend, workplaces would be unsafe. In fact,
employers have many incentives to make workplaces safe. Since the time of Adam Smith, economists have observed that
workers demand “compensating differentials” (i.e., wage premiums) for the risks
they face. The extra pay for job hazards, in effect, establishes the price
employers must pay for an unsafe workplace. Wage premiums paid to U.S. workers
for risking injury are huge; they amount to about $245 billion annually (in 2004
dollars), more than 2 percent of the gross domestic product and 5 percent of
total wages paid. These wage premiums give firms an incentive to invest in job
safety because an employer who makes the workplace safer can reduce the wages he
pays.
Employers have a second incentive because they
must pay higher premiums for workers’ compensation if accident rates are high.
And the threat of lawsuits over products used in the workplace gives sellers of
these products another reason to reduce risks. Of course, the threat of lawsuits
gives employers an incentive to care about safety only if they anticipate the
lawsuits. In the case of asbestos litigation, for example, liability was deferred by several decades after
the initial exposure to asbestos. Even if firms had been cognizant of the extent
of the health risk—and many were not—none of them could have anticipated the
shift in legal doctrine that, in effect, imposed liability retroactively. Thus,
it is for acute accidents rather than unanticipated diseases that the tort
liability system bolsters the safety incentives generated by the market for
safety.
How well does the safety market work? For it
to work well, workers must have some knowledge of the risks they face. And they
do. One study of how 496 workers perceived job hazards found that the greater
the risk of injury in an industry, the higher the proportion of workers in that
industry who saw their job as dangerous. In industries with five or fewer
disabling injuries per million hours worked, such as women’s outerwear
manufacturing and the communication equipment industry, only 24 percent of
surveyed workers considered their jobs dangerous. But in industries with forty
or more disabling injuries per million hours, such as the logging and meat
products industries, 100 percent of the workers knew that their jobs were dangerous. That workers know the dangers makes sense. Many
hazards, such as visible safety risks, can be readily monitored. Moreover, some
dimly understood health risks are often linked to noxious exposures and dust
levels that workers can monitor. Also, symptoms sometimes flag the onset of some
more serious ailment. Byssinosis, for example, a disease that afflicts workers
exposed to cotton dust, proceeds in stages.
Even when workers are not well informed, they
do not necessarily assume that risks are zero. According to a large body of
research, people systematically overestimate small risks and underestimate large
ones. If workers overestimate the probability of an injury that occurs
infrequently—for example, exposure to a highly publicized potential carcinogen,
such as secondhand smoke—then employers will have too great an incentive to
reduce this hazard. The opposite is also true: when workers underestimate the
likelihood of more frequent kinds of injuries, such as falls and motor vehicle
accidents on the job, employers may invest too little in preventing those
injuries.
The bottom line is that market forces have a
powerful influence on job safety. The $245 billion in annual wage premiums
referred to earlier is in addition to the value of workers’ compensation.
Workers on moderately risky blue-collar jobs, whose annual risk of getting
killed is 1 in 25,000, earn a premium of $280 per year. The imputed compensation
per “statistical death” (25,000 times $280) is therefore $7 million. Even
workers such as coal miners and firemen, who are not strongly averse to risk and
who have knowingly chosen extremely risky jobs, receive compensation on the
order of $1 million per statistical death.
These wage premiums are the amount workers
insist on being paid for taking risks—that is, the amount workers would
willingly forgo to avoid the risk. Employers will eliminate hazards only when it
costs them less than what they will save in the form of lower wage premiums. For
example, the employer will spend $10,000 to eliminate a risk if doing so allows
the employer to pay $11,000 less in wages. Costlier reductions in risk are not
worthwhile to employees (since they would rather take the risk and get the
higher pay) and are not voluntarily undertaken by
employers.
Other evidence that the safety market works
comes from the decrease in the riskiness of jobs throughout the century. One
would predict that, as workers become wealthier, they will be less desperate to
earn money and will therefore demand more safety. The historical data show that
this is what employees have done and that employers have responded by providing
more safety. As per capita disposable income per year rose from $1,085 (in 1970
prices) in 1933 to $3,376 in 1970, death rates on the job dropped from 37 per
100,000 workers to 18 per 100,000. Since 1997, fatality rates have been less
than 4 per 100,000.
The impetus for these improvements has been
increased societal wealth. Every 10 percent increase in people’s income leads
them to increase by 6 percent the price they charge employers for bearing risk.
That is, their value of statistical life increases, boosting the wages required
to attract workers to risky jobs.
Despite this strong evidence that the market
for safety works, not all workers are fully informed about the risks they face.
They may be uninformed about little-understood health hazards that have not yet
been called to their attention. But even where workers’ information is imperfect, additional market
forces are at work. Survey results indicate that of all workers who quit
manufacturing jobs, more than one-third do so when they discover that the
hazards are greater than they initially believed. Losing employees costs money.
Production suffers while companies train replacements. Companies, therefore,
have an incentive to provide a safe work environment, or at least to inform
prospective workers of the dangers. Although the net effect of these market
processes does not always ensure the optimal amount of safety, the incentives
for safety are substantial.
Beginning with the passage of the Occupational
Safety and Health Act of 1970, the federal government has attempted to augment
these safety incentives, primarily by specifying technological standards for
workplace design. These government attempts to influence safety decisions
formerly made by companies generated substantial controversy and, in some cases,
imposed huge costs. A particularly extreme example is the 1987 OSHA formaldehyde
standard, which imposed costs of $78 billion for each life that the regulation is expected to save. Because the U.S.
Supreme Court has ruled that OSHA regulations cannot be subject to a formal
cost-benefit test, there is no legal prohibition against regulatory excesses.
However, OSHA sometimes takes account of costs while designing regulations. For
example, OSHA set the cotton dust standard at a level beyond which compliance
costs would have grown explosively.
Increases in safety from OSHA’s activities
have fallen short of expectations. According to some economists’ estimates, OSHA
regulations have reduced workplace injuries by, at most, 2–4 percent. Why such a
modest impact on risks? One reason is that the financial incentives for safety
imposed by OSHA are comparatively small. Although total penalties have increased
dramatically since 1986, they averaged less than $10 million per year for many
years of the agency’s operation. By 2002, the total annual
OSHA penalties levied had reached $149 million. The $245 billion wage premium
that workers “charge” for risk is more than sixteen hundred times as
large.
The workers’ compensation system that has been
in place in the United States since the early twentieth century also gives
companies strong incentives to make workplaces safe. Premiums for workers’
compensation, which employers pay, totaled $26 billion annually as of 2001.
Particularly for large firms, these premiums are strongly linked to their injury
performance. Statistical studies indicate that in the absence of the workers’
compensation system, workplace death rates would rise by 27 percent. This
estimate assumes, however, that workers’ compensation would not be replaced by
tort liability or higher market wage premiums. The strong performance of
workers’ compensation, particularly when contrasted with the command-and-control
approach of OSHA regulation, has led many economists to suggest that an injury
tax be instituted as an alternative to the current regulatory
standards.
The main implication of economists’ analysis
of job safety is that financial incentives matter and that the market for job
safety is alive and well.
W. Kip Viscusi is the University Distinguished
Professor of Law, Economics, and Management at Vanderbilt University. He is the
founding editor of the Journal of Risk and Uncertainty. Viscusi was also
deputy director of President Jimmy Carter’s Council on Wage and Price Stability,
which was responsible for White House oversight of new
regulations.
PARIS—French
presidential front-runner François Hollande said taxpayers earning over €1
million ($1.35 million) a year would be subjected to a special 75% tax bracket
should he be elected, underscoring heightened interest across Europe in raising
taxes on the wealthiest individuals.
Speaking
on French television late Monday, the Socialist candidate lamented the
"considerable increase" in French corporate executives' pay, which he put at €2
million a year on average. "How can we accept that?" asked Mr.
Hollande.
Enlarge
Image
Maxppp/Zuma
Press
Socialist
Party presidential candidate François Hollande visits the International
Agricultural Show in Paris on Tuesday.
Read
more about the presidential hopefuls
Opinion
polls for the five leading candidates
Key
dates
His
proposal caused an uproar in the ruling UMP party, and surprised even Mr.
Hollande's own advisers. Jérôme Cahuzac, head of the National Assembly's budget
commission and a close ally of Mr. Hollande, appeared to learn of the
candidate's proposal during a live TV interview. "You're questioning me about a
proposal I haven't heard of," he told his interviewer.
President
Nicolas Sarkozy pointed to the "appalling amateurism" of his opponent's
proposals.
But
Mr. Hollande stuck to his proposal on Tuesday. "It's a message of social
cohesion....It's a matter of patriotism," he told journalists on his way in to
Paris's annual agriculture fair.
Hear
six families—from Greece, Spain, France, Germany, Italy and the Netherlands—tell
their stories.
See
economic, political and markets news from across Europe as governments and
financial institutions deal with the continuing debt
crisis.
Across
Europe, the idea of raising taxes on high-income earners began to burgeon three
years ago, when the Continent started to descend into recession. In 2009, the
U.K. government increased its top marginal income-tax rate to 50% from 40%. In
the U.S., the top 1% of earners have been the target of widespread protests
under the umbrella of the Occupy Wall Street movement.
Mr.
Sarkozy's government has already slapped a 3% temporary levy on high revenue to
be applied to those with a taxable income exceeding €500,000 a year.
But
Mr. Hollande's proposal is more extreme and underscores his bid to draw in
leftist voters ahead of the April 22 first round of the presidential
poll.
Messrs.
Hollande and Sarkozy are widely predicted to make it past the first round to
compete in a run-off on May 6, where the Socialist has a convincing lead,
according to opinion polls. But Mr. Sarkozy has regained some ground since
officially declaring his candidacy on Feb. 15 and hitting the campaign trail.
Mr.
Hollande has already vowed to introduce a new, higher rate of income tax for
those earning over €150,000 a year, who would face a marginal rate of 45%,
rather than 41% now; pledged to cut taxes on profit for small and midsize
companies, and scrap €29 billion of tax breaks introduced by Mr. Sarkozy. Mr.
Hollande's proposal to set the marginal tax rate at 75% would apply only to
income above €1 million.
Analysts
said the measure would have limited impact.
According
to a 2009 French Senate study, the 0.01% richest French taxpayers, or 3,523
households, had an average yearly revenue of €1.22 million.
"It's
a populist measure, because it concerns very few people and it's not going to
bring a significant amount of money into the public coffers," said Emiliano
Grossman, a political-science professor at Sciences Po in
Paris.
The
wealthiest taxpayers usually manage to cut their overall tax rate
substantially.
In France, the
wealthiest 0.1% of taxpayers have an overall tax rate of 17.5%, according to the
2009 study.
Enlarge
Image
European
Pressphoto Agency
Socialist
Party candidate for the 2012 presidential election, François Hollande (center,
with raised glass), at a wine degustation at the Paris international
agricultural fair on Tuesday.
Revenue
disparity, which has been on the rise in most industrialized economies since the
1980s, has remained relatively contained in France, according to an Organization
for Economic Cooperation and Development study published in December.
The top 1% taxpayers in
France earn less than half the average earned by the top 1% in the
U.S.
Some
wealthy taxpayers scoffed at the idea. "This proposal is ridiculous," said
Ernest-Antoine Seillière, the former head of Medef, the country's business
lobby, who is chairman of the supervisory board of Wendel, a holding
company.
Mr.
Hollande is feeding into widespread resentment in the euro zone against the
super-rich and particularly against tax evaders at a time when many Europeans
are keenly feeling the impact of the protracted sovereign-debt crisis.
Mr.
Sarkozy has been trying to rub out his rich-friendly image. He recently unveiled
a raft of proposals ranging from the overhaul of remuneration systems for top
executives to reforms in welfare for poor workers.
The
president also has conceded mistakes during his five-year mandate. He said, for
example, that he wouldn't go back to Fouquet's, the restaurant on the
Champs-Élysées where he celebrated his victory in the 2007 presidential
elections with many top executives and industrialists.
Write
to Gabriele
Parussini at gabriele.parussini@dowjones.com
DUBLIN—The Irish government called a
referendum on the new European Union budget-discipline treaty, a vote that would
have little impact on the pact's implementation but could cost Ireland access to
future bailouts.
Irish
Prime Minister Enda Kenny told Parliament he made the decision after advice from
his attorney general, Máire Whelan, who indicated the Irish constitution "on
balance" requires it.
Enlarge
Image
Reuters
Irish
Prime Minister Enda Kenny, pictured in Rome last week.
See
economic, political and markets news from across Europe as governments and
financial institutions deal with the continuing debt
crisis.
The
timing of the vote isn't clear, but it could be held as soon as a few weeks from
now. An opinion poll
last month suggested a large majority of Irish voters wanted a vote, but only a
small majority would approve the treaty.
A
rejection by Irish voters—who have said no to EU referendums in the
past—wouldn't kill the fiscal compact, which requires the approval of only 12 of
the 17 euro-zone countries to come into force.
The
rest of the euro zone had hoped to avoid such a vote, which could signal to
investors that the plan to bring more fiscal unity to Europe isn't well received
by the people it is supposed to benefit.
But
rejecting the treaty could have major ramifications for Ireland.
The
government's existing loans from the temporary European Financial Stability
Facility wouldn't be affected if voters rejected the compact, and the government
insists it will be able to meet its borrowing needs from the bond market after
that facility expires next year.
But
refusal to participate in the fiscal compact would deny the Irish government
access to financial help from the bloc's new and permanent bailout fund, the
European Stability Mechanism, if another bailout were to be
necessary.
Rejection
also could have broader implications for Ireland's membership of the euro zone.
Government ministers have repeatedly said a rejection of the fiscal compact
would be a rejection of euro-zone membership.
That
might be exaggerating the case in order to frighten voters into backing the
pact, but the rhetoric places Ireland in an awkward position if the treaty is
rejected.
"The
process will continue in many other countries as planned and one must also
remember that it will take the commitment of 12 countries for this to be brought
into effect, so this is, of course, an important issue for the EU, but it is
very much an important issue for Ireland," said Nicolai Wammen, Danish minister
for European affairs.
The
government coalition had tried to head off a vote, given that austerity measures
tied to the country's bailout from the EU, the International Monetary Fund and
the European Central Bank have made EU institutions unpopular with the Irish.
The
coalition government now faces a difficult campaign, despite having the support
of the largest opposition party, Fianna Fáil.
"Ratification
of this treaty will be another important step in the rebuilding of Ireland's
economy and of our reputation," Mr. Kenny told lawmakers.
"It
will give the Irish people the opportunity to reaffirm Ireland's commitment to
membership of the euro, which remains the fundamental pillar of our economic and
jobs strategy," he said.
Joe
Higgins, a lawmaker with the Socialist Party, said he would look for the Irish
people to reject the treaty on the basis that it will bring in austerity in
Ireland and across Europe "in perpetuity."
"Opponents
will cast it as a vote for the bailout, austerity and a vote for the European
Central Bank, which are all unpopular," said Ben Tonra, a professor of
international relations at University College Dublin.
The
Irish government will now aim to strengthen its hand with voters by seeking a
deal with its bailout lenders to lessen the country's debt burden.
It has
held talks with its bailout lenders on rescheduling about €31 billion ($41.5
billion) in promissory notes pumped into failed banks, such as Anglo Irish Bank
Corp., and will now seek to clinch a deal on the notes before any public vote.
Despite
the possibility that treaty rejection would deprive the government future access
to bailouts, prices of
Irish government bonds were little moved.
—Matthew
Dalton in Brussels contributed to this article.
Write
to Eamon
Quinn at eamon.quinn@dowjones.com
Sentiment
towards the Germans isn't very good in [Southern Europe] right now. Hardly a day
goes by without Chancellor Angela Merkel being depicted in a Nazi uniform
somewhere. Swastikas are a common sight as well. It doesn't seem to help at all
that we faithfully approve one aid package after the other. . .
.
It
won't be long before they start burning German flags. But wait, they're already
doing that. Previously we had only known that from Arab countries, where the
youth would take every opportunity to run through the streets to rage against
that great Satan, the USA. But that's how things go when others consider a
country to be too successful, too self-confident and too strong. We've now
become the Americans of Europe. . . .
But
before we complain too much about all this ingratitude, we should remind
ourselves that we ourselves spent years passing the buck. As long as the global
villain was America, the Germans joined in when it came to feeling good at the
expense of others. The Americans also had every reason to expect a little more
gratitude—after all, it was their soldiers who had to intervene when a dictator
somewhere lived out his bloody fantasies while the international community stood
by wringing its hands.
People
came to secretly rely on the USA as a global cop in the same way that Germany's
neighbors are now expecting the Germans to save the euro.
A
recent spate of studies has proclaimed the superiority of East Asia's "tiger
education" over the West's less beastly variety. But while the model has its
strong points, the hidden costs will surely give pause to any American mothers
considering growing fangs.
Australia's
Grattan Institute conducted a study that shows it is not tiger
mothers, strict discipline or Confucianism that dictates high student scores,
but national focus—even fixation—on education spending. The top
four of the five best test performers in the study were, not coincidentally,
from East Asia: South Korea, Singapore, Shanghai and Hong Kong. By age 15,
students in Shanghai were found to be two to three years ahead of their Western
counterparts, while South Korea spends double the U.S. amount in its primary
education. The South
Korean college matriculation rate, 80%, is higher than the American one for high
school.
For
those who see such findings as showing a "sunset scenario" for Western education
(or the West in general), a candid look at a typical "tiger society" is in
order. The national education obsession leads to vicious, counterproductive
competition and, in the end, more studying than real
learning.
With
few natural resources in South Korea, Singapore and Hong Kong, the rigorous
education of Asia's general population helped lead East Asia to achieve
remarkable and rapid economic growth. Education was a big part of the East Asian
success story. In the aftermath of World War II and the Korean War, which
ravished a significant portion of the region's industrial infrastructure, a
typical parent would proclaim, "Although I may eat meagerly and wear rags as
clothes, I still want my children to receive the best education possible."
But
this spirit, so beneficial in decades past, has led today to a different
problem altogether: overeducating. A typical East Asian high school student
often must follow a 5 a.m. to midnight compressed schedule, filled with class
instruction followed by private institute courses, for up to six days a week,
with little or no room for socializing.
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Getty
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The
kids are exhausted, stressed and overeducated.
As a
so-called tiger educator in South Korea at the world's largest women's
university (with some 24,000 students), I can attest to the importance placed on
education, at both the national and individual level. Asian parents, nearly without
exception, demand that their children attend an elite university. Parents are
typically involved in the smallest minutiae of their children's education. Such
tiger mothers (tiger fathers are still extremely rare) always want to be seen as
close to their children, and hover around them physically and mentally.
The
goal of this parental fervor is not simply to guarantee their child a good job
and economic security, but also to gain them entrance into an elite educated
class with better marriage prospects and prestige. An invisible caste system still
prevails.
While
some of East Asia's "education fever" may sound endearing or even necessary,
those who nodded along
to Yale Law School's Amy Chua in her tiger tales don't know what they are
getting themselves into. The competition for an elite education
in South Korea does not start in high school, it begins at birth. Parents
strategize how to get their child into the best preschool possible, which
according to the thinking, will then get them into the best kindergarten and on
up to the most elite university.
Such
upbringing naturally requires a great deal of time and money, which only the
most well-positioned families can afford. Thus, the rich get richer and the poor
get poorer under today's tiger education system.
Here
in Korea, as in many East Asian countries, the greatest determinant of elite
university acceptance falls on one test on one day—the national university
entrance exam. On this day, the country effectively comes to a grinding halt.
late
exam takers can call a special number for a police escort to take the student
directly to the testing sitSubways are mandated to run more frequently, aircraft
are restricted from flying over test centers, workers are told to begin their
day later and e. In a culture where failure is rarely if ever tolerated, the
pressure to perform on Korea's aspiring (and tired) 17-year-olds is
unimaginable.
If on
this test-taking "D-Day," the student hits a home run, she is set for life. But
anything short of this may leave a student feeling like a permanent failure.
Few employers are
interested in graduates from second-tier
universities.
As a
tiger education insider, I can attest that throughout this
cradle-to-cap-and-gown marathon of studying, very little actual learning occurs.
South Korea's raw testing numbers, which look great on international
education surveys, obscure the fact that students generally cannot engage a
question with critical analysis. They know the what, but don't know the why.
In this new century, outside the box thinking will matter more than South
Korea's test-taking skills.
Mr.
Kim is a professor at the Graduate School of International Studies at Ewha
Womans University in Seoul.
Environmentalists
have long complained that the San Joaquin-Sacramento River Delta's pumps, which
send water to Central Valley farmers and southern California residents, trap and
kill fish. In 2006 the Natural Resources Defense Council sued the U.S. Fish and
Wildlife Service for issuing a biological opinion that supported pumping more
water south because the agency didn't analyze how the pumping might affect the
smelt. A federal court ordered the agency to be more mindful of the smelt.
So the
agency demanded that water regulators reduce
pumping.
The National Marine Fisheries Services joined the fun by recommending that
regulators restrict pumping to protect salmon, sturgeon and steelhead too. These
opinions have superceded the water contracts of farmers and resulted in 3.4
million acre-feet of fresh water flowing into San Francisco Bay each year—enough
to irrigate over a million acres of land.
More
than 10,000 farm jobs have been lost as a result, and regional unemployment
stands at about 15%. Environmentalists blame the water shortages on drought, but
even in wet years farmers aren't getting the water they're
due.
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AFP/Getty
Images
Farmers
aren't getting the water they're due as a result of water pump limitations on
the San Joaquin-Sacramento River Delta.
The
kicker is that the biggest threat to the smelt might be other fish. The National
Academy of Sciences noted in a 2010 report that factors other than the water
pumps appear to be contributing to the smelt's decline, namely nonnative
predatory fish and pollution from wastewater treatment plants. Environmentalists
still blame the pumps since they want to shrink the state's corporate
agribusinesses, which produce more than half of America's fruits and vegetables.
Maybe farmers should petition the Interior Department for protection against
predatory environmentalists.
At any
rate, even the same
federal court now thinks the feds have gone too far. In a lawsuit brought by the
water districts against the Fish and Wildlife Service in 2010, the court scored
the agency for not considering "reasonable and prudent alternatives" that
minimized the impact on humans and for attempting to "mislead and to deceive the
Court into accepting what is not only not the best science, it's not science."
The
court ordered the agency to revise its biological opinion, but the Natural
Resources Defense Council has appealed. Meanwhile, regulators have told farmers
to expect only 30% of their contractual water allowance this year. Good
grief.
GOP
Congressman Devin Nunes of Fresno is trying to restore some certainty to farmers
and sanity in the water wars. He's introduced legislation that would cap the
amount of water that annually flows into the Bay at 800,000 acre-feet per year,
which is what Congress agreed to in 1992 before environmentalists started
suing.
The
House is expected to pass his bill Wednesday, but its prospects in the Senate
are less sanguine. California's Democratic Senators Dianne Feinstein and Barbara
Boxer have dismissed it as "overkill" and called for "consensus-based solutions
that respect the interests of all stakeholders."
Funny,
that's what the environmentalist groups are saying too. Trouble is they seem to
think that the most important stakeholders are the fish.
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