1. Another tax hike in Germany.
*2. TITLE: Why Latin Nations Are Poor
3. A Model for Central Asia-Kazakhstan's
4. Turkish tax cuts show that tax competition continues
to produce good resul
5. Immigration as random rationing Dec 1, 2005 by
Alan Reynolds ( bio | archive | contact )
*6. The Great Escape- Interview with Econ Nobel Lauret
Robert Fogel
7. Great Awakenings By George Will
Published June 1, 2000
8. The Promise of Vouchers By MILTON FRIEDMAN WSJ
December 5, 2005; Page A20
9. Brazil Outlines Proposal to Pare Industrial Tariffs
Move Is a Bid to Spur EU, U.S. to Reduce Farm Duties Ahead of WTO Meeting
10. WHY THE RICH MUST GET RICHER
11. Who Pays for Farm Subsidies?
*12. HOW THE LOSS OF PROPERTY RIGHTS CAUSED ZIMBABWE'S
COLLAPSE
13. Buying Bridges From Australia, Money Chases Roads,
Airports Around Globe Forced-Savings Plan Creates Big War Chest That Banks
Match Up With Projects
*14. The Greater of Two Evils(on privatizing water
in LDCs)
15. South Korea Watchdog Fines Microsoft $32M
*16. Iraq and the Corruption Trap By Arnold Kling
Published 12/07/2005
*'17. What Causes Prosperity?' By Arnold Kling
Published 12/03/2002
18.AUSTRALIA'S WATER WORKS
*19. Malaria's Toll By JASON L. RILEY WSJ August 21,
2006; Page A11
20. OPEN THE SPIGOTS
21. THE ECONOMICS OF FEAR
22.A Liberal, Radical and Progressive Manifesto a
review of Deepak Lal new book
23. Global tax-cut revolution reaches Colombia
24. Reaganomics at 25
25. World Bank Raises China GDP Forecast
26. EVOLUTION: HUMANS LARGER, HEALTHIER, LIVE
LONGER
*27. "Water, Water Everywhere, But..."
F
28. Common Currency, Uncommon Problems
*29. SOCIALISM IN REVERSE
30. ARE SOME PEOPLE NATURALLY CORRUPT?
31. What Do NGOs Have Against Poor Guatemalans?
32. Interview with R. Barro http://www.econtalk.org/July
17, 2006, Featuring Robert Barro
33. Spending Warren's Money
34. LAST TANGO IN PARIS
35. France's New Poverty
36. Foreign Aid and the Weakening of Democratic Accountability
in Uganda
37. Why China Stagnated Don Boudreaux http://cafehayek.typepad.com/hayek/
38. Does Culture Affect Economic Outcomes?
39. Estonia Creates an Economic Miracle A conversation
with Friedman Prize winner Mart Laar
40. Democracy Lives By MARY ANASTASIA O'GRADYWSJ July
5, 2006; Page A24
1. Another tax hike in Germany. It must be extremely depressing to be a German taxpayer. The former government was controlled by socialists who thought high taxes and high spending were a recipe for prosperity. Instead, German unemployment climbed to about 5 million people. So what happened when a new coalition government came to power? If you guessed lower taxes and smaller government, put on your dunce cap. That would be much too logical. Instead, Angela Merkel is acting like the German version of Ted Kennedy rather than a continental version of Margaret Thatcher. The value-added tax is going up. The top income tax rate is going up. But, as Tax-news.com reports, the greed for more revenue is so great that other taxes are being raised as well. Some might argue that this tax hike is closing a loophole, but that still means more money for government to waste unless the revenue is being used to finance lower tax rates:
Germany's new coalition
government announced last week that a tax break for investors in certain
funds will be scrapped in a bid to recoup around EUR2 billion (US$2.4 billion)
annually for the government in lost tax revenues. As a result of a new
bill approved by the German Cabinet at its first legislative session on
Thursday, individuals who invest in specialist closed funds, such as those
concerned with film and media financing, shares in commercial shipping
operations, wind farms and leasing, will no longer be permitted to write
off losses against income tax. ...The move also represents a step towards
Chancellor Angela Merkel's goal of narrowing the country's EUR35 billion
budget deficit in order to bring its finances back into line with the European
Union's Stability and Growth Pact, which underpins the euro.
http://www.tax-news.com/asp/story/story_open.asp?storyname=21892
2. TITLE: Why Latin Nations Are Poor
REPORTER: Mary Anastasia O'Grady
DATE: Nov 25, 2005
PAGE: A11
LINK: http://online.wsj.com/article/SB113287927625106145.html
TOPICS: Economic Growth
SUMMARY: This opinion article analyzes the factors that
have contributed to
slow growth in Latin America. The author of this
article argues that Latin
American governments are less burdensome and property
rights are stronger than
in Africa. But Latin America lags behind much of
Asia and parts of Eastern
Europe on these criteria. An example of burdensome
government regulations is
that in Mexico it costs a firm an average of 75 weeks
pay to fire a worker. In
Peru, a medium-sized business faces a tax burden of 51%.
Medium-sized firms in
Columbia face a tax burden of 75% on gross profits.
According to public choice
theory, governments act in their own self-interest which
means that they aim to
please the best-organized and most well-funded constituents.
The views of
these constituents might not be consistent with the views
of the majority of
voters in the country. So although economic reforms
would bring about
prosperity for the majority of voters, special interest
groups lobby against
such reforms to protect their narrow interests.
These political pressures
result in slow growth in the economies of Latin America.
QUESTIONS:
1.) What are "property rights?" What does it mean
for a country to have weak
property rights?
2.) Explain how weak property rights are detrimental
for long-term economic
growth.
3.) According to neoclassical growth theory, what is
the primary determinant of
long-term growth?
4.) What is regulatory burden and how does it affect
long-term growth?
5.) According to public choice theory, why don't the
political systems in Latin
America produce reforms that would benefit the majority
of voters?
Reviewed By: Edward Gamber, Lafayette College
3. A Model for Central Asia-Kazakhstan's
By VLADIMIR SOCOR
WSJ December 2, 2005
Kazakhstan's president, strongman Nursultan Nazarbayev, will almost certainly be returned to power on Sunday, when the country heads to the polls. His rule of this vast Central Asian country, held since the fall of the former Soviet Union, has prioritized stability. But thankfully, Mr. Nazarbayev is driven by economic incentives that will hopefully move the country along a democratic path in coming years.
To understand Kazakhstan's trajectory, it is essential to place the country's elections in a historical and regional context. Prior to 1991, Kazakhstan was a vast repository of deported people and home to a massive collapse of a continental-scale experiment in collectivized agriculture. She suffered huge demographic losses to her indigenous population and endured ecological disasters caused by fallout from Moscow's nuclear blasts and missile flights at Kazakh testing ranges. Moscow seized all income from Kazakhstan's oil and gas production; but, fortunately, it was barely able to scratch the surface of her immense energy reserves.
Fortunately, Kazakhstan is now on the road to prosperity from extreme poverty, thanks to the development of those reserves by Western consortiums. Kazakhstan attracts more foreign direct investment per capita than any other former Soviet-ruled country. Kazakhstan readily agrees to Western ownership of mineral deposits, which makes it (along with Azerbaijan) an exception among oil-rich states. Kazakhstan's private banking system is also regarded as a regional example for Central Asia and beyond.
Kazakhstan is also -- remarkably, after the Soviet oppression of ethnicity and faith -- an Asian model of ethnic and religious tolerance, with various groups, houses of worship, and languages mingling without incident. For the first time in two generations, Kazakhs are now again in the majority. Mr. Nazarbayev is promoting an overarching, civic-secular identity for all ethnicities and denominations to guarantee long-term stability. While democratic institutions are in an early stage of development, a multi-party system has taken shape, and the print media offer differing interpretations of events, though television is state-dominated. As in most countries with no prior concept of democracy, opposition parties are pressing for a faster opening of the political system than the authorities deem prudent.
In many ways, Kazakhstan looks like a success compared to its neighbors. To its south, Turkmenistan -- under Russian pressure -- has shut out the West from access to the country's world-class reserves of natural gas, while Uzbekistan, the region's strategic linchpin, has just evicted the U.S. military from the country and signed (almost overnight) an alliance treaty with Russia. On Kazakhstan's southeastern border, the unreformed Kyrgyzstan has been thrown into violent chaos by a botched "color revolution" that reduced U.S. influence there, while increasing the Kremlin's.
To Kazakhstan's north, across the world's longest land border, Russia is returning to political autocracy and projecting its influence into Central Asia. To the east, China is aggressively competing for direct access to oilfields in Kazakhstan, seeking to divert those fields' output away from the global market. Kazakhstan is keen to maintain good relations with both of these great-power neighbors, but looks to the United States to balance them. And it looks to American and West European companies to develop Kazakhstan's oil and gas reserves for export to international markets.
That's no small deal. Kazakhstan currently produces some 50 million tons of oil annually, but its richest fields are yet to come fully on stream. Oil output is projected at approximately 100 million tons by 2010 and at least 150 million tons annually by 2015 and thereafter. Volumes of such magnitude can restrain prices on international energy markets and simultaneously help reduce Europe's excessive dependence on Middle Eastern and Russian supplies. Moreover, Kazakhstan's large potential as a natural gas exporter is only now beginning to attract serious attention.
In sum, Kazakhstan is now the only country in Central Asia that advances -- in its own national interest -- all three basic goals of U.S. and allied policies toward Central Asian countries: access to energy supplies, cooperation against terrorism and related threats, and economic and political reforms in its incremental, but eventual -- transition to democracy. U.S. President George Bush acknowledged Kazakhstan's progress in an unusually warm letter to Mr. Nazarbayev recently, after two years of spotty attention to Kazakhstan in Washington and in the wake of policy setbacks in Kyrgyzstan and Uzbekistan. Mr. Bush encouraged a clean presidential election, in the interest of advancing the development of democratic institutions, while boosting the authorities' legitimacy and international credibility.
Sunday's presidential election will be intensely scrutinized by international observers. U.S. and European expectations are high. But regardless of the outcome, foreigners should view this election as a stage in a continuing learning process and acknowledge the likely improvements in comparison to past elections. Western acknowledgment of such improvements provides a strong incentive -- and failure to recognize, a disincentive -- to continuing advances on a long and unfamiliar road to democracy for this Western-friendly country of strategic import.
Mr. Socor is a senior fellow at the Washington-based Jamestown
Foundation, publishers of the Eurasia Daily Monitor.
4. Turkish tax cuts show that tax competition continues to produce good result. A Tax-news.com story explains that Turkey's government is cutting personal and corporate tax rates. These reductions - particularly the 10 percentage point reduction in the corporate rate - are the result of tax competition:
Turkish Prime Minister
Recep Tayyip Erdogan, announced on Tuesday that the government will seek
to bring about a substantial reduction in the country's personal and company
tax burden in order to compete more effectively with the European Union
and reduce tax evasion. ...the standard rate of corporate tax will be cut
by 10% to 20% while the overall tax burden for companies will be reduced
to about 28% from the current 37%. ...Turkey is now facing intense tax
competition from nearby countries in Eastern Europe that joined the European
Union in 2004, some of which are aggressively reducing rates in order to
attract foreign businesses. ...Mr Erdogan's announcement was welcomed by
the country's stock market, which rose by 2% after the Prime Minister's
speech.
http://www.tax-news.com/asp/story/story_open.asp?storyname=2194
5. Immigration as random rationing Dec 1, 2005 by Alan Reynolds ( bio | archive | contact )
* Email to a friend
* Print this page
* Text size: A A
http://www.townhall.com/opinion/columns/alanreynolds/2005/12/01/177282.html
President Bush has reopened a badly needed discussion about comprehensive immigration reform. Even with the few issues he talked about, however, facts are commonly brushed aside in favor of linguistic confusion.
Critics of the president's proposals would surely have been verbally disarmed if the president had emphasized the need to register illegal aliens, for purposes of security and tax collection, rather than labeling that registration process as a "temporary worker" program. Many of those critics seem to have trouble with the English language, confusing the word "temporary" with permanent. Yet in 2003 alone, "roughly 3 million people were admitted as temporary residents," according to the Congressional Budget Office (CBO). That included 593,000 temporary workers and an even larger number of temporary students. Yet nobody has yet claimed all those temporary guests were granted "amnesty."
The CBO estimates that "181 million people were (legally) admitted to the United States as non-immigrants in 2003," mostly as tourists -- a figure nearly as large as the entire U.S. adult population. "Closing the borders" is a soundbite, not a serious suggestion.
The president and his critics discuss only the illegal portion of immigration, and only that portion of illegal immigrants who crossed the Mexican border by land. But illegal immigrants accounted for only 28 percent of the total immigrant population in 2003, according to the Urban Institute. And the bureaucratic way we ration immigration quotas, with arbitrary priorities and multi-year waiting lists, clearly increases the incentive to evade the system.
The Mexican border accounts for only about half of illegal immigration, or one-sixth of total immigration. Those who focus too exclusively on the Mexican border often cite the Pew Hispanic Center's estimate of 11 million illegal immigrants because it is larger than any official count. Yet that same study says only 6 million of those 11 million came from Mexico -- a share that remained "virtually unchanged for the past decade."
Roughly half of illegal immigrants, including many Mexicans, arrived here perfectly legally, often by air or sea. But they overstayed their visas. If the institutional incentives to reside in the United States illegally remain unchanged, then tightening the Mexican border would be like putting up a "detour" sign -- diverting a larger share of illegal immigration toward arrival by air, sea or the Canadian border.
Although immigration policy has usually been left to immigration lawyers, it is entirely a matter of rationing and incentives -- the purview of economics. In April 1998 testimony before the House judiciary subcommittee on immigration, I said: "Immigration policy is about rationing something of great value -- the right to live in the United States. The question boils down to methods and criteria of rationing a relatively small number of spaces among a much larger number of people who would like to live in the United States. There are only four possible rationing methods -- the queue, the lottery, allocation by political or bureaucratic preference, or the price system (a fifth option, of course, is to immigrate illegally). Current policy mainly relies on a mixture of political preference categories and the queue, although the lottery is used, too."
The problem is not immigration per se, but immigration policy.
There is no quota for spouses and children of U.S. citizens, so marriage and adoption are two routes by which immigration became much easier and larger than Congress expected in 1990, when it set quotas on every other group except refugees and asylum-seekers (the latter are illegal immigrants with a lawyer). Since Mexico and the Philippines became the two leading sources of U.S. immigrants around 1970, the post-1965 U.S. preference for family members perpetuates that same Mexican and Philippine dominance of immigration queues. To patch over this congressionally mandated favoritism with masking tape, Congress added a ludicrous "diversity lottery" by which up to 50,000 immigrants are admitted by sheer luck, just to give members of the Taliban and Bath Party a fair chance.
Relatives who are not part of the immediate family, such as siblings and adult children, are limited to 226,000 a year, and no one country can comprise more than 7 percent of that. As a result, the usual waiting period is a dozen years, but it's worse for those from Mexico and the Philippines. "In February 2005," said The Economic Report of the President, "Filipinos who immigrated as siblings of U.S. citizens had waited 22 years for their green cards."
Such primitive non-price methods of rationing always work badly, partly because they cannot deal with varying intensity of motivation. Using long waiting lists to ration entry encourages frivolous and insincere applications, but discourages the most skilled or affluent people who have other attractive options, such as moving to Canada or Australia, where they are quite welcome.
It would be easy to make partial use of the price system to alleviate such obvious rationing problems as 22-year waiting lists and lotteries. An auction of available spaces might be ideal. But a big step in that direction would be to simply charge a modest immigration fee, as Canada and others do, while offering a loan if immediate payment poses a hardship.
Immigrants expect to obtain most of the benefits of immigration, yet taxpayers bear all the costs. U.S. taxpayers make other costly commitments to new immigrants, offering services and benefits, yet immigrants make no commitment to the United States other than the modest cost of transportation to and fro. Hundreds of thousands of legal immigrants return to their home countries each year, after a short stay in the United States.
A modest one-time fee of $2,000 per immigrant (which could be paid by prospective employers) would significantly shorten the waiting lists by thinning-out those applicants with weak, uncertain motivation. That, in turn, would greatly reduce reliance on such clumsy devices as waiting lists and lotteries.
Clumsy, politicized non-price rationing would doubtless continue. But the most economically destructive quotas -- those on people with superior education and skills -- could be easily fixed by eliminating them. Fortune's Geoffrey Colvin proposed eliminating the post-1990 cap on H1-B visas. Nobel Laureate Gary Becker, writing in The Wall Street Journal, added that we should welcome skilled workers on a permanent basis, not just for a few years. They're both right.
The president's plans to register illegal immigrants and stem the flow are sensible, but they don't go far enough. Making at least some use of the price system to ration the right to live in the United States, while minimizing the crude alternatives of family preferences, quotas and queues, would provide a much better safety valve than indiscriminate illegal immigration. It would make immigration policy much more rational and successful, and therefore less controversial.
6. The Great Escape- Interview with Econ Nobel Lauret
Robert Fogel
By Nick Schulz Published
12/01/2005
E-Mail Bookmark Print Save
TCS
http://www.techcentralstation.com/120105B.html
Editor's note: Robert Fogel was awarded, along with Douglass North, the Nobel Prize in economics in 1993 for their pioneering work using statistical analysis to study economic history. Nobel Prize winner Robert William Fogel discusses the persistence of misery, techno-physio evolution, why the 21st will be another American century and why scientists have no heroes.
Professor Fogel recently published a book based on years of his research: The Escape From Hunger and Premature Death: 1700 to 2100 tells a remarkable story of human, scientific and technological change. He recently sat for an interview with TCS editor Nick Schulz.
Nick Schulz: The title of your book is somewhat dry, but it's about an important development in human history. It's called, The Escape From Hunger and Premature Death: 1700 to 2100, and it tells an extraordinary story.
Can you tell us how you got interested in looking into this subject and what, broadly speaking, you discovered?
Robert Fogel: Well a group of other people in demography economics and the biomedical sciences and I began collaborating back in the mid-'70's to first measure the decline in mortality in the United States. Prior to that work there was very little that was known about what happened to mortality, before the middle to late 19th century in the U.S. And so we found sources of data that permitted us to recreate time series on that, and we discovered that the pattern of increase in life expectancy was puzzling. And in the effort to explain these puzzles we produced many new lines of research, some of which are summarized in the book, The Escape From Hunger.
Nick Schulz: And what exactly was puzzling about this pattern of increase?
Robert Fogel: Well, life expectancy appears to have increased pretty steadily from the early 18th century until maybe around 1820. And then it started cycling. We had actual decreases in life expectancy. Before we returned back to a path of increase in life expectancy, beginning in the late 19th century, and from then on it was a pretty steady pattern of increase. In both good times and bad times, we have a substantial increase in life expectancy.
For example, during the Great Depression of the 1930's, which in some ways was not new but in some ways it was surprising, you would think that in such hard times with such a large percentage of the people unemployed, many for a long time, it would've had a negative health effect. But, whatever negative effect there might have been was swamped by more positive factors that led to an increase of more than six years in life expectancy, in a decade.
Nick Schulz: You mentioned that, after years of increase starting in the early 18th century there was a decrease. What prompted the decrease, if anything? Were you able to tease out the answer?
Robert Fogel: It was a combination of things. One was large-scale immigration. Many of the immigrants brought with them diseases. The most spectacular cases were the cholera epidemic of '49, 1849-1852, which became endemic to about 1857.
Two boats from Germany -- one landed in New York and when people got off of that boat, cholera broke out in New York City, and the other went down to New Orleans, and people boarded the riverboats going upstream and every place that the boat docked to leave people off, cholera broke out, all the way up to St. Louis. And then, up the Ohio River to Pittsburgh. So, you had a pretty graphic example about how sick immigrants could introduce serious diseases.
The other, and more quantitatively more important, was the rise of urbanization. If you look in third-world countries today, cities are healthier than the countryside. But, in the 19th century it was the opposite -- there was a mortality gap with the cities having higher morbidity and mortality rates than the countryside down to World War II. It's only in the 1940's and 1950's that the cities become healthier than the countryside, which is still the case.
Nick Schulz: And yet, people still came to cities, despite the fact that living conditions were so bad and that it could be hazardous to your health?
Robert Fogel:
Right. Well in the United States, most of the people who came to the big
cities were foreign migrants. In Europe, they were the poorest of the countryside
being pushed out of the countryside and into the cities. The city of London
had a mortality rate that was higher than the fertility rate; and the city
population only grew because of net in migration during the 19th century.
Nick Schulz: The first chapter of the book is called, "The Persistence of Misery In Europe and America Before 1900". What was so miserable about life before the 20th century?
Robert Fogel: Well first of all it was short. The life expectancy, if I can go back to 1700, was only about 35 years at birth. In 1900, 200 years later, it had increased by about 12 years -- it was in the neighborhood of 47 in Western European countries. And, today it's 77 or 78, so in a century we added 30 years to life expectancy, maybe a little bit more.
Nick Schulz:
That's obviously unprecedented for life expectancy to increase by such
a large amount in one century. What were the primary drivers of that?
Robert Fogel: Public health reform, cleaning up of the water supply, cleaning up of the milk supply. But if you said what was the single most important factor, it's technological change.
Let me give you one small example. We complain a lot about air pollution today, but there were 200,000 horses in New York City, at the beginning of the 20th century defecating everywhere. And when you walked around in New York City, you were breathing pulverized horse manure -- a much worse pollutant, than the exhausts of automobiles. Indeed in the United States, the automobile was considered the solution to the horse problem because pulverized horse manure carried a lot of deadly pathogens.
So technological change made it possible to greatly increase the food supply and permit levels of nutrition that were not previously attainable. Secondly, it made it possible to have a safe water supply. We needed a more modern technology to be able to carry away waste water and provide safe water, both through filtering and chlorination. And, still another area was the development of vaccines, which made it possible to inoculate the very young against diseases. And with better nutrition, you greatly increase the physiology of human beings.
Nick Schulz: That leads to my next question, which is what was the significance of malnourishment on work, productivity and economic growth in human history? You found some interesting things when you looked into this question of nutrition and malnourishment.
Robert Fogel: Right, with the kind of agricultural technology that exists in Malthus's era, we could only feed 80 percent of the population with enough energy so that they could work. The level of nutrients available for work was about a third of what it is now, so even people who worked were much less productive.
Nick Schulz: They would literally not have enough calories to work?
Robert Fogel: The poorest 20 percent of the population, was slowly starving to death. They were beggars that littered the streets. They had enough energy for maybe an hour of strolling and then sitting down and begging. But not enough energy to work.
Nick Schulz: And this is in Europe and the United States?
Robert Fogel: Yes, Western Europe down to around the middle of the 19th century. And in the United States, in the bigger cities. The countryside was pretty well-fed from the beginning. But when we began to develop the big cities, we had a problem of urban poverty that was not solved until well into the 20th century.
Nick Schulz: So a lot of these technological factors came together at the same time. Now, I know this is a highly debated question in the academy, but why were the conditions such that these things came together in Europe and the United States when they did, at this time in history?
Robert Fogel: Well it's based on a long history of improving knowledge. Your web page cites Simon Kuznets on this. The accumulation of knowledge is the basis for modern technology. Later on it becomes not just empirical knowledge, but also science which gives us theories about what to do. And these theories become increasingly effective guides to technological advance.
But technological advance is the basis for all economic
growth, including the derived growth that I referred to, as you will have
technologies that improve productivity in agriculture. It's possible to
improve human physiology so there is an interaction, a synergism.
Nick Schulz: Right, and you coin a term in this book called "techno-physio evolution."
Robert Fogel: Right.
Nick Schulz: Explain what that is and explain why it's important.
Robert Fogel: Well, it's the interaction between improvements in technology and improvements in human physiology. The average stature of adult males in Western Europe increased by close to a foot between 1864 and the present.
Nick Schulz: That's an enormous percentage of body height.
Robert Fogel: Yeah, that's a very big increase. The current giants are the Dutch. Dutch males, on average, are over 6 feet. They used to be only about 5 foot 4 in the mid 19th century, so they've come quite a ways.
And with that is an improvement in the strength of electrical signals across membranes -- our lungs are stronger; our hearts are stronger; the central nervous system is more effective. So all these things were permitted by changes technology, which improved nutrition.
Now improved nutrition is not only an improvement in the diet, but the proportion of the diet that's metabolized. If you have a lot of diarrhea, the food won't be metabolized. If a pregnant woman has diarrhea, the fetus will be severely underfed and will probably produce a child that will be not only at high risk to die in infancy, but at high risk to have severe chronic diseases at relatively early ages. So chronic diseases of people who reached age 65 in 1900 came about 10 to 12 years earlier than they do today.
Nick Schulz: The same diseases?
Robert Fogel: Yes, talking about things like arthritis, coronary heart disease, respiratory diseases. Not only do they come 10 to 12 years later, but the proportion that gets them is smaller. So a larger proportion of people live until death, or nearly death, in good health -- whereas, in 1900 about 80 percent of the population of males age 65 and older were severely impaired by chronic diseases.
Nick Schulz: On this nutrition question, today we hear, especially in the developed world of the U.S. and Europe, a lot of concerns about over-nutrition or obesity, but you point out that even in the developed world today, there are still some problems with under-nutrition. Is that right?
Robert Fogel: Right. It's a much more limited problem than in third-world countries. But we still have enough inequality in this country so that there are still malnourished children, undernourished children.
Nick Schulz: On the subject of techno-physio evolution, you say in the book that, "this evolution is likely to accelerate in this century." Why is that?
Robert Fogel: Well, first of all, our technology is accelerating.
Nick Schulz: How do you measure that? How do you know that it's accelerating?
Robert Fogel: Well in the book I give a diagram and show it visually. I have on the Y axis, the size of the population; and on the other axis, time. And I show the curve of population -- from about 1700 on, that curve becomes almost vertical on the scale that's shown in the book. And then along that scale, I put in scientific innovations.
One of the points I make is that it took 4000 years to go from the invention of the plow to figuring out how to hitch a plow up to a horse. And it took 65 years to go from the first flight in a heavier-than-air machine to landing a man on the moon. Not only did that happen in such a short period of time, but over a billion people all over the world watched it happen. So we had communications revolution in a very short period of time. I could work out a precise metric but it wouldn't mean much. It wouldn't give you more information than that diagram does.
Nick Schulz: Sure, or those anecdotes themselves do.
Robert Fogel: Right.
Nick Schulz: In the book you see a growing demand for leisure and retirement, and education and health care. Now, in current debates, especially in Washington, that sounds like more Social Security, more education spending, and more Medicare. Can we avoid heading towards more government involvement of things? How do you see that?
Robert Fogel: Heading towards it. You've got to distinguish between the rhetoric and the facts.
We currently have passed legislation that delays the onset of full Social Security to 68, and there is a good deal of talk that we're going to push it to 70 -- a good deal of talk in Congress. At the same time, people are retiring earlier. The average age of retirement is now around 62, which is pretty high compared to Western Europe. It's 59 in France. So, it's very likely that by the time my son retires, there'll be 10 years of no government support for retirement, which he'll have to finance himself. So, that's more than 50 percent privatizing the retirement system.
We're probably going to shift gradually, despite the opposition to it, to private accounts, which exist in some countries, which require everyone who enters the labor force to put aside 30 percent of their income into a fund to cover retirement, health care, and education. In some countries, they permit you to borrow against that fund to buy houses.
And, it's approaching what American academics have. You cannot teach in American universities without having TIAA-CREF. In American universities, you're required to put aside between 12-and-a-half and 17 percent (it varies from university to university) into this fund so that when you retire you don't end up with a tin cup sitting on the administration building saying, "I was a good teacher once, please help me."
So, that's a forced retirement system. It has the advantage over Social Security that the government can't take it away.
Secondly, 24 hours a day I can call up and find out what am I worth today. It's my money and, I can leave it as a legacy to my children or grandchildren. Not only that, everyone who did as I did, when CREF became available, and took three-quarters in equities and one-quarter in bonds, is a multi-millionaire today.
Nick Schulz: So all of those teachers are multi-millionaires?
Robert Fogel: Well, if they're still alive. Not all of them are still alive. But the rate of return has been over 10 percent per annum, for decades. Figure it out. You're doubling the value every seven years. So it's been a very successful investment.
Nick Schulz: And you see that as a potential model for Social Security or public pension programs?
Robert Fogel: Right. Now, there is an argument which says it's not as secure as the guaranteed government program. Well, ultimately, what the government can pay depends on how the economy performs. If we continue to grow as we have in the neighborhood of 2 percent per annum per capita over the past 50 years, we won't have any difficulty paying for it either, as a governmental program or in private accounts. If the economy goes into long-term stagnation, then the government is not going to be able to sustain it because the tax base for it won't be there. So you need to have a successful and rapidly growing economy in order for standards of living for the elderly to improve.
I think the odds that we will are very high. I think we're already actually underestimating. I mean, when I gave you the figure of 2 percent per annum, that figure does not take into account improvements in the quality of health care or in the quality of education, or in the quality of many manufactured goods. So, if you take these quality improvements into account as I've tried to do roughly in one paper, the real rate of growth is 3.1 percent, not 2 percent.
Nick Schulz: You talk a lot about technology and biotechnology in your book. There's concern about some humans over-enhancing themselves, and we see this in the debates over the steroid controversy in baseball or Leon Kass's worries about medical innovation. Do economists have anything to contribute to these ethical debates?
Robert Fogel: There are a lot of different ethical issues. The debate over whether we should do stem cell research from fetal material is only one of them. It's going to happen, whether we do it or not, it's going to happen. The Chinese are doing it. Other countries are pursuing it so these scientific lines of research are going to take place.
The U.S. has the most heavily endowed scientific research program in the biomedical areas and we are subsidizing the whole world. And we'll continue to do so, for the foreseeable future. I'm not too worried about scientific progress, we're at the leading edge of most frontiers. It would be incredible if we were at the leading edge of every frontier. No country has ever been.
Nick Schulz:
As you've looked at some of the history of it, these concerns about technological
advance, Have you seen any precedent for it, or are we in terra-incognita
here?
Robert Fogel: No, there is always concern over scientific experimentation and adverse, either unethical or undesirable consequences. It's part of the fear of the unknown.
Look, 1000 years ago, nothing happened. Each generation experienced life more or less as the previous ones had, with maybe some random factor thrown in for weather and pestilence. But, it's only in the past 300 years that science has become so powerful that it could influence the course of events. And it has, and I expect it to do it in an accelerating rate. We have a powerful scientific establishment, we're making new discoveries daily, even short of genetic engineering.
By the way, genetic engineering is 100's of years old. It's just that our new techniques speed up the process of mutations. But we've been tinkering with cross breeding plants and animals for a long time. But even if you take the existing best technology, not what's going to come out of what's generally referred to as genetic engineering, but just the diffusion of best practice can produce a rate of growth of 2 or 3 percent in productivity.
China is a good example of what can happen. The Chinese population since 1961 just about doubled and, per capita food consumption of this doubled population is up 80 percent. So China has a much bigger population and a much better standard of food intake and life expectancy. In half a century, it increased from about 45 years to 72. It took the Western world 150 years to make that leap.
Nick Schulz: Let's shift to declining populations. How important is the population decline that is happening in Western Europe?
Robert Fogel: It's terribly important to Western Europe. Italy, I mean, Italy, the home of the Vatican, has a total fertility rate of 1.4. To maintain the population, you have to have a total fertility rate of 2.1, so Italy is facing a rapid decline. The Italian government is doing everything it can to promote higher fertility rate. Otherwise in 100 years, Italy will have a third of its current population -- assuming no migration into or out of the country, just from natural increase.
Among the rich countries, we're the only country that's not shrinking inherently. By the way the age structure enters into it. So even if you have a total fertility rate that says you should shrink, if you have a lot of women in child-bearing years, it won't happen until the age structure changes, which may take a third to a half century.
But Asia is still growing, and Africa, despite its age, is growing very rapidly because of a very high fertility rate. And Africa will be a much more, in terms of the percentage of the world population, it'll be more than double what it is, in half a century whereas Western Europe, if current trends continue, will shrink. And Asia, Southeast Asia and South Asia, will increase.
So, not only will per capita income be rising in countries like China and India, but because of the population increase, they'll be the dominant economies of the world.
It's already reflected in the extent of Western capital that's rushing into these countries. General Motors' main expansion plans are in Southeast Asia and Latin America, not in the United States, the same thing as Ford, Volkswagen. All the big auto companies are reading the tea leaves in the same way.
Nick Schulz: Are there broader implications for these population changes for Europe and the U.S.?
Robert Fogel: The U.S. is going to be the technological leader, probably through the end of the 21st century. Maybe China will catch up in some directions and maybe it will cede them in some directions like stem cell research, but, we still have a huge, advantage in terms of investment and in terms of human resources in these areas. The country remains devoted to a policy of heavy investment in science especially in the biomedical sciences and in science in general.
Nick Schulz: So you're still optimistic about the United States with respect to technology and the future?
Robert Fogel: I picked the right century to be born in, and my grandchildren have also picked the right century. It's not only the 20th, but the 21st will be American Centuries in terms of scientific heights that we scale and in terms of the success of our economies.
But watch out for China. China, if its current growth rate continues and if we take Western European and U.S. growth rates and assume they will continue, China will be bigger than the United States and Western Europe put together by about 2030 or 2040. That means the market will be bigger. It doesn't mean per capita income will be higher.
Nick Schulz:
When would China achieve parity in per capita income with either the U.S.
or Western Europe?
Robert Fogel: You know I haven't calculated that and so I don't have an answer to it. But if you take what I think is the true growth rate of the U.S, not the one that we publish in the National Income and Product Accounts, I don't think it'll happen this century.
Nick Schulz: I have one last question for you. It's kind of an unconventional question, but it's one that I like to ask folks I interview, and you can take a second to answer it Who are your heroes?
Robert Fogel: You know, my reaction is that scientists don't really have heroes because all scientific knowledge is incremental. You're aware of how dependent each individual is on all of the other people.
We tend to heroize the person who gets there first, but usually there are a dozen people who were so close that you can feel their breath on the back of their neck so that if one guy stumbled it wouldn't be that that scientific stream wouldn't materialize. It would be that some other scientific group or individual is the one whose name is attached to it.
So I really think science is a collective enterprise.
What you can do depends, not only on what happened before you, but on what
everybody else around you is doing. And you're talking to each other, and
hoping you'll be a little luckier, or a little cleverer to
he extent that we're in competition with each other.
Nick Schulz: Professor Fogel, I really appreciate you taking time. This interview will be of deep interest to a lot of our readers.
Robert Fogel: Thank you so much.
7. Great Awakenings By George Will Published June 1, 2000
WASHINGTON -- After agriculture was
invented 11,000 years ago, it took
4,000 years for it to supplant hunting
and gathering as mankind's main source of food,
5,000 years for cities to emerge, 6,000 years for
writing to develop, 7,000 for the invention of
mathematics. After harnesses were devised to hitch
oxen to plows, it took 4,000 years to adapt
harnesses to the long necks of horses. But 66 years
after the Wright brothers flew a distance shorter than
the wingspan of a Boeing 747, a man stood on the
moon, and mankind marveled at the modern pace of
change.
The velocity of change since the late 19th century
has produced "technophysio evolution"--human
evolution that is biological but not genetic. For
example, in just four generations in Holland the
average height of a male has increased eight
inches. Today, changed material conditions may be
radically changing our political agenda. So says
Robert William Fogel, University of Chicago
economist and Nobel laureate in his new book, "The
Fourth Great Awakening & the Future of
Egalitarianism."
Since the 1730s, he says, three "awakenings" --
changes of religious sensibility -- have produced
new political agendas. The First Great Awakening,
which began around 1730, presaged the Revolution
by fomenting skepticism about authority. The
Second Great Awakening, which began around
1800, stressed personal perfection and America's
mission to pursue social perfection, and fueled
anti-slavery passions. The Third Great Awakening,
which began around 1890, during industrialization,
urbanization, labor unrest and immigration, said an
unreformed society, not inherent sinfulness, is the
source of corruption. This produced a modernist or
liberal agenda of material amelioration -- the welfare
state.
Fogel thinks this agenda has been rendered
anachronistic by material progress which has
coincided with the Fourth Great Awakening. It began
in the 1960s and by the end of the 1980s, Fogel
estimates, 60 million Americans were participants in
"enthusiastic religion." America is, he thinks, ripe for
a politics focusing on "immaterial commodities,"
meaning education and other spiritual assets to
enable everyone to use their new leisure and other
assets for "self-realization."
Three centuries ago, "self-realization" was not the
first concern. Malnutrition was nearly universal. Even
the English peerage's diet was deficient in vitamins
and its ladies drank, on average, three ounces of
absolute alcohol a day, enough to cause a high
incidence of birth defects. Until the mid-19th century,
one-fifth of the English population was too
malnourished for regular work.
Prior to 1810, a voyage from Europe to North
America cost the annual income of a European
worker and killed 5 percent to 10 percent of
voyagers. Another 5 percent to 10 percent died of
diseases contracted during the voyage. Still, in the
1790s the average American was four inches taller
than the average Englishman and had a 20-year
advantage in longevity. America had a diet rich in
protein and a population density insufficient to
sustain major epidemics of diseases such as
smallpox.
But cities grew faster than did understanding of
urban public health problems, and between 1790
and 1850 life expectancy in Northern states declined
25 percent. In the 1830s and 1840s, life expectancy
at birth in New York City and Philadelphia was 24
years, six years less than for Southern slaves.
Even in 1900 only half of those born in the same year
were alive at age 40. (Today it is not until age 79 that
only half a birth cohort is left.) Until World War I, 80
percent of American consumption was in food,
shelter and clothing. The workyear, workweek and
workday left little leisure for anything other than
church or drinking, and retirement was essentially
unknown.
Today time available for leisure exceeds time spent
working, and as the workweek declines, Fogel says,
toward 28 hours, retirement at 55 will become
normal. This, he says, raises a "new and urgent set
of distributional issues" involving a "fair access to
spiritual resources." These include -- this gets a bit
murky--"a sense of purpose, a sense of opportunity,
a sense of community, a strong family ethic, a strong
work ethic, and high self-esteem."
Well. If the conquest of economic necessity means
more time for reflection and introspection, education
may be a spiritual as well as economic good. (Fogel
says the democratization of education "may have
been the largest socialist enterprise in history: the
transfer from the rich to the poor and the middle
classes of a form of capital that exceeds the value of
all privately held land and industrial capital, human
capital.") But Fogel's book does not really make the
case for a new political agenda of
government-distributed "immaterial" goods.
Rather, it explains the continuing attenuation of
political intensity. If Americans increasingly have
time and--Fogel does not prove this part -- inclination
for "self-realization" through reflection, this is grand
news, but does not entail new government duties.
8. The Promise of Vouchers By MILTON FRIEDMAN WSJ December 5, 2005; Page A20
Most New Orleans schools are in ruins, as are the homes of the children who have attended them. The children are now scattered all over the country. This is a tragedy. It is also an opportunity to radically reform the educational system.
The schools that were destroyed were not serving their students well. As Chris Kinnan writes, "The New Orleans public-school system has been failing its kids for years. Fully 73 of its more than 120 schools are considered to be 'failing' according to the state's educational accountability standards." ("Vouchers for New Orleans," National Review Online, Sept. 15, 2005.)
New Orleans schools were failing for the same reason that schools are failing in other large cities, because the schools are owned and operated by the government. Government decides what is to be produced and who is to consume its products, generally assigning students to schools by their residence. The only recourse of dissatisfied parents is to change their residence or give up the government subsidy and pay for their children's schooling twice, once in taxes and once in tuition. This top-down organization works no better in the U.S. than it did in the Soviet Union or East Germany.
Rather than simply rebuild the destroyed schools, Louisiana, which has taken over the New Orleans school system, should take this opportunity to empower the consumers, i.e., the students, by providing parents with vouchers of substantial size, say three-quarters of per-pupil spending in government schools, usable only for educational expenses. Parents would then be free to choose the schooling they considered best for their children. This would introduce competition, which is missing from the present system. It would be a move to a bottom-up organization, which has proved so successful in the rest of our society.
To make competition effective, Louisiana should provide a favorable climate for new entrants, whether they be parochial, non-profit or for-profit. As part of doing so it should make clear that the vouchers are not an emergency expedient that will be terminated once the emergency is over, but are a permanent reform.
Such permanent reform would also meet the emergency needs. Vouchers would be usable by the students who are scattered all over the country to purchase educational services wherever they are. So far as New Orleans itself is concerned, they would enable the private schools that survived the hurricanes to expand and accommodate returning children. More important, the vouchers would encourage private enterprise to provide schooling. Is there any doubt that the private market would provide schooling for children returning to New Orleans faster than the state?
Whatever the promise of vouchers for the education of New Orleans children, the reform will be opposed by the teachers unions and the educational administrators. They now control a monopoly school system. They are determined to preserve that control, and will go to almost any lengths to do so.
Unions to the contrary, the reform would achieve the purposes of Louisiana far better than the present system. The state's objective is the education of its children, not the construction of buildings or the running of schools. Those are means not ends. The state's objective would be better served by a competitive educational market than by a government monopoly. Producers of educational services would compete to attract students. Parents, empowered by the voucher, would have a wide range to choose from. As in other industries, such a competitive free market would lead to improvements in quality and reductions in cost.
If, by a political miracle, Louisiana could overcome the opposition of the unions and enact universal vouchers, it would not only serve itself, it would also render a service to the rest of the country by providing a large scale example of what the market can do for education when permitted to operate.
Mr. Friedman, the 1976 Nobel Laureate in economics, is a senior research fellow at the Hoover Institution.
9. Brazil Outlines Proposal to Pare Industrial Tariffs
Move Is a Bid to Spur EU, U.S. to Reduce Farm Duties Ahead of WTO Meeting
By SCOTT MILLER in Geneva and GERALDO SAMOR in Rio de
Janeiro
Staff Reporters of THE WALL STREET JOURNAL
December 5, 2005; Page A18
After months of pressuring the U.S. and Europe to cut farm subsidies and tariffs, Brazil's foreign minister for the first time publicly outlined cuts that his own pivotal country is willing to make to its industrial-goods tariffs to help salvage the stalled Doha Round of global trade talks.
The offers by Brazilian Foreign Minister Celso Amorim came just more than a week before a meeting of all 148 World Trade Organization members in Hong Kong and just after Brazil and India told a London meeting of the Group of Seven leading industrial nations on Friday that they would be willing to compromise to keep the round going.
In an interview Saturday with The Wall Street Journal, Mr. Amorim said Brazil would consider cutting its average legal cap on tariffs by half. Tariffs on cars, an industry that is hugely important both for Brazil's domestic market and for its exports, likely would fall to a bit over 20% from about 35% currently. But overall, the actual industrial tariffs Brazil charges -- as opposed to the technical legal limits -- would fall far less, to about 9.8% from 11% on average now. And just as Europe has proposed to do in its offer on farm tariffs, Brazil would exempt some sensitive industries from the deepest cuts.
Immediate reactions from some trading partners suggest Brazil's position won't be enough to significantly change the dynamics of Doha. Trade ministers recently have been forced to scale back plans to ink the framework of a wide-ranging deal in Hong Kong and instead concentrate on how they can try to do that over the next year. Mr. Amorim said he first signaled a willingness to cut industrial tariffs at a meeting with the U.S. and Europe several weeks ago in London.
But European Union officials said during the weekend that
they have yet to receive an offer from Brazil. Informed of Mr. Amorim's
remarks, officials said they don't believe the proposed cuts would meaningfully
improve access for European companies. U.S. officials in a news release
welcomed a general statement from Brazil and India that they are willing
to consider further moves to reduce barriers on industrial goods.
TRADE TALKS
• G-7 Ministers Aim for Advance but Can't Resolve Trade Issues
• A Voice for Developing Nations
Brazil has made strides to make its economy more competitive, but it remains one of the world's most closed markets. The consulting firm AT Kearney ranks Brazil as the 57th most open economy in a list of 62 nations, and despite being the world's 12th-largest economy, Brazil accounts for only 1.1% of global trade. Its average applied tariffs are well above those of other developing countries such as the Philippines, Chile and South Africa.
Mr. Amorim, one of the most veteran trade negotiators representing a major country in the Doha talks, said he has been leaning on the U.S. and Europe to cut farm tariffs in order to help "sell" the trade deal to a Brazilian public worried about its impact on their economy. "There is no way on earth that I can sell a round where we cut more on industrial goods than the others cut on agricultural goods," he said.
Mr. Amorim warned that Brazil's plan remains contingent on the U.S. and Europe making greater strides to reduce farm subsidies and tariffs than they have offered so far. In particular, he said, Europe's current offer to cut average farm tariffs by 38% isn't sufficient for his nation to cut industrial tariffs. While Brazil enjoys competitive advantages in products such as steel, paper and pulp, it keeps high tariffs to protect textiles, shoes and electronic equipment, among others.
By far the sector most sensitive to a further opening of the Brazilian economy is its auto industry. Brazil is home to 16 international auto makers -- from Ford Motor Co. and General Motors Corp. to Nissan Motor Co. and PSA Peugeot Citroën -- that do business in the country under the protection of 35% import tariffs. If Doha leads to a swift and substantial reduction in those tariffs, it could make it cheaper for Brazilians to buy imported cars. That might spur some auto makers to pull up stakes and in turn threaten Brazilian jobs. But Mr. Amorim said he doesn't expect his plan would alter tariffs enough to prompt companies to leave. Between 1994 and 2004, auto makers plowed $30 billion in Brazil to open plants and develop new products.
But Mr. Amorim also has to balance the vulnerabilities of domestic producers against the country's exporters. Empresa Brasileira de Aeronáutica SA, known as Embraer, will benefit if Brazil wins concessions in the subsidies agreement. Embraer wants to change global trade rules on the financing it can offer its customers -- such as AMR Corp.'s American Airlines -- through government-run export-credit agencies.
"You can have the best product in the world, but if you don't have a level playing field that allows you to compete with fairness, you will lose markets," says Henrique Costa Rzezinski, senior vice president of external relations.
Write to Scott Miller at scott.miller@wsj.com and Geraldo Samor at geraldo.samor@wsj.com
10. WHY THE RICH MUST GET RICHER
------------------------------------------------------------------------
Economic growth has moral as well as material benefits,
says
Benjamin Friedman...
HARVARD UNIVERSITY/ECONOMIST
In his book, "The Moral Consequences of Economic Growth,"
Benjamin
Friedman, a professor of economics at Harvard University,
explores an
argument made by Adam Smith in the 18th century that
a society
experiencing economic growth is likely to be happier
and more
successful than another that is not, even if the no-growth
society has
achieved a higher (but stagnant) standard of living.
Friedman says the value of a rising standard of living
lies not
just in the concrete improvements it brings to how individuals
live but
in how it shapes the social, political and ultimately
the moral
character of a people. He believes people's sense of
well-being is
essentially relative.
Consider:
o People become accustomed
to any fixed standard of living,
rich or poor;
they are happiest if they feel their
standard of
living is rising (something, in principle,
all members
of a society experiences at once), or if they
feel they
are better off than their peers (which is
divisive and
not an aspiration everyone realizes at once).
o The key is the way these
two standards interact; if people
are becoming
better off relative to their own
standard of
living, they will care less about where they
stand in relation
to others.
o If they are not growing
better off relative to their own
past standard
of living, they will care more about
their placing
in relation to others -- and the result is
frustration,
intolerance and social friction.
Growth, in short, has moral as well as material benefits,
says
Friedman. Furthermore, economic policy needs to take
account of the
role of externalities if growth is to provide the maximum
social and
economic benefit. And if he is right about the moral
benefits of
economic growth, then growth itself involves an externality
-- not a
negative one, like pollution, but a positive one.
Source: "Why the Rich Must Get Richer," Economist, vol.
377, no.
8452, November 12, 2005; based upon: Benjamin M. Friedman,
"The Moral
Consequences of Economic Growth," Knopf, October 2005.
For text (subscription required):
http://www.economist.com/books/displaystory.cfm?story_id=E1_VTPVVDQ&tranMode=none
For more on Economy:
http://www.ncpa.org/iss/eco/
December 6, 2005
11. Who Pays for Farm Subsidies?
by Marian L. Tupy
http://www.cato.org/pub_display.php?pub_id=5233
Marian L. Tupy is assistant director of the Project on
Global Economic Liberty specializing in the study of Europe and sub-Saharan
Africa at the Cato Institute.
Peter Mandelson, the European Union trade commissioner, said Nov. 11 that the Doha round of negotiations on trade liberalization (Dec. 13-18) in Hong Kong is likely to fail. "The problem," he said, "is that whatever we offer is not enough for the highly competitive, very aggressive agricultural producers and exporters like Brazil, Australia, New Zealand and the United States."
Mr. Mandelson should resist the protectionist calls from within the EU and embrace the ambitious proposals on agricultural trade liberalization as outlined by his American counterpart. The EU (as well as America) stand to gain a great deal from cutting and, eventually, eliminating their agricultural support programs.
The general public in rich countries bears much of the cost of agricultural protectionism. First, the public subsidizes the farming community through higher taxes. Second, the public pays food prices that are higher than they would be under a liberalized trade regime. In 2004, for example, agricultural support in the countries of the Organization for Economic Cooperation and Development (OECD) came to about $280 billion. The EU's agricultural support amounted to about $133 billion, Japan's to $49 billion, America's to $47 billion, South Korea's to $20 billion and Canada's and Switzerland's to $6 billion each. Moreover, in 2003, the British think-tank Policy Exchange found that EU consumers "pay 42 percent more for agricultural products than they would if the system were dismantled. Americans pay 10 percent extra, Japanese more than twice as much. For less well-off families, for whom food takes up a large proportion of household income, freer trade would mean a noticeably higher standard of living."
The level of agricultural protectionism in Europe is higher than that in the United States. That is part of the reason why, as researchers at the Friedrich Naumann Foundation found, the prices of bread in France and Germany are 45 percent higher than in the United States, and the prices of meat in France and Germany are 56 percent and 87 percent higher than in the United States.
True, agricultural subsidies contribute to keeping the already tiny number of farmers in the rich countries employed, but, as French economist Patrick Messerlin estimated, the average cost incurred by the European taxpayer for every job "saved" through protectionism was approximately $200,000 per year during the 1990s. Shockingly, over the same period, each sugar industry job "saved" through protectionism cost the U.S. taxpayer $800,000.
Farm subsidies are, of course, a form of corporate welfare. As the OECD documents, the wealthiest 20 percent of farmers in Europe receive 80 percent of the subsidies. In the United Kingdom, those wealthy farmers include Britain's richest man, the Duke of Westminster, as well as other rich noblemen, including the Dukes of Marlborough and Bedford, and the Earl of Leicester. Prince Albert of Monaco also received common agricultural policy (CAP) money, as did four Danish cabinet ministers and several members of the Danish Parliament. The Dutch agriculture minister, Cees Veerman, was also on the CAP payroll.
Likewise, in the United States, it is the wealthiest farmers who receive the most in agricultural grants. In 1999, for example, 45 percent of agricultural subsidies went to the largest 7 percent of farms in the United States. According to the Environmental Working Group's Farm Subsidy Database, a Washington-based non-profit organization, one of the more prominent recipients of U.S. agricultural subsidies is Senate Minority Whip Dick J. Durbin.
In a recent in-depth study titled Agricultural Trade Reform
and the Doha Development Agenda, Kym Anderson and Will Martin of the World
Bank estimated the welfare gains resulting from full liberalization of
global merchandise trade. According to the authors, by 2015, annual welfare
gain in the EU and EFTA countries would be $65 billion greater than it
would have been had no trade liberalization taken place. The United States
would benefit by $16 billion, Brazil by $10 billion, and Australia and
New Zealand by $6 billion. Other large protectionists would gain as well.
Japan would net $55 billion, South Korea and Taiwan $45 billion, and Hong
Kong and Singapore $11 billion.
Aside from monetary gains, trade liberalization may contribute
to making the relations between rich countries, especially the EU and the
United States, more harmonious. Moreover, agricultural trade liberalization
will remove the charge of hypocrisy that the leaders of the developing
world so often raise against representatives from rich countries. As the
latter urge the former to embrace the free market, it is only to be expected
that the rich countries live by the words they preach.
This article appeared in the Washington Times on November
25, 2005
12. HOW THE LOSS OF PROPERTY RIGHTS CAUSED ZIMBABWE'S
COLLAPSE
------------------------------------------------------------------------
The economic collapse of Zimbabwe was caused by land reforms
that
ignored property rights and the rule of law, says Craig
J. Richardson,
associate professor of economics at Salem College.
Although unconstitutional, Zimbabwe President Robert Mugabe's
government authorized the seizure of nearly all of the
4,500 commercial
farms between 2000 and 2003. By 2003, the economy was
imploding with
increasing speed, at 18 percent per year. Inflation was
running at 500
percent, and Zimbabwean dollars lost more than 99 percent
of their real
exchange value.
Since 2000:
o Financial investors
fled, worried other businesses might be
seized next;
foreign direct investment fell to zero
by 2001, and
the World Bank's risk premium on
investment
in Zimbabwe rose from 4 percent to 20 percent that
year.
o Commercial farmland
lost an estimated three-quarters of its
aggregate
value between 2000 and 2001 as a result
of lost property
titles; Richardson estimates that
one-year loss
was $5.3 billion -- more than three and a half
times the
amount of all foreign aid given by the World
Bank to Zimbabwe
since 1980.
o By the end of 2001,
700 had companies closed; industrial
production
declined by 10.5 percent in 2001 and 17.5
percent in
2002.
Richardson estimates the independent effect of land reforms,
after
controlling for rainfall, foreign aid, capital and labor
productivity,
led to a 12.5 percent annual decline in gross domestic
product (GDP)
growth for each year between 2000 and 2003.
Richardson says the lesson learned here is that well-protected
private property rights are crucial for economic growth
and serve as
the market economy's linchpin.
Source: Craig J. Richardson, "How the Loss of Property
Rights
Caused Zimbabwe's Collapse," Cato Institute, Economic
Development
Bulletin, No. 4, November 14, 2005.
For text:
http://www.cato.org/pubs/edb/edb4.pdf
For more on International:
http://www.ncpa.org/pi/internat/intdex1.html
13. Buying Bridges From Australia, Money Chases Roads,
Airports Around Globe Forced-Savings Plan Creates Big War Chest That Banks
Match Up With Projects
Macquarie Bails Out Chicago
By PATRICK BARTA and MARY KISSEL
Staff Reporters of THE WALL STREET JOURNAL
December 6, 2005; Page A1
Cash is piling up in unexpected places around the world, transforming smaller economies and helping countries like Australia wield greater financial influence than ever thought possible. Fifth in a series
Last year, the city of Chicago was in a bind. It faced a $220 million budget deficit and its credit rating was under review for a possible downgrade. Voters feared a jump in property taxes.
Then help came from a surprising place: Australia. Macquarie Bank, Australia's biggest homegrown investment bank, organized a deal to take over Chicago's historic Skyway toll road under a 99-year lease for $1.8 billion -- hundreds of millions of dollars more than some Chicago officials thought it would fetch.
• Dividends, Buybacks Set New Benchmark for Largess
11/28/05
• Big Mergers Are Making a Comeback
11/05/05
• Big Money Seeks Shelter in the Woods
11/04/05
• Huge Flood of Capital Spurs Risk-Taking
11/03/05
The Windy City's windfall helped it plug a budget hole and set up a $500 million rainy-day fund. The city even funded a project to upgrade the card-catalog system for its libraries. The Australians, meanwhile, started collecting commuters' coins -- and quickly raised the road's tolls.
Australia's emergence as Chicago's white knight illustrates a surprising development in the world economy. In recent years, investors in many parts of the world have accumulated unprecedented sums of excess capital. Some of the buildup is from the surge in oil prices and strong business profits fueled by rapid growth in places such as China and India. It also is a result of low global interest rates, which make traditional safe investments like U.S. Treasury bonds less attractive to some investors. That has left many big companies, even countries, flush with cash and unsure where to spend it.
Now cash is piling up in unexpected places, transforming smaller economies and helping countries like Australia, where workers are forced to save a portion of their salary for retirement, wield greater financial influence than ever thought possible.
In tiny Singapore, state-owned investment companies Temasek Holdings Pte. Ltd. and Government of Singapore Investment Corp. have accumulated a more than $160 billion investment pool through stakes in state-controlled companies and pension savings. They have become some of the biggest sources of capital in Asia. Temasek has invested more than $1.5 billion in India's banking, medical care and other sectors, and has announced billions of dollars of investments in Chinese banks.
In Dubai, pro-growth policies have enabled local investors to amass huge stores of wealth, transforming the once-sleepy member of the United Arab Emirates into a regional trade and transportation powerhouse. National carrier Emirates Airlines is the largest customer for Airbus's giant A380, with orders for 45 of the planes valued at about $12 billion.
Australia, once a marginal player beyond its own borders, is emerging as a major financial center.
Australia can trace its new wealth to a 14-year economic boom underpinned by a 1992 law that required workers to set aside big chunks of their income for retirement. While Australian households, like those in the U.S., still spend more than they earn, the nation is amassing a huge investment war chest.
The retirement pool, which is invested by private-sector managers, tallies a staggering $550 billion, with about $70 billion to $80 billion more added each year. As a result, the pool of assets under management in Australia is among the largest in the world -- a particularly impressive feat considering that Australia's population of 20 million is only slightly larger than that of Sri Lanka.
Because Australia's economy isn't big enough to absorb the cash, investors there have had to find ways to spend it elsewhere. They are specializing in a niche often overlooked by other investors: big-ticket infrastructure projects like roads, tunnels and airports. Governments typically finance such projects either by digging into their coffers or selling debt, such as municipal bonds in the U.S. Banks often help organize the financing but usually exit after raising the money.
The Macquarie model is different. The bank buys or leases the assets outright, then pools them into funds and sells stock in the funds. The strategy brings the capital amassed by Australia's forced savings plan together with infrastructure needs around the world. It also enables governments to avoid borrowing to pay for their projects -- an often unpalatable prospect. Macquarie manages the assets with the help of experts, collecting fees along the way.
To Macquarie executives, the move to invest in infrastructure around the world made sense: Australia simply doesn't have the same volume of mergers and acquisitions, initial public offerings and other big fee-making opportunities as the U.S. or Europe.
"We're sitting over here on the other side of the world," said Stephen Allen, who heads the Macquarie fund that leased the Skyway, as he sat in a conference room overlooking Sydney's Martin Place financial district on a recent afternoon. "We were acting out of desperation."
Roaming the U.S.
On a given day, Macquarie Bank has a dozen bankers roaming the U.S. in search of deals. In San Diego, one of its funds is building a 12-mile-long toll road. In Virginia, a Macquarie fund invested more than $600 million to take control of the Dulles Greenway, a 14-mile toll road outside of Washington. Macquarie operates the tunnel that connects Detroit to Windsor, Ontario, and just bought, with other investors, Icon Parking Systems, one of the biggest parking-lot operators in New York City.
Macquarie funds also hold stakes in the airports of Brussels, Copenhagen and Kilimanjaro, Tanzania. Macquarie funds own stakes in a major port in China, a Japanese turnpike and one of England's biggest toll roads. This year, Macquarie said it was weighing a bid to buy the London Stock Exchange, though it is unclear whether that deal will be completed.
Those deals are kicking up new interest in infrastructure around the globe. The U.S. alone needs $1.6 trillion in spending in the next five years to replace and expand its aging roads, rail lines and other infrastructure, according to the American Society of Civil Engineers. Developing nations like China and India also require vast new networks of roads, tunnels and ports.
Soon after the Skyway deal, Indiana's governor said he wanted to investigate leasing toll roads, too. Other states, including Delaware, also are looking at the possibility.
Taxpayers are sometimes skeptical. Big companies don't always have a lot of experience managing infrastructure assets, and there is a risk they could fail to maintain them -- or ensure safety -- in the quest for profitability.
Still, many economists endorse the trend, in part because they believe it will help speed up the development of infrastructure that otherwise would have stayed on the drawing board. Many also believe private-sector owners will be less prone to keep tolls artificially low to placate voters -- an outcome that would make infrastructure assets more responsive to market forces.
"It's often the only feasible way in which you can enforce the principle of 'user pays' " to develop more infrastructure, says John Edwards, chief economist at HSBC bank in Sydney.
The Macquarie model may expose investors to risks that aren't yet fully understood. If global interest rates keep rising, for instance, this could make other investments more attractive and hurt returns for holders of Macquarie funds.
The deals also rely on unproven assumptions about future demand. If toll-road traffic fails to meet expectations, for example, Macquarie and its investors could suffer losses. At least two of Macquarie's infrastructure buys have turned into busts, including an Australian power-generating facility that faced an unexpected decline in power prices.
Skeptics assert the funds will yield far less over the long haul than many investors expect, given the relatively slow growth of revenue at some of the assets.
For now, though, Macquarie is seeing strong growth. The investment bank reported earnings of $610 million in its fiscal year ended March 31 -- a four-fold increase from five years ago. Macquarie's stock price has doubled over the last two years. Many of the individual funds have soared as well.
In Sydney, locals have taken to calling Macquarie the "Millionaire Factory." The bank's chief executive is among Australia's highest-paid executives, earning more than $13 million last year.
Cocktail-party enthusiasm for infrastructure in Australia has taken on the kind of excitement once reserved for real estate or Internet stocks. Other Australian firms jumped into the fray, including Babcock & Brown Ltd., a giant investment company, and Challenger Financial Services Group, which launched a new infrastructure fund in July.
Until the early 1990s, Australia didn't have an economywide retirement program, just government-paid pensions for poor families, some employer pensions and tax breaks for personal savings. In 1992, the government required nearly all Australian workers to divert 5% of their wages into individual retirement accounts invested by private asset managers. Over time, the percentage was increased to 9%.
President Bush has proposed a plan with similar elements, such as allowing workers to direct some of the contributions they make to Social Security into personal savings accounts.
The move generated a huge stream of capital for the country's money managers. About 40% of money in Macquarie's main toll-road fund comes from Australian investors, primarily retirement funds.
Founded in 1969 with three employees, Macquarie earned a reputation over the years for aggressive deal-making.
The bank also was innovative. In the early 1990s, Australia began to privatize toll roads and other public works, including the Hills Motorway, a Sydney road the government wanted to build but didn't want to pay for. One of Macquarie's bankers struck on a novel idea: Why not float the asset on the Australian Stock Exchange, where forced pension savings were flowing? The investment blossomed.
Bathrooms for Cabbies
Emboldened, Macquarie went sniffing for more assets, such as Sydney's Kingsford Smith Airport. Macquarie introduced a fee on every taxi pick-up and drop-off and made other changes to boost revenue. It also added bathrooms for taxi drivers. Though many thought the bank paid too much, the airport turned out to be a big success.
Before long, Macquarie deployed staff to the U.S., where it set up a New York office headed by Australian banker Murray Bleach. Mr. Bleach recalls skateboarding down drainage culverts astride Dallas's megahighways when he worked for an accounting firm there in his early 20s. Today, he is trying to package a deal that would help finance a major new toll road project in Dallas's northern suburbs.
Mr. Bleach's team spends much of its time scanning Web sites, news clippings and other sources to identify pieces of infrastructure to buy. Team members travel from city to city to introduce the Macquarie name.
When his team began trolling for U.S. deals about five years ago, "it was hard to get appointments," Mr. Bleach recalls. "It was kind of a novelty [to have] these people come from weird Australia, talking funny."
Chicago is certainly glad the firm came knocking. Opened amid great fanfare in the late 1950s, the Skyway was supposed to be a critical leg in a stretch of toll roads extending to New York City. The Skyway turned into an epic white elephant. The toll road failed to generate enough traffic. In the 1970s, Chicago defaulted on its Skyway debt.
More recently, the Skyway became popular as traffic backed up on Chicago's other aging roads. Mr. Bleach's team met with Chicago officials, who hired Goldman Sachs Group to advise them on a potential sale.
Chicago officials recall the Australians as gregarious and informal -- but intense. When Chicago showed up with traffic studies from an outside consultant, the Macquarie team asked for the underlying data so they could run it themselves. They also had their own traffic studies, which argued that the road would attract more traffic -- and could sustain much higher tolls -- than city officials believed.
Squirrel-Clearing Rules
"I don't think I've ever worked with anyone who was like [them] in terms of intensity," says John Schmidt, the Chicago attorney who represented the city in the negotiations.
For their part, the Chicago authorities pressed Macquarie to agree to 300 pages of operating standards that covered everything from how the roads were maintained to how quickly dead squirrels had to be cleaned off the pavement.
In the end, Macquarie, in conjunction with a Spanish construction company, offered to pay $1.8 billion to lease the road for 99 years -- more than twice the next highest bidder.
Macquarie added electronic toll collection and knocked down concrete barriers, a move that gave it more flexibility to open and close lanes depending on traffic. Waiting times at the toll booths decreased. The operators also jacked up tolls and hired new workers at lower wages. The Skyway's former employees were offered jobs with the city.
Executives at Macquarie say U.S. drivers can expect to see more of them in the future. Says Nicholas Moore, the head of Macquarie's investment-banking division: "It's a firm bet that all of the roads that are being talked about in America, we'll be looking at."
Write to Patrick Barta at patrick.barta@wsj.com and Mary Kissel at mary.kissel@wsj.com
The Dictator of Caracas
December 6, 2005; Page A20
After last week's editorial about his oil-for-influence campaign aimed at the U.S. Congress, several readers objected to our description of Venezuelan President Hugo Chávez as a "dictator." Let's hope these forgiving souls paid attention to Sunday's congressional elections in that country.
Mr. Chávez's party or parties sympathetic to his Bolivarian revolution won all 167 seats in the country's unicameral congress. Every single seat. But that Saddam-like sweep was only possible because most Venezuelans decided not to participate. Even the government admits to an abstention rate of greater than 75%. While it's true the opposition boycotted, it did so knowing how the government had cheated to win the August 2004 recall referendum.
The Chávez transgressions in 2004 included the use of voting machines in which software was not reviewed, refusal to allow auditing of the voting registry, not guaranteeing the secrecy of the vote, and using the list of Venezuelans who had signed the recall petition to threaten the livelihoods of government employees and contractors. Overseeing it all was a government-appointed electoral council, which did what it could to outlaw competition. The European Union was so appalled that it refused even to monitor the 2004 vote.
The EU and Organization of American States did show up this weekend. But suspicions were heightened before Sunday's vote when a technician showed foreign monitors that the fingerprint tracking machines used at the polls could be used to identify how individuals voted. In a country where the government owns the means of production (mostly oil), Venezuelans fear that voting wrong could cost them their jobs.
The government agreed to pull the fingerprint scanners,
but the damage was done. Venezuelans went on electoral strike. Mr. Chávez
demanded that government workers go to the polls, but to little avail.
Venezuelans seem to think they live in a dictatorship. The only issue is
whether the rest of the world, especially the OAS, will have the nerve
to admit it.
14. The Greater of Two Evils
By Tim Worstall Published
12/06/2005
E-Mail Bookmark Print Save
TCS
Tim Worstall says private provision of water can be a
bad idea, but public provision of water is almost always worse.
One of the main problems rightwing nutjobs like myself face is that we've never quite managed to get across a fundamental point about our mistrust of government action. People assume we just have a naïve faith that markets left untouched will magically make the world a better place in each and every case. People assume that our distaste for the jumped up little vote-stealers so eager to spend our money is some sort of mental aberration. Such is probably true of me, but there are quite a few thoughtful free market voices out there. Even among those as rabid as myself, none believes there ever has been or ever will be a totally free market. Markets have always been limited by laws, regulations and even by certain societal standards. Indeed, we would insist that markets and rules go hand in hand. Otherwise, without general agreement as to what property is and general rules for its ownership and transference, how could a market even exist?
Take as an example potable water and sanitation services. It's true that the vast majority of such in the world is provided by the public sector in some form or another -- perhaps the city or county, or in some places national governments. The private sector normally takes up a small fraction of the whole in terms of how water is provided. It is also the case that there are at least 1 billion of our fellow human beings who do not have access to water that's wise to imbibe, and that the waste of 2 billion plus people is left to fester in the gutters (and therefore also back to sources of drinking water). We can assume that a significant number of these people would like to change this state of affairs.
Some claim that access to such basics is a human right -- on a par with free speech or the right to life. Other more curmudgeonly types (like myself) agree that such goods or services are important -- indeed, are basic to civilized society -- but we don't quite accord them quite the exalted status of a "right." But all of us, from those writing the United Nations' Millennium Development Goals to the common bus-rider, would like there to be more of these good things: water that doesn't kill babies or sewage systems better than runnels in the street. The disagreement comes in the how we get from here to there. Consider the two basic approaches -- public and private provision.
On the one hand, we have various well-meaning folks at NGOs (like these) who say argue against private provision of water and point to countries, such as Holland, where water stewardship is in the public domain, as the best model to follow. Water and sanitation in Holland are indeed excellent. So why can't this happen the world over?
Perhaps we might first ask whether, in a properly structured privatization scheme, services actually improved and were provided at lower cost. If they didn't, public provision would be the only way to go and I would have to crawl back under my mound of Ayn Rand books for comfort.
Fortunately there was a recent paper, "Water for Life," in the Journal of Private Enterprise in which the authors investigate exactly this question. In the abstract the authors tell us that:
"In the 1990s Argentina embarked on one of the largest privatization campaigns in the world as part of a structural reform plan. The program included the privatization of local water companies covering approximately 30 percent of the country's municipalities. Since clean water and sewage treatment are critical to control the spread of infectious and parasitic diseases; access expansions, quality improvements, and tariff changes associated to privatization may have affected health outcomes. Using the variation in ownership of water provision across time and space generated by the privatization process, we find that child mortality fell 5 to 7 percent in areas that privatized their water services overall; and that the effect was largest in the poorest areas.
"In fact, we estimate that child mortality fell by 24 percent in the poorest municipalities. These results suggest that the privatization of water services prevented approximately 375 deaths of young children per year. We check the robustness of these estimates using cause specific mortality. While privatization is associated with significant reductions in deaths from infectious and parasitic diseases, it was uncorrelated with deaths from causes unrelated to water conditions."
The Berkeley economist Brad DeLong described this as an
excellent paper and George Mason University's Alex Tabarrok added this
coda in a recent online discussion:
"In theory, water services are not an easy thing to privatize
well because of natural monopoly problems and because some of the benefits
of clean water are externalities. In practice, however, governments in
developing countries do such a poor job at providing water that there are
large potential gains to privatization even given such problems."
Which rather takes us back to the beginning. It isn't that we uncaring, unfeeling rightwing nutjobs believe that there can be no market failures, nor even the absence of effective, competitive markets. Rather, it is simply that sometimes government does things worse.
That rather inconvenient little fact is actually what drives us rightwing nutjobs. When you describe a problem, I'm all ears. When you tell me how the world can be made a better place, I'm fascinated. And when you tell me about your desire for such improvements, I am right with you. But I do insist that your program be rather more developed than: "we'll let the Government do it." Because as we have seen time and again, such approaches can prove to be far worse than the one offered by the money-grubbing capitalists.
Alright. So I'll admit to being rabidly ideological, which brings me to that fundamental point I've always wanted to get across. With respect to the provision of any good or service: whether or not you agree with my standard "public provision is almost always a worse solution," surely you can accept "public provision is sometimes a worse solution." If you can't accept that, you're not living in the real world.
Tim Worstall is a TCS contributing writer living in Europe. His book of the best of British blogging can be ordered from Amazon.co.uk. Find more of his musings here.
15. South Korea Watchdog Fines Microsoft $32M
Wednesday December 7, 8:05 am ET
By Bo-Mi Lim, Associated Press Writer
South Korea's Antitrust Watchdog Fines Microsoft $32
Million Over Unfair Practices
GWACHEON, South Korea (AP) -- South Korean antitrust regulators ruled that Microsoft Corp. abused its software market dominance, fined it $32 million and ordered the company to offer alternative versions of its Windows operating system that country within six months. Microsoft said it will fight the decision in court.
The Korea Fair Trade Commission on Wednesday found Microsoft's practice of tying certain software to Windows constitutes an "abuse of market dominant position and unfair trade practices," Kang Chul-kyu, the commission's chairman, told reporters.
The ruling comes after the world's biggest software maker reached separate settlements with companies that then withdrew the complaints that led to the investigation. The companies had complained that Microsoft violated trade rules by tying its instant messenger software to Windows.
In a similar case in March 2004, the European Union ordered Microsoft to pay $586 million, share code information with software rivals and offer a version of Windows without Media Player software. Microsoft, which is based in Redmond, Wash., is appealing that ruling.
In the South Korean ruling, the commission ordered Microsoft to offer two versions of Windows in South Korea within 180 days.
One version must be stripped of the Windows Media Player and Windows Messenger software, while the other version must come with links to Web pages that allow consumers to download competing versions of such software, the commission said.
Windows Messenger is an integrated feature that comes with Windows. MSN Messenger, another instant messaging software, must be downloaded separately.
"This decision will restore competition in the previously distorted markets," Kang said. It will also "serve as an impetus for the domestic software industry, which has been behind in comparison to the hardware industry, to develop further."
The corrective measures will remain effective for 10 years. After the first 5 years, Microsoft will have the opportunity each year to request a review of the remedy to account for changes in the market environment, the commission said.
"We are very disappointed with the commission's decision," said Tom Burt, a Microsoft vice president and deputy general counsel. "Ultimately, we will file a lawsuit in Korean court challenging the decision."
In a release, Microsoft said the decision "could have the effect of chilling innovation in Korea," though the company added it has no intention to pull out of the South Korean market.
In the wake of the European Union ruling in 2004, Microsoft produced a version of Windows without the media player which debuted in June in Europe. But European sales of that version -- Windows XP N -- appear to have been lukewarm as few computer manufacturers and retailers said they were planning to offer the new version to their customers. Microsoft doesn't release sales figures.
Microsoft's troubles in South Korean began when Daum Communications Corp., a local Internet portal, filed a complaint to the commission in 2001 that Microsoft allegedly violated trade rules by tying its instant messenger software to Windows.
Regulators widened the investigation last year after Seattle-based digital media company RealNetworks Inc. filed a complaint alleging Microsoft was undermining competition in the market by tying its Media Player and Media Server software to Windows.
RealNetworks withdrew that complaint after a $761 million legal settlement with Microsoft that ended all their antitrust disputes worldwide, including in South Korea. The commission said at that time it would continue its investigation.
Microsoft reached a $30 million settlement with Daum last month.
Microsoft Chairman Bill Gates, on a visit to India where he said the company plans to invest $1.7 billion and add 3,000 jobs in the country over the next four years, told reporters he wasn't aware of the specifics of the ruling in South Korea.
"But consumers should wish the kind of competition that exists in software should be there in every other part of the economy," he said.
16. Iraq and the Corruption Trap By Arnold Kling
Published 12/07/2005
E-Mail Bookmark Print Save
TCS
http://www.techcentralstation.com/120705A.html
"…political competitors who are unable to make credible
promises to most voters will, upon taking office, underprovide public goods,
overspend on transfers to narrow groups, and engage in significant rent-seeking.
That is, the behavior of such politicians can be characterized as highly
clientelist. However, politicians in older democracies have had greater
opportunity than their counterparts in younger democracies precisely to
build up policy reputations across a wide swath of the electorate. To the
extent that credibility and age of democracy are related, though, younger
democracies should exhibit the same behavior -- under-provision of public
goods, over-spending on transfers to narrow groups of citizens and high
rent-seeking -- predicted to emerge in countries where politicians are
credible to only limited numbers of voters."
-- Philip Keefer, Development Research Group, The World
Bank
If I were to pick one indicator to track in order to predict
success or failure in Iraq, it would be the following:
The percentage of Iraqi government officials who abide by the law in their work
The World Bank's Philip Keefer says that young democracies are fragile because governments are weak. Weak governments, unable to sustain broad-based power, turn to corruption in order to retain narrow-based power. However, corruption discredits the government, making broad-based power even less available. This makes the government even more dependent on corruption for survival. I call this the Corruption Trap.
Why Bad Governments Stay Bad
The corruption trap helps explain why bad government tends to stay bad. Russia and other former Soviet republics appear to be caught in the corruption trap. The corruption trap may explain the perennial disappointment in many African and Latin American countries. Conversely, economic growth in Asia may reflect an escape from the corruption trap.
On the other hand, good government tends to stay good -- not perfect, but good. Once the public comes to expect honesty, this expectation becomes self-reinforcing. Corrupt officials are exposed and denounced. Periodic reforms and house-cleanings address the worst offenses.
Readers may recall that in my essay What Causes Prosperity?
I speculated that a public service ethic -- the opposite of corruption
-- is one of the three ethics necessary for economic growth. The others
are a learning ethic and a work ethic. The public service ethic means that
officials are more likely to obey the law than to act as bandits.
A new book, "Corruption and Reform: Lessons From America's
Economic History," edited by Edward L. Glaeser and Claudia Goldin, suggests
that the United States was lucky to escape the corruption trap. The book
is recommended by economic journalist David Warsh and, in an email, by
the too-honest-for-his-own-good economist Bruce Bartlett. The book's thesis
is consistent with Keefer's view that it is young democracies that are
most at risk.
I am somewhat skeptical of the view that the United States
was a typical young democracy. A different thesis, offered by James Bennett
in The Anglosphere Challenge, is that the characteristics that check government
corruption are part of a culture that goes back to our origins in the British
Isles.
Regardless of which thesis one finds attractive, Iraq
faces a challenge. Iraq is neither an experienced democracy nor an inheritor
of British culture.
Iraq and Vietnam
Recently, it has been fashionable to try to compare Iraq
with Vietnam. I can present my argument for tracking the corruption indicator
in that context.
The opposition to the Iraqi government, the so-called
insurgency, strikes me as inferior to the opposition in Vietnam. The Viet
Cong was a military force. It fought battles, held territory, and was often
in control of the tempo of operations. The terrorists in Iraq can do none
of this. Their tactics reflect weakness and desperation. They fail more
often than not, and our own strategy and tactics are far more effective
than those used at the height of the Vietnam War. If the casualty rate
and other military indicators that we find today in Iraq had been at similar
levels in Vietnam in 1967, President Lyndon Johnson would have been re-elected
in a landslide as the successful architect of a victorious war.
Nonetheless, there is a valid parallel with Vietnam that
is sobering. Ultimately, the United States depends on the local government
for success.
From 1963, when President Kennedy increased our involvement
by sending advisers, to 1975, when we evacuated in disgrace, the attitude
of most Vietnamese people toward the government of South Vietnam ranged
from indifference to hatred. Had South Vietnam been able to escape the
corruption trap during this period, my guess is that the Communists would
have been defeated. On the other hand, with South Vietnam caught in the
corruption trap, there was almost no way for the United States to achieve
durable success.
My guess is that, in many cases, the fastest way to get
something done in Iraq is to bribe an important local tribal leader. Americans,
in a hurry and looking for "can-do" help, will be very tempted to play
this game. However, the long-run consequences may be adverse. Bribing an
official to get something done is like paying ransom to a kidnapper --
what looks like a good short-term fix is a disastrous long-term policy.
To have a durable government that is capable of dealing
with terrorists on its own, Iraq will have to escape the corruption trap.
That may be a very difficult objective to achieve on a timetable.
If we are lucky, the first elected government in Iraq
will include leaders who fire corrupt officials and reward public servants
who do their job. Should that happen, my guess is that many positive results
will follow, including our ability to draw down troops. If that fails to
occur, and Iraq gets caught in the corruption trap, my guess is that the
U.S. military will indeed find itself in a quagmire, stuck policing never-ending
factional strife.
'17. What Causes Prosperity?' By Arnold Kling
Published 12/03/2002
E-Mail Bookmark Print Save
TCS
http://www.techcentralstation.com/120302A.html
I had a friend once and he was asked to chair a commission, an international committee, and the title of it was What Causes Poverty. He declined. He said I will do it but on one condition. The condition is that we change the title and I'll chair a committee on What Causes Prosperity. The reason he said that was, the title What Causes Poverty leaves the impression that the natural state of the world is for people to be prosperous and that for whatever reason there are prosperous people running around making people poor... He looked at the world the other way. He said the natural state of people is to be relatively poor and that there are certain ways and things that can be done that can cause prosperity.
-Secretary of Defense Donald Rumsfeld, Nov. 11, 2002
What are the things that can be done that cause prosperity? Prosperity depends on growth, so economists want to understand how to improve the performance of low-growth countries. However, our knowledge is frustratingly incomplete. Certainly, there is no simple, one-dimensional answer.
There is a counter-example to every generalization and an exception to every simple rule. Are a stable currency and an influx of foreign capital the answer? Don't tell that to Argentina, which collapsed after a decade of a "hard peg" to the dollar and large capital inflows. Is privatization a panacea? Don't tell that to Russia and the other republics of the former Soviet Union. Is a high propensity to save a source of economic strength? Not if you look at Japan's lost decade. Is democracy necessary? Not if China's recent success is any guide. Are trade barriers the major impediment to progress? Not if you go by the relatively high growth rate in India, where tariffs are among the highest in the world.
In spite of these counter-examples, a country that wants to improve economic performance should stabilize its currency, encourage foreign capital, privatize government enterprises, aim for a high rate of national saving, adopt democratic institutions, and reduce tariffs. The counter-examples merely illustrate that none of these policies, individually, is decisive.
There are two reasons that economists are unable to develop a fool-proof program for economic growth. The first issue is that growth is a nonlinear feedback process. The second issue is that economic policies themselves are only one ingredient in the recipe for growth.
A Game with Nonlinear Feedback
Economic growth is one of those processes that provides nonlinear feedback. When the feedback process is linear, we can grope our way toward an answer fairly systematically. However, when the process provides nonlinear feedback, learning what works is more difficult.
Below is a game that illustrates the difference between linear and nonlinear feedback. It is a standard game where the object is to "crack the code." There are three columns of colors. The computer will randomly pick one color in each column to form a secret code. For example, it might pick red-silver-red.
To win the game, you must guess the code. The computer will give you feedback, based on your guess. Having a correct color in the correct column is worth four (4) points. But having a right color in a wrong column is worth only one (1) point. For example, if the code is red-silver-red and you guess red-blue-silver, you get 4 points for putting red in the first column and 1 point for putting silver in the third column, for a total of five (5) points. You use this feedback to make your next guess. You keep refining your guesses until you solve for the code.
That is how it works with linear feedback, where we add the points to get a total. However, what if we use nonlinear feedback? For example, suppose that the point total you get is equal to the product of the points that you get in each of the three columns. So, if you guess red-red-silver, you get 4 points times 1 point times 1 point = 4 points. Note that if you guess red-blue-silver you will get nonlinear feedback of zero (0) points.
Got it? Now try the game. First play with linear feedback. After the computer says "You Won," press start to play a new game. Try playing several games. Using logical deduction, you should be able to win most games in five or six rounds.
Crack the Code
Linear Feedback Nonlinear Feedback
1 2 3 Feedback
Once you get the hang of the game, try switching to nonlinear feedback, and try playing a few games. Do you see how frustrating it can be?
Cracking the Code
Now, perhaps you can have some sympathy with people trying to research the relationship between, say, education policy and education outcomes. Sounding like someone who has been playing nonlinear "crack the code," E.D. Hirsch, Jr., writes, "If just one factor such as class size is being analyzed, then its relative contribution to student outcomes (which might be co-dependent on many other real-world factors) may not be revealed by even the most careful analysis... And if a whole host of factors are simultaneously evaluated as in 'whole-school reform,' it is not just difficult but, despite the claims made for regression analysis, impossible to determine relative causality with confidence."
The nonlinear version of "crack the code" is a metaphor for complex processes that are difficult to understand and control. Cancer is more complex than smallpox, which is why we have eradicated the latter but not the former.
Education is complex, in that educational outcomes depend on a combination of factors. Even though one particular factor may be very important, changing that factor by itself may have almost no impact.
Growth as a Complex Process
It is probably the case that economic growth requires a combination of policies and conditions. No single policy choice can produce significant results in terms of economic growth.
The analogy with picking a color from a column is picking a policy option from among alternatives. Some of the most difficult choices include:
* Fixed vs. flexible exchange rates
* Policies for dealing with financial
crises
* Immigration policy
Although the standard economic prescription calls for privatization, in many prosperous countries governments are involved in a number of industries. In the United States, for example, government is significantly involved in agriculture, education, telecommunications, banking, transportation, and housing. For a developing country, it must be challenging to assess which of these various interventions should be imitated, which ones are counterproductive, and which ones are irrelevant.
The wide array of policy choices can be particularly challenging when combined with the problem of nonlinear feedback. A country may fail to see positive results from good policies, because other policies are not well chosen.
Growth Ethics?
The other major difficulty in arriving at policies to achieve prosperity is that cultural and political factors may be involved. No one has "cracked the code" for growth and prosperity. However, based on the works of economists, including DeLong, Parente and Prescott, de Soto, Easterly, and Barro, as well as non-economists such as Robert Kaplan and Ralph Peters, here are some hypotheses about the issue.
To achieve prosperity, a country must foster three "ethics."
* A work ethic.
* A public service ethic.
* A learning ethic.
The work ethic will exist if and only if people feel that work is fairly rewarded. If instead it becomes evident that rewards accrue to those who steal, deal in black markets, or serve a warlord or clan leader, then those behaviors will be more widespread than work.
One likely reason that privatization performed less well than expected in the former Soviet Union is that the work ethic had been too badly undermined. Suppose that employees are used to stealing from their state-run government enterprises to sell into the black market. When privatization takes place, the black markets are still functioning, and old habits may linger. Before the enterprise can get on its feet, it fails.
A public service ethic is something that we take for granted in the United States. If you want to open a restaurant, you may find the paperwork and regulations irritating. However, at least you can count on the public officials to process your application in a reasonable time without requiring a large bribe. In many other countries, the conduct of state employees ranges from routine petty corruption to organized extortion.
The learning ethic has at least three dimensions. First, education must be valued and accessible to all demographic groups. Second, the scientific method must be understood and appreciated, overcoming superstitions and traditions. Finally, mistakes must be recognized and corrected.
Dictatorships do not seem conducive to recognizing mistakes. Faced with a failing state enterprise, the natural tendency has to be to prop up the troubled institution rather than allowing the firm to go out of business. One reason that the United States has been able to rebound from financial scandals more rapidly than Japan is that we have a competitive two-party democracy. The Japanese elite closed ranks around its troubled financial firms, keeping capital tied up in failing enterprises and prolonging the crisis. In contrast, our political leaders have felt obliged to distance themselves as much as possible from the Enrons and the Worldcoms.
Given the importance of the learning ethic, the enthusiasm of George Gilder and others for China seems a bit misplaced. Instead, consider Ralph Peters, who writes:
In China, the situation regarding the state's attempt to control information and the population's inability to manage it is immeasurably worse. Until China undergoes a genuine cultural revolution that alters permanently and deeply the relationship among state, citizen, and information, that country will bog down at the industrial level. Its sheer size guarantees continued growth, but there will be a flattening in the coming decades and, decisively, China will have great difficulty transitioning from smokestack growth to intellectual innovation and service wealth. China, along with the world's other defiant dictatorships, suffers under an oppressive class structure, built on and secured by an informational hierarchy. The great class struggle of the 21st century will be for access to data, and it will occur in totalitarian and religious-regime states.
Limits of Economic Policy
Even if prosperity can be achieved only if a country develops a work ethic, a public service ethic, and a learning ethic, that only begs the question: how are those ethics fostered?
Standard economic prescriptions, such as letting the incentives of free markets operate, are only part of the answer. Free markets are particularly helpful in maintaining a work ethic. However, without a public service ethic, governments will undermine property rights rather than protect them. Without a learning ethic, agriculture, manufacturing, and services will stagnate rather than evolve.
Should we be surprised that the so-called "Washington Consensus" or "neoliberal" recommendations for deregulation, financial liberalization, and privatization have not brought rapid prosperity to countries that lack some of the necessary ethics? On the contrary, in retrospect we should be surprised that anyone had high expectations for success under such circumstances.
However, even though "neoliberal" policies have not always
received high-scoring feedback in the game of cracking the code of prosperity,
that does not mean that they are bad guesses. As Brad DeLong somewhat forlornly
put it, "The hope is that privatization and world economic integration
will in the long run help create the rest of the preconditions for successful
development. But we are playing this card not because we think it is a
winner, but because it is the last one in our hand."
18.AUSTRALIA'S WATER WORKS
------------------------------------------------------------------------
As much of Asia struggles with water shortages, Australia's
agricultural sector is thriving, despite its worst drought
in
decades. The secret of the success down under:
a free-market
system of water trading rights, says Roger Bate, a resident
fellow at
American Enterprise Institute.
Australia's situation stands in stark contrast to many
parts of Asia,
where Soviet-style systems of water allocation still
prevail:
o In India, Cambodia, Burma
-- and to a lesser extent, Nepal --
governments use
quotas to decide which farmers receive water,
and then dictate
how and when they can use it.
o Since farming accounts for
more than 90 percent of water use
in those countries,
the water supply is effectively dictated
by central planning.
Under such a system, there's no incentive to conserve
water; quite the
reverse, says Bate:
o If the favored farmers don't
use their quota, they lose it.
o And once allocations are made,
they're rarely altered, even
when massive changes
in agriculture, industry, mining,
domestic and rural
demand occur.
o As a result, farmers across
the region can afford to waste
huge amounts of
water, because they often pay one hundred
times less for the
commodity than domestic users.
Contrast that with the situation in countries such as
Australia, which
have introduced water-trading rights. The benefits
are immediate:
o Since farmers have rights
to a fixed supply of water in
advance, they can
sell off any excess water they don't need,
instead of simply
wasting it.
o That increases their profits,
while allowing others--be they
farmers, municipalities,
mines or even green groups
"retiring" rights--to
use this excess allocation
more efficiently.
Free markets allow individuals to adapt to changing conditions,
be they
man-made or natural. And, as Australia's current
experience has
shown, such flexibility is dearly needed, says Bate.
Source: Roger Bate, "Australia's Water Works," Wall Street
Journal Asia, August 23, 2006.
For text:
http://www.aei.org/publications/pubID.24814,filter.all/pub_detail.asp
For more on International Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=26
19. Malaria's Toll By JASON L. RILEY WSJ August 21, 2006; Page A11
Each year, malaria afflicts a half-billion people (roughly the population of North America) and kills a million of them (roughly the population of San Jose). And the latter is a low-end estimate. The actual number of fatalities is hard to pin down, since a body initially weakened by malaria becomes predisposed to other maladies.
But we do know that malarial mosquitoes are attracted to the tropical climes of sub-Saharan Africa, where they prey on impoverished populations that lack the sprays, screens and bed nets necessary to keep the insects at bay. Hence, some 75% of malaria victims are African pregnant women and children under five.
The economist William Easterly calculates that medicine that would prevent half of all malaria deaths costs only $0.12 a dose, and bed nets that would severely limit new cases cost a mere $4 apiece. "Preventing five million child deaths over the next ten years would cost just three dollars for each new mother," he writes in his book "The White Man's Burden."
Mr. Easterly argues that the tragic incompetence of the Western foreign aid industry -- $2.3 trillion spent, over five decades, but little forward advance -- stems from its overly bureaucratic approach to problem-solving. Agencies like the World Health Organization, the Global Fund and the World Bank traditionally have been staffed by well-meaning "planners," to use his term, who see "poverty as a technical engineering problem that [their] answers will solve."
What these organizations really need, says Mr. Easterly,
are more of what he calls "searchers," or people who understand that "poverty
is a complicated tangle of political, social, historical, institutional
and technological factors." Where planners raise high expectations but
take no responsibility for meeting them, searchers prefer to work case-by-case,
using trial and error to tailor solutions to individual problems, fully
aware that most remedies must be homegrown.
[Lance Laifer]
Lance Laifer, a hedge-fund manager in Connecticut, is a searcher. The horrors of malaria came to his attention in May 2005 via a Charlie Rose interview with Columbia University's Jeffrey Sachs, the development expert (and quintessential planner). "I didn't know anything about malaria," Mr. Laifer said in a recent interview. "I didn't know it still existed. I didn't know it was still killing people. I thought it was eradicated a long time ago. I was just flabbergasted."
Mr. Laifer turned his outrage into something of an obsession. He began researching malaria intensely; and he also ran some numbers. Bed nets, medications, insecticide, swamp drainage, etc., came to less than $10,000 for a typical African village of 1,000 people. "That's a doable number," Mr. Laifer concluded.
And then he picked up the phone, turning to friends and associates who help him organize an annual fundraiser to fight cancer. "I basically had a group of people that I know have very big hearts in this area, specifically in dealing with children," he says. "So I called them and said, 'What do you know about malaria and how many people are dying from it?'"
That was the starting point. Where it will end is anyone's guess. Inside of a year, and working with George Ayittey of the Free Africa Foundation, Mr. Laifer's efforts have spawned five "malaria-free zones" in Ghana, Nigeria and Kenya. Expansion to Ivory Coast and Benin is in the works. He adds that he has the financing to roll out additional zones this year but -- ever the searcher -- first wants to assess what's working and what isn't. If all is going well, "next year I see us doing something like 100 villages."
Mr. Laifer says a future focus will also be DDT, the pesticide used by Americans and Europeans in the 1940s to win domestic fights against malarial mosquitoes. Indoor spraying of DDT is by far the cheapest and most effective way to control the disease. One South Africa province employing DDT saw malaria infections and deaths drop 96% over a three-year span.
Yet Rachel Carson-inspired environmentalists have convinced many public health agencies that the chemical is dangerous. African nations, fearful that lucrative European and U.S. markets might ban their agricultural exports, make do with less-effective DDT substitutes. Though DDT, like any chemical, can be harmful in high doses, there's no evidence that using it in the amounts needed to combat malaria has any ill-effect whatsoever on humans.
Mr. Laifer's been unable to spray DDT in any of his malaria-free zones. "It's the best thing in our arsenal," he says. "We have a prodigious supply, it's cheap and we know it works. Our world leaders need to legalize DDT, and people in America need to get mad about this. . . . We need to have people walking around with signs that say, 'DDT saves lives, environmentalists take lives.'"
No one, least of all Mr. Laifer, is under the illusion that these initiatives can rid Africa of this plague anytime soon, if ever. Ultimately, large international aid agencies are the only entities with the scale to wage the necessary campaign. But that doesn't mean innovative efforts like Mr. Laifer's don't play an important role.
"All sorts of approaches need to be tried and we need feedback," says Roger Bate of Africa Fighting Malaria, a group working with Mr. Laifer to raise awareness about the effectiveness of DDT. "I like the private sector being involved. It can come in and show results in a malarial location and force [aid agencies] to actually deliver on their promises. What Lance can do is raise awareness and hopefully anger in the U.S. about countries not using all available methods, including DDT."
But Mr. Bate says the reality is that economic development is the only sure-fire anti-malaria strategy. "We eradicated malaria in Malaysia in the '50s and '60s, and in Singapore at the same time. It came back in Malaysia in the '70s but not in Singapore, and the reason it came back is that there wasn't enough wealth for people to have screens on the windows. Singapore's economy, however, grew rapidly, and there isn't a problem there anymore."
Which is why sub-Saharan Africa's poverty and poor infrastructure make it such a difficult case. And why widespread health problems will persist in the region until people are no longer living under exposed conditions and able to get proper treatment. Not that Mr. Laifer is bowed by these challenges. "All I'm trying to do is give these kids their lives back," he says. "Somebody needs to do this."
Mr. Riley is a member of The Wall Street Journal's editorial
board.
Sunday, August 20, 2006 ~ 3:21 p.m., Sven Larson Wrote:
WHO seems to believe that health-care workers are government
property. The World Health Organization wants to discourage labor migration
from poor countries. It wants to create "ethical guidelines" that prevent
health workers from emigrating. They also want to create a government health
monopoly by discouraging private competition. In plain English, the WHO
is acting as if health professionals are government property. But treating
people like pawns in a chess game is neither morally acceptable nor economically
smart. Migration of health professionals is a sign of healthy jurisdictional
competition, and countries that wish to retain their productive citizens
should improve individual and economic freedom instead. But such considerations
don't seem to matter to the WHO, nor to the Center for Global Development,
which has published a report with the same anti-freedom implications:
The World Health Organization
(WHO), in collaboration with the International Labour Organization and
the International Organization for Migration, today announced the launch
of a coordinated global plan to address a major and often overlooked barrier
to preventing and treating HIV/AIDS: the severe shortage of health workers,
particularly in developing nations. Called 'Treat, Train, Retain', the
plan is an important component of WHO's overall efforts to strengthen human
resources for health and to promote comprehensive national strategies for
human resource development across different disease programmes. The plan
is also part of WHO's work to promote universal access to HIV/AIDS services.
Through its HIV/AIDS Programme, WHO is playing a central role in making
the goal of universal access a reality. ... 'Retain' relates to a set of
interventions to help ensure that countries are able to keep existing workers
employed in the health system. These include: Instituting policy changes,
codes of practice and ethical guidelines to minimize migration of health
workers from low-income countries to developed countries [and] diminishing
the draw of private-sector and NGO HIV/AIDS programmes on workers in public
health systems.
http://www.who.int/mediacentre/news/releases/2006/pr37/en/index.html
Policy and academic debate—often
impassioned—on health professional migration from developing countries
has frequently advanced beyond systematic knowledge of the extent of the
phenomenon. In South Africa, epicenter of the HIV catastrophe, the health
minister recently claimed that "if there is a single major threat to our
overall health effort, it is the continued outward migration of key health
professionals, particularly nurses."2 After the UK National Health Service
ended its active recruitment of staff from Sub-Saharan Africa in 2001,
the British Medical Association (BMA) and the Royal College of Nursing
praised this "strong moral lead," adding that "[i]t is now essential that
other developed countries … make a similar commitment to address the issue."3
BMA Chairman of Council James Johnson flatly declared that "the rape of
the poorest countries must stop."4 In academic circles, Harvard's Sabina
Alkire and Lincoln Chen urge that rich countries' migration policy "should
adopt 'medical exceptionalism' based on moral and ethical grounds."5 Devesh
Kapur and John McHale caution against "poaching" health workers from developing
countries and claim that the case is "obvious" for "restraint" in the recruitment
of doctors and nurses.6 Philip Martin, Manolo Abella, and Christiane Kuptsch
assert that South Africa is "suffering" from a "brain drain" of doctors
and nurses and decries a fiscal impact over $1 billion.
http://www.cgdev.org/files/9267_file_WP95FINAL.pdf
Link to this Blog Entry
Sunday, August 20, 2006 ~ 12:42 p.m., Dan Mitchell Wrote:
Markets should allocate water, not politicians. An Investors'
Business Daily editorial explains why government control of water is inefficient.
Some countries already have learned this lesson, and even the World Bank
has said nice things about using market forces to allocate water:
Water is the king of commodities,
and there's plenty of it, enough to solve the planet's water problems —
but only if governments create markets. Actually, there already is a global
water market, worth about $400 million, according to The New York Times.
Corporations across the world, many of them large international firms,
are investing in water-delivery businesses and water-related equipment
companies. Yet governments still control — and mismanage — large quantities
of water. They do so by failing to provide enough to those who need it,
by unwise subsidies that encourage waste and by inattention to infrastructure.
Nothing minimizes waste or allocates resources more efficiently than prices
arrived at in a free market. And nothing brings willing sellers and buyers
together like the profit motive. …Turning water into a market commodity
won't be politically easy. Some would say it's impossible, given the many
governments that have an aversion to markets. Yet Mexico, Pakistan, India
and Peru, where there's been armed conflict over water, are examples of
somewhat unlikely nations that have founded water property rights and/or
water markets. So has Chile, which has shown that water markets "can improve
the economic efficiency of water use and stimulate investment," economist
Mateen Thobani observed in a World Bank report. Investment, of course,
leads to new businesses and jobs, both of which are desperately needed
in poor nations where water is in short supply.
http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=a
rticle&id=240705195396119
20. OPEN THE SPIGOTS
------------------------------------------------------------------------
Water is the king of commodities and there's plenty of
it, enough to
solve the planet's water problems -- but only if governments
create
markets, says Investor's Business Daily (IBD).
o There already is a global
water market, worth about $400
million, according
to the New York Times.
o Corporations around the world,
many of them large
international firms,
are investing in water delivery
businesses and water-related
equipment companies.
For water markets to work, governments must designate
the resource as
an economic good, a commodity that can be bought and
sold, not
something that belongs to the public. To do so, property
rights
governing water sources must be established.
Turning water into a market commodity won't be politically
easy.
Some would say it's impossible, given the many governments
that have an
aversion to markets:
o Yet Mexico, Pakistan, India
and Peru, where there's been
armed conflict over
water, are examples of somewhat unlikely
nations that have
founded water property rights and/or water
markets.
o So has Chile, which has shown
that water markets can improve
the economic efficiency
of water use and stimulate investment,
economist Mateen
Thobani observed in a World Bank report.
o Investment leads to new businesses
and jobs, both of which
are desperately
needed in poor nations where water is in short
supply.
o Markets can help prevent predicted
shortages and reduce the
incidence of death
and sickness caused by lack of water or
water-borne disease.
"Countries that have redefined and traded water rights
have seen
water access for the rural poor increase in volume and
fall in
price," American Enterprise Institute resident scholar
Roger Bate
writes in Australia's Courier Mail. "All users
. . . have
seen supplies increase in reliability and quality with
infrastructural
improvements."
Source: Editorial, "Open The Spigots," Investor's Business
Daily, August 18, 2006.
For text (subscription required):
http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=240705195396119
For more on Drinking Water:
http://eteam.ncpa.org/issues/?c=drinking-water
For more on Environment:
http://www.ncpa.org/sub/dpd/?Article_Category=31
21. THE ECONOMICS OF FEAR
------------------------------------------------------------------------
Terrorism has not crippled economic growth, nor has it
frustrated the
spread of globalization. Not yet, anyway, says
columnist Robert
J. Samuelson.
o Since 2001 the world economy
has expanded more than 20
percent.
o For the United States, the
gain is almost 15 percent; for
developing countries,
more than 30 percent.
o World trade -- exports and
imports -- has risen by more than
30 percent.
o Outstanding international
debt securities have jumped almost
90 percent, to $13.6
trillion (through the third quarter of
2005).
Even when huge, terrorism's costs can get lost in a $13
trillion
economy, says Samuelson:
o At last count, Congress had
committed $432 billion to the
wars in Iraq and
Afghanistan -- a far cry from informal
estimates of $50
billion to $200 billion before the Iraq war.
o The Congressional Budget Office
now projects that those costs
could easily exceed
$800 billion by 2016.
o A study by Linda Bilmes of
Harvard and Joseph Stiglitz of
Columbia puts the
war's ultimate budget costs even higher, at
a minimum of $1.1
trillion in present value.
o Still, this spending is a
tiny share of all federal spending,
estimated at $47
trillion from 2001 to 2016.
Source: Robert J. Samuelson, "The Economics of Fear,"
Washington Post, August 16, 2006.
For text (subscription required):
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/15/AR2006081501123.html
For more on Economic Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=17
The Economics of Fear
By Robert J. Samuelson
Washinton Post Wednesday, August 16, 2006; Page
A13
This is an age of glaring contradictions. It's hard to ignore the great disconnect between the rise of terrorism and the relentless advance of the world economy. After Sept. 11, 2001, the reasonable fear was that terrorism and its nasty side effects -- more anxiety, uncertainty and security checks, and higher costs for moving people and cargo -- might cripple economic growth and frustrate the spread of globalization. It hasn't happened. Not yet, anyway.
To be sure, terrorism has exacted some steep costs. Airlines
and tourism suffered after Sept. 11; in the wake of last week's foiled
bomb plot, that could happen again. Spending for the war in Iraq was vastly
underestimated. But terrorism's damage has paled before the larger effect,
which is not much. It hasn't destroyed prosperity or cross-border flows
of goods, money and people.
Since 2001 the world economy has expanded more than 20
percent. For the United States, the gain is almost 15 percent; for developing
countries, more than 30 percent. World trade -- exports and imports --
has risen by more than 30 percent. Outstanding international debt securities
have jumped almost 90 percent, to $13.6 trillion (through the third quarter
of 2005).
We ought to ask why the economic fallout has been so muted -- and whether that could change. Could the backlash so feared five years ago unfold in the future?
One obvious explanation is that in the United States, there has been no second or third Sept. 11. Beyond that, economic resilience partly reflects human nature. People and businesses try to get back to normal. It's what they know best. For sheer physical damage, acts of nature often overshadow acts of terrorism. Michael Mussa of the Institute for International Economics notes that Hurricane Katrina hurt the economy more than Sept. 11.
Even when huge, terrorism's costs can get lost in a $13 trillion economy. At last count, Congress had committed $432 billion to the wars in Iraq and Afghanistan -- a far cry from informal estimates of $50 billion to $200 billion before the Iraq war. The Congressional Budget Office now projects that those costs could easily exceed $800 billion by 2016. A study by Linda Bilmes of Harvard and Joseph Stiglitz of Columbia puts the war's ultimate budget costs even higher, at a minimum of $1.1 trillion in present value. Still, this spending is a tiny share of all federal spending, estimated at $47 trillion from 2001 to 2016.
Similarly, skillful crisis management after Sept. 11 blunted terrorism's long-term effect on economic confidence. Some big banks lost their computer and communications systems; planes carrying checks were grounded. People might not have been able to cash checks; banks might have hoarded funds because they weren't receiving payments from other banks. But the Federal Reserve lent liberally to banks needing money ($46 billion on Sept. 12) and temporarily authorized checks to be credited before being cleared. Thus was averted a wider economic breakdown and a bigger blow to consumer psychology.
The result is that -- so far -- terrorism has been an economic blank. People regard attacks around the world (in London, Madrid, Bali) as isolated tragedies and not a cause to alter their buying habits. But that is not entirely reassuring. Even if consumer confidence remains unshaken, terrorism might threaten the world economy in other ways.
Every successful economic system requires a supporting political structure: rules, standards of behavior, ways of resolving conflicts. For years, the United States and its allies were bound together by political and economic alliances. But as Princeton historian Harold James notes, the war on terrorism -- mainly the war in Iraq -- has created divisions on political issues that make agreement on economic matters harder. Protectionism could depress economic growth if increasingly nationalistic countries retreat from global markets. The recent deadlock of the Doha round of trade talks is a suggestive example.
The larger threat involves the great disconnect: Countries
are moving closer economically, depending on each other more for trade,
raw materials (especially oil) and finance, but they're moving farther
apart politically, disagreeing over goals, tactics and values. Historian
Niall Ferguson of Harvard has pointed to a similar disconnect, before World
War I, when European powers were highly integrated economically and increasingly
hostile politically. But there was a chilling disregard for the contradiction.
It's a grim analogy that suggests little cause for complacency.
22.A Liberal, Radical and Progressive Manifesto a review
of Deepak Lal new book Font Size:
By Tim Worstall : BIO| 14 Aug 2006
Discuss This Story! (35) Email
| Print | Bookmark | Save
deepaklal-invisible hand
It's difficult to convey the shock with which a modern American liberal will greet Deepak Lal's new book, Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-First Century. Lal effectively points out that just about every goal held dear by those who call themselves radicals and progressives is best reached by exactly the opposite policy prescriptions that they put forward. Indeed, we can go further and point out that the best methods of reaching those goals are in fact the truly liberal ones, those laid out all those decades ago by Adam Smith, David Hume and David Ricardo.
Another way of putting this is that this book can and should be a rallying point for those of us who are indeed liberal, radical and progressive. Liberal in that we believe in the maximum amount of freedom consistent with the avoidance of anarchy (it was, after all, a British Liberal Prime Minister who campaigned on the idea that "The man who is governed best is the man who is governed least"); progressive in that we can make the world a better place; and radical in that this is not going to be achieved by tinkering at the margins. No, rather, what we need to do is roll back the accretions of power by the State over the past century, those things that actually cause so many of our current problems, perform radical surgery on the special interests that have hijacked our political process.
Those of you who listened to Lal's podcast interview with TCS big cheese Nick Schulz will have a general idea of the thrust of his ideas. Global wealth has historically grown fastest when the extent of the global market itself was at its greatest. In the 19th century this was driven by the Pax Brittanica and since 1980 (when the current burst of globalization really started) by the Pax Americana, something less like an Empire and more driven by the policy agreements of the Washington Consensus.
Contrary to what we are so often told, in both these periods, inequality fell: both amongst and within nations as the division of labor driven by trade was able to do its magic. It might be worth remembering that in 1900 Argentina was one of the very richest nations on earth, made wealthy by commodity exports to the more industrial nations of Europe.
The opposition to globalization seems to be driven by two things: one contemptible, the other merely mistaken. The contemptible one is the reaction of the various pressure groups in our own countries, bewailing the way in which "the market" will crush all cultures. This seems, in Lal's view, to be driven by nothing more than hatred of people or Contemptus Mundi. The mistaken one is where there is a conflation between resisting the market itself (with the associated capitalism) and resisting American or European culture. It is possible to accept and benefit from one without importing the other -- something that has not yet quite occurred to all? Organizing an economy along free market lines does not mean that Islamic states will have to allow topless sunbathing, alcohol or to abandon their cultural practices: Lal rightly points out that Japan is very much a capitalist society, but is still distinctively Japanese. All can become rich through trade without that having to mean that all become the same.
Elsewhere in Reviving, there are little paragraphs -- asides almost -- which illuminate huge debates that we are having now. For example, we often hear that there should be global standards on working hours, on safety standards, on the way that labor is treated. This is put forward as a matter of justice, as a way of raising the living standards of those so ruthlessly exploited.
By the second half of the nineteenth century India had turned the tables on the Lancashire textiles industry. In the 1850s it had established a modern textile industry based on Indian entrepreneurship and capital and foreign technology. It began exporting cotton manufactures to Britain. The Lancashire cotton interests lobbied the British-Indian government to "apply British factory legislation en bloc to India so as to neutralize the 'unfair' advantages which the Indian mill-industry was enjoying because of the large scale employment of child labor and long hours of work".
That worked well, did it not? -- making India so, so much richer. Remember this next time you hear the AFL or CIO calling for international labor standards: it's pure protectionism.
Lal argues that the claim that poor countries must be able to impose tariffs upon imports in order to protect their infant industries is "by and large an intellectual curiousum". At another point Lal disputes the Nobel-winning economist Joseph Stiglitz's similar contention that there is an optimal tax and subsidy policy which can alter behavior for the better:
It might be noted that we ignore any discussion of the political processes by which the tax-subsidy schemes described below might be affected. Critics may claim that as a result we have not really shown that a Pareto improvement is actually possible
Lal's comment upon this is a sparse "Quite." We might also apply that insight to the infant industry argument. Lal's view of governments is very like that of Chairman of the Economics Department at George Mason, Don Boudreaux's. Both see governments as bandits or predators who prey upon their captive populations to a greater or lesser extent. That there might be an optimal tariff or method of protecting infant industries is itself a debatable academic proposition. That the predators in government will never apply it -- even if it is found -- is an unfortunate fact of reality.
To my mind the most interesting part of the book was explaining quite how the WTO negotiations (the Doha Round which has/is collapsing) came to be such a mess using simple game theory. We know that unilateral free trade benefits those that practice it, regardless of whether any or all other countries reciprocate. So why do we even have trade negotiations? There is the obvious and oft-stated reason: that the benefits of protectionism go to highly organized and vocal groups while the benefits of free trade flow to everyone in a much more dispersed manner. It is therefore always easier to agitate and influence government in favor of restrictions. But Lal goes further and points out that the unilateral argument has never really taken root in the US. At least on an institutional basis, in the political classes, trade is seen as something where a concession here must be matched by an equal or greater one there. That this is nonsense does not stop everyone else from acting in the same manner: everyone is unwilling to have unilateral free trade, for if we did; what would we have left to bargain with the USA? A mistaken attitude perhaps, but understandable.
As to the best use of this book? Perhaps the purchase of a few copies might be in order. One for yourself, to savor. Others to pass on to those of your friends and colleagues who consider themselves liberal, radical and progressive. It should be interesting to see their brains explode as they realize that the achievement of their stated desired goals is only possible by the complete abandonment of all their favored plans. I wonder if we could get Hillary to sit still for long enough to read it?
Tim Worstall is a TCS Daily contributing writer living
in Europe.
Tuesday, August 15, 2006 ~ 8:33 a.m., Dan Mitchell Wrote:
23. Global tax-cut revolution reaches Colombia.
Tax-news.com reports on the looming corporate tax rate reductions in Colombia:
Colombia's President Alvaro
Uribe, who was sworn in for an unprecedented second term on Monday, has
vowed to continue pursuing the government's policy of pro-business economic
reforms, including cuts in corporate tax and the conclusion of a free trade
deal with the United States. ...A central plank of Uribe's economic policy
is a cut in corporate tax by 6.5% to 32% by 2009. The official corporate
tax rate in Columbia is currently about 38.4%, but temporary exemptions
on corporate taxes for firms that reinvest their profits have lowered the
actual rate to 28.5%, a move which has led to rising levels of investment.
However, a myriad of exemptions has made Colombia's corporate code increasingly
complex, and the new tax bill will reduce complexity by stripping out about
1,200 articles of the tax code to leave only about 200. Under the proposals,
all exemptions will be ditched to create a level corporate tax playing
field for every company.
http://www.tax-news.com/asp/story/story_open.asp?storyname=24511
Friday, August 11, 2006 ~ 8:34 a.m., Dan Mitchell Wrote:
Article explains the valuable role of tax competition.
Western European politicians hate tax competition, and an article on the
Globalpolitician.com website provides an excellent explanation:
The Flat Tax Revolution
in Eastern Europe presents a challenge to Western Europe, as companies
are bound to move to neighboring states to avoid paying the near-confiscatory
taxation (especially when you combine the income tax with corporate, capital
gains and dividend taxes) levied in the "Old Europe" to support the Welfare
State system. Furthermore, whereas hiring an employee in the Old Europe
more closely resembles a Catholic wedding, where no divorce is possible
except in the most extreme cases (and even then, companies face union strikes
and negative media attention), in the formerly Communist states, one can
hire an employee without the fear of being stuck with someone who's incompetent,
lazy, unqualified (e.g., lied in the resume about qualifications) or simply
obsolete. Western Europe shutters at the thought of a person being obsolete
(and, naturally, nobody in the Old Europe is lazy or incompetent), but
if a business can replace a person with a computer that can produce more
in less time and with less expense, it becomes a necessity in order to
keep up with the competition (imagine a horse-and-buggy mail delivery business
competing with a business providing emailing and faxing services). Likewise,
if your competitor can save costs by operating in a country with lower
taxation, they will be able to price their goods cheaper, thus forcing
you to either lose your profit margin, go out of business or move to a
place that will allow you to compete on a level playing field. However,
lowering taxes is very difficult in Old Europe because much of the population
is so dependent on the Welfare State that they can no longer imagine any
alternative and see the lowering of government spending as a sure way to
increase poverty and cause other ills in every imaginable field, from education
to health care. Faced with a stark choice of fighting their electorate
to force through unpopular reforms or stagnating economy with a constantly
outflow of job-creating companies, Western Europe hopes it has found the
third way – attacking Eastern Europe and threatening it into raising taxes
in line with Old Europe. After the Flat Tax was introduced in Slovakia,
German Chancellor Gerhard Schroeder reacted by accusing it of unfair competition
for "dumping" tax rates to stimulate domestic economic growth and attract
foreign investment. This charge has also been leveled against other East
European nations that are moving towards a free market. Responding to German
Chancellor's attacks, Slovakian Finance Minister Ivan Miklos asserted,
"I understand he's under pressure from German investors and entrepreneurs
who are criticising the high taxation and not optimal business environment
in Germany."
http://globalpolitician.com/articledes.asp?ID=2020&cid=3&sid=8
24. Reaganomics at 25
WSJ August 12, 2006; Page A8
Twenty-five years ago this weekend, Ronald Reagan signed the Economic Recovery Tax Act. The bill cut personal income tax rates by 25% across the board, indexed tax brackets for inflation and reduced the corporate income tax rate. The anniversary is worth commemorating as a seminal moment that continues to influence policy for the better in the U.S., and around the globe.
The achievement of Reaganomics can only be fully understood
by recalling the miserable state of affairs a quarter-century ago. Newsweek
summarized the national mood when it wrote in 1981 that Reagan "inherits
the most dangerous economic crisis since Franklin Roosevelt took office
48 years ago."
[Reagan]
That was no exaggeration. The economy was enduring a cycle of rising inflation with growing levels of unemployment. Remember 20% mortgage interest rates? Terms like "stagflation" and "misery index" entered the popular vocabulary, and declinists of various kinds were in the saddle. The perception of American economic weakness encouraged the Soviet empire to ever bolder adventures, as reflected by Soviet tanks in Kabul and Communists on the march in Nicaragua and Africa.
The reigning Keynesian policy consensus had no answer for this predicament, and so a new group of economic ideas came to the fore. Actually, they were old, classical economic ideas that were rediscovered via the likes of Milton Friedman and the Chicago School, Arthur Laffer, Robert Mundell, and such policy activists in Washington as Norman Ture and Jack Kemp, among others. These humble columns under our late editor, Robert Bartley, led the parade.
For every policy goal, you need a policy lever, Mr. Mundell likes to say. Monetary restraint was needed to break inflation, while cuts in marginal tax rates would restore the incentives to save and invest. With Paul Volcker at the Federal Reserve and Reagan at the White House, those two levers became the essence of the "supply-side" policy mix.
The results have been better than even some of its supporters hoped. The Dow Jones Industrial Average first broke 1,000 in 1972, but a decade later it was barely above 800 -- one of the worst and most enduring bear markets in history. In the 25 years since Reaganomics, however, the Dow has climbed to about 11,000, accounting for an increase in national wealth on the order of $25 trillion. To match that increase in percentage terms, the Dow would have to rise to some 150,000 in the next quarter century. American living standards have risen steadily, and U.S. businesses have created entire industries that didn't exist a generation ago.
Obviously, the economic policy path from 1981 to the present day has not been a straight line. The biggest detour occurred from 1990 through 1994, when George H. W. Bush and Bill Clinton forgot the Gipper's lesson and raised marginal income-tax rates; they suffered for it in the elections of 1992 and 1994. The arrival of the Gingrich Republicans in Congress stopped this slow-motion repeal of Reaganomics, however, and even helped to extend it at the margin with a cut in the capital-gains tax rate to 20% in 1997.
Adherents of Rubinomics -- after Clinton Treasury Secretary Robert Rubin -- are still not converts, arguing that tax increases are virtuous if they reduce the deficit. We've addressed that argument many times and will again. But even the Rubinites haven't dared to repeal indexing for inflation (which pushed taxpayers via "bracket creep" into ever-higher tax rates), and even the most ardent liberals don't propose to return to the top pre-Reagan income tax rate of 70%. They also now understand that, at some point along the Laffer Curve, high rates begin to yield less tax revenue. The bipartisan consensus in favor of sound money has also held.
Thus today, the top marginal personal and corporate tax rates are 35%, compared with 70% and 48% in 1981. In the late 1970s the tax on dividends was 70% and the capital gains rate was 50%; now they're both 15%. These reductions have increased the rate of return on capital, and hence some $3 trillion more was invested by foreigners in the U.S. between 1981 and 2005 than was invested by Americans abroad. One result: 40 million new jobs, more than the rest of the industrialized world combined.
The rest of the world, meanwhile, has followed the Gipper down the tax-cut curve. Daniel Mitchell of the Heritage Foundation finds that the average personal income tax rate in the industrialized world is now 43%, versus 67% in 1980. The average top corporate tax rate has fallen to 29% from 48%. This decline in global tax rates has been the economic counterpart to the fall of the Berlin Wall. Most of Eastern Europe has adopted flat tax rates of 25% or lower, and the Russians now have a flat income tax of 13%. In Old Europe, Ireland's corporate and personal income tax rate cuts have helped generate the swiftest economic growth in the EU.
Not bad for a President dismissed as a dreamy former actor.
In his 1989 farewell address, Reagan said that "People say that I was a
great communicator. It would be more accurate to say that I communicated
great ideas." He was right, and a remarkable global prosperity has followed
in his wake. The challenge for current and future political leaders is
not to forget it.
25. World Bank Raises China GDP Forecast
By J.R. WU
August 15, 2006 3:47 a.m.
BEIJING -- The World Bank on Tuesday raised its forecast for China's full-year growth in gross domestic product to 10.4% from 9.5% previously, the third time this year the bank raised its forecast.
Slowing growth in China's industrial output last month could signal that government efforts to rein in overly fast economic growth are working, but economists said they continue to expect fresh tightening measures in the second half.
Economists said fresh administrative curbs and monetary tightening are still needed to control excessive investment and expansion of money supply. A slight slowdown in exports is anticipated, which could weigh on industrial output, but growth levels remain high and domestic demand is solid, they said.
Value-added industrial output in July rose 16.7% from a year earlier to 720 billion yuan ($90.22 billion), compared with a 19.5% year-to-year gain for June, the government said Tuesday. July's growth was the slowest since April's 16.6% gain.
For the first seven months of this year, industrial output rose 17.6% to 4.696 trillion yuan, the National Bureau of Statistics said.
Meanwhile, the Ministry of Commerce said Tuesday that China's actual foreign direct investment in the first seven months of the year fell 1.16% from a year earlier to $32.71 billion. In July alone, China's actual foreign direct investment totaled $4.28 billion, down 5.5%.
The government didn't give a reason for the slowdown in foreign direct investment, but J.P. Morgan economists attributed it to anticipation for more tightening measures and a cautious outlook for U.S. consumer demand.
Policy makers, concerned about overcapacity in key industries and runaway credit growth, are trying to tackle imbalances in the economy that could spawn bankruptcies and fresh bad loans. Already this year, Beijing has raised lending rates once and banks' reserve requirement ratio twice, along with issuing regulatory measures to curb investment in sectors like steel, cement, property and aluminum.
In July, output of automobiles rose 10.4%, slowing sharply compared with a nearly 28% gain in the first half, bureau data showed. At 22.5%, growth in rolled steel output also slowed last month compared with 25.8% in the first half, the data showed.
In its latest quarterly briefing on China, the World Bank said, "With production capacity continuing to expand in line with demand, inflation low, and the current account in surplus, the main policy concern is not general overheating."
"The authorities can take some comfort from the fact that most investment is financed from profits rather than credit, and that the highest investment growth is taking place in largely commercialized sectors," the bank said. However, more moderate growth in investment is "desirable," as a continued boom in investment raises concerns about efficiency, the World Bank said.
It also cautioned against some key external risks, including a sharper-than-expected slowdown in the U.S. economy and a disorderly resolution of global imbalances.
Among other forecasts issued Tuesday, the World Bank said it expects China's exports to increase 20.8% this year and imports to rise 18.4%. China's consumer price index, a key inflation gauge, is expected to rise 1.9% in 2006, the bank said. China's exports grew 28.4% and imports 17.6% in 2005. CPI rose 1.8% last year. In the first half of this year, China's GDP expanded 10.9%, the fastest pace in more than a decade.
Write to J.R. Wu at jr.wu@dowjones.com
26. EVOLUTION: HUMANS LARGER, HEALTHIER, LIVE
LONGER
------------------------------------------------------------------------
There is a debate among scientists about whether the evolutionary
trend
of increased human life expectancy will continue in the
future or
whether some countertrend, such as obesity or overuse
of medications,
will turn the statistics around.
o David Williamson, a senior
biomedical research scientist at
Centers for Disease
Control, says it is very legitimate to be
concerned about
levels of overweight and obesity in kids, but
at the same time,
those levels of obesity are overlaid on
improvements in
health in children, which also affect
long-term health
and longevity.
o Samuel Preston, a professor
of demography at the University
of Pennsylvania,
agreed that life expectancy likely will
continue to increase
despite obesity.
Recent studies find that humans today are larger, healthier
and live
longer than their ancestors. For example:
o A study conducted by Robert
Fogel and researchers from the
University of Chicago
that compared the health of 50,000 Union
Army veterans with
the health of U.S. men born in recent years
finds that men on
average are almost three inches taller and
50 pounds heavier
than they were in 1900.
o The study also finds that
about half of men age 65 today will
live to age 85,
compared with 13 percent of those in 1900, and
that less than half
of men today have experienced a heart
attack by age 60,
compared with 80 percent of those in
1900.
Researchers attributed the results to improved health
care and quality
of life, as well as the development of vaccines and antibiotics.
According to Fogel, humans over the past 100 years have
undergone a
form of evolution that is unique not only to humankind,
but unique
among the 7,000 or so generations of humans who have
ever inhabited the
earth.
Source: Gina Kolata, "So Big and Healthy Nowadays, Grandpa
Wouldn't Know You" and "Living Large and Healthy, But
How
Long Can it Go On?" New York Times, July 30, 2006.
For text:
http://www.nytimes.com/2006/07/30/health/30age.html?ex=1154664000&en=e5170811706bc641&ei=5087%0A
For text:
http://www.nytimes.com/2006/07/30/health/30ageside.html
For more on Health Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=16
Don't Look Now, But the World Economy Is Booming
Font Size:
By Nathan Smith : BIO| 03 Aug 2006
Discuss This Story! (2) Email
| Print | Bookmark | Save http://www.techcentralstation.com/
international-money
The world economy is booming. To see the evidence, check out the back page of The Economist. There is a column showing the GDP growth rates of 27 developing countries. In a typical copy from the late 1990s as many as one-third to one-half of these could have minus signs in front of them.
Today, every single one of these developing countries' growth rates is positive. Substantially positive. The slowest growth rate, in Brazil, is still a respectable 3.4 percent.
In the 1990s, the GDP of developing countries grew at an average of 3.6 percent. Now a faster rate of growth seems to have set in. In 2003, developing countries' economies grew by 5.6 percent. In 2004, they achieved a sizzling 7.1 percent, then settled back to a still-impressive 6.4 percent in 2005. Rich countries are growing, too -- the OECD economies grew at 3.2 percent in 2004 and 2.7 percent in 2005 -- but at more a pedestrian pace.
If anything, 2006 looks to be even better. China's economy grew at 11.3 percent in the second quarter of 2006. India's busy economy is growing at about 8 percent. US GDP grew at a 5.6 percent annual rate in the first quarter.
The Beginnings of Convergence?
When poor countries grow faster than rich ones, the result is convergence, a narrowing of worldwide economic inequality. Economists have long predicted convergence, which should be caused by technology transfer, international trade and capital flows, and (to a small extent) foreign aid and migration. There have been intermittent signs of it. But real, unmistakable convergence has never seemed to materialize. Until now?
It's not just India and China anymore. In the 1990s, strong growth in China and India, with their gigantic populations, caused a slight narrowing in worldwide individual inequality, despite the ongoing crisis in Africa, economic collapse in the former Soviet bloc, and stagnation in Latin America and the Middle East. By contrast, today economic growth has spread to all major regions of the world.
The biggest turnaround is in the former Soviet bloc, where average annual economic growth from the fall of the USSR to 1998 was negative 6.9 percent, but, from 1999 onward, has bounced back to positive 6.9 percent.
But every region except Western Europe is beating its 1990s average. Latin America was regarded as under-performing in the 1990s, averaging 3.4 percent GDP growth. It grew at 6 percent in 2004, 4.4 percent in 2005, and is expected to grow 5 percent in 2006. The Middle East and North Africa region grew at 3.8 percent in the 1990s. It grew at 4.7 percent in 2004 and 4.8 percent in 2005. Sub-Saharan Africa has improved from 2.9 percent average GDP growth in the 1990s to 5.6 percent in 2004 and 5.3 percent in 2005. East Asia (excluding Japan) is beating even its sizzling 1990s average of 8.5 percent; in 2004, it grew at 9.1 percent, in 2005, 8.8 percent.
What's the explanation for this global economic boom? Well, here are a few hypotheses.
High Commodity Prices Spread the Wealth
Think of developing countries as of two kinds: sweatshop countries and non-sweatshop countries.
Sweatshop countries are those where entrepreneurs find it worthwhile to build factories specializing in labor-intensive industrial activities; the Pacific Rim countries of East Asia are sweatshop countries par excellence. First Japan, then Korea, Taiwan, Hong Kong and Singapore, then Malaysia and Thailand, now Vietnam, China and Indonesia, got their start in labor-intensive, low-skilled industries like apparel. They earned very low wages at first for stitching garments or making Nike shoes. After all, cheap labor was about all they had to offer. But soon they got plugged into the global economy, and started learning by doing and moving up the value chain. They acquired capital, skills, and a good name, and then moved on to higher-value-added activities. By now, some of them have outsourced the most labor-intensive jobs, thus becoming ex-sweatshop countries and turning poorer neighbors into sweatshop countries.
Being a sweatshop country is not as easy as it sounds. It's not enough to have a large supply of cheap labor. Lots of countries have that. Economic openness isn't enough, either: people won't invest in a country with lazy workers, lousy infrastructure, and a high risk of investments being expropriated, even if tariffs are low. Arnold Kling has suggested that the deep preconditions for economic growth are three "growth ethics": a work ethic, a public service ethic, and a learning ethic. A work ethic makes your sweatshops competitive. A public service ethic makes government create a good business environment and not steal too much. And a learning ethic enables a country to acquire skills, learn the ins-and-outs of global markets, and absorb foreign technology. A lack of these ethics is one reason that there are still so many non-sweatshop countries in the developing world.
It's the non-sweatshop countries, which export commodities
and import (or, worse, try not to import) industrial goods, that are the
basketcases. For one thing, commodities prices are volatile, and in the
two decades before 2004, the terms of trade generally shifted against them.
But in 2004, commodity prices turned around, as shown in the table below:
As the table shows, most commodity prices drifted downward until about 2002, then started inching upward. Then, in 2004, metals and energy prices began zooming upward. Four of the lines in the table are broad indices. The fifth is copper, included in honor of Zambia, a very poor copper exporter in sub-Saharan Africa. In his 2002 book The Elusive Quest for Growth, estranged World Bank economist Bill Easterly gave Zambia as a sad example of a country whose economy was devastated by adverse price trends outside its control that lasted for decades. Now, with copper prices soaring, Zambia's having a bit of luck, at last!
High commodity prices help to spread economic growth from high-performing sweatshop and ex-sweatshop countries to struggling commodity exporters. One reason economic growth is no longer concentrated in clever, industrious East Asia, but is occurring worldwide is high commodities prices. And a key reason for high commodity prices is China.
In the year 2004, China got big enough to carry world commodity markets on its shoulders. China is now the world's biggest importer of steel, copper, stone, soybeans, and the second largest importer of oil. It may be the world's biggest importer, full stop, by 2010. If China sustains its fast pace of growth, expect commodity prices to stay high. For a long time, the US has been the "locomotive" of the world economy. Now we've got company.
The Demographic Transition
Look through the pages of the World Bank's 2005 Little Data Book, and you will notice one striking regularity: in every single developing country in the world, the birth rate (births per woman) in 2003 is equal to or lower than in 1990. The only countries where the birth rates rose were rich countries: Denmark, France, and the Netherlands.
A lower birthrate is both a cause and a consequence of economic development. Why richer people have fewer kids is not entirely clear. But the explanation of why a fall in the birthrate tends to cause a big jump in the level of per capita income is straightforward.
A society with a high birthrate has to support a lot of kids. Also, population growth means a growing labor supply, which holds down wages. On the plus side, it has relatively few old people to support: lots of grandkids for every grandma.
When the birthrate falls, the first effect is that there are fewer kids to support and educate. At the same time, there are still relatively few old people. This situation is called a low dependency ratio, meaning that people who don't work (children and seniors) are a small share of the population. A low dependency ratio means low public spending.
At the same time, workers are saving for their old age, so savings rates are high. Entrepreneurs turn savings into investment, and capital formation accelerates. And fewer children means less growth in the labor supply. As workers become scarcer, and capital more abundant, wages and living standards rise. Eventually, the dependency ratio rises again, as a baby-boom of workers turns into a baby-boom of retirees, and growth slows down again. But before that happens, a country has a window of opportunity to achieve especially rapid growth.
This process is called the demographic transition. It was part of the reason for the explosive growth performance of East Asia over the past generation. Now, with birthrates falling everywhere, a worldwide demographic transition is underway. Incidentally, this also explains the "savings glut" which Ben Bernanke (now Fed Chairman) posited last year as an explanation for why dollar interest rates remain low, in spite of America's huge budget and trade deficits.
The Market-Capitalist System Is Doing Its Work
Never in history has the market-capitalist system been so widespread. A golden age of capitalism started in the 1990s, when the Soviet Union fell, India hit a financial crisis and embarked on market reforms, Deng urged the Chinese to "plunge into the sea" of market competition, and Latin American countries beat inflation and tried out the Washington Consensus. Market capitalism was the only game in town, but not everyone understood how to play it. What Russia enacted turned out to be a cruel parody of capitalism, East Asian countries' cronyism and lack of transparency led them into a financial crisis (though they rebounded quickly), and the economies of China and Japan were distorted by insolvent financial systems that the government wouldn't allow to fail.
These days, triumphalism about the magic of the market is passé. There are more secure property rights, convertible currencies, and trade and capital mobility than there was in the 1990s. During the post-Soviet economic collapse, the 1997-8 financial crises, the years of Latin-American under-performance, economists often promised that adherence to Washington Consensus "orthodoxy" would pay off "in the long run." A lot of people got disillusioned with those promises, but maybe they were right after all.
When countries want to pursue market-capitalist policies, they often turn to the itinerant eggheads of the IMF and the World Bank. Some libertarians and classical liberals applaud the spread of capitalism, but want to abolish the IMF and the World Bank. How do they think policy ideas spread -- by telepathy?
The End of Poverty?
The economist Jeffery Sachs' book The End of Poverty came in for a lot of criticism. With good reason: Sachs has too much faith in the power of government-to-government foreign aid to raise living standards. But the book is not as utopian as it sounds, because Sachs' title really means "the end of extreme poverty," as opposed to the relative poverty that exists in places like the US, Europe and Japan. America and Europe have already ended the kind of poverty Sachs is talking about, and if we can do it, so can others.
If growth in the developing world continues at its present pace, they will. If GDP per capita in developing continues growing at its current rate of about 5 percent, their incomes will double in 14 years, and quadruple in 28 years. There are about 1.1 billion people today who live on less than $1 per day, the World Bank's measure of extreme poverty. Most of them live in countries with less than $1,000 GDP per capita in nominal terms. If all developing countries' per capita incomes quadruple, there will only be ten countries left with less than $1,000 GDP per capita. When you think about it that way, the goal doesn't seem so far out of reach. (And I am not proposing a big foreign aid push.)
Growth might not last, of course. Developing-world GDP growth briefly topped 5 percent in 1996-7 and again in 2000, only to be hit by the Asian financial crisis in 1997-8, then by the post-9/11 recession in 2001. In the past few weeks, many developing-country stockmarkets have taken a tumble in anticipation of tighter monetary emanating from the Federal Reserve. If there's a worldwide recession next year, I'll feel pretty silly for writing this article. But for now, we're on the right track. Let's try not to screw it up.
Nathan Smith is a TCS Daily contributing writer.
27. "Water, Water Everywhere, But..." Font
Size:
By Roger Bate : BIO| 03 Aug 2006
Discuss This Story! (7) Email
| Print | Bookmark | Save
water world
As Summer temperatures are set to be some of the hottest on record, and much hyperbole is written about whether this is influenced by man's activities, Skeptical Environmentalist, Bjorn Lomberg, is about to set off to Australia to promote his new book, How to Spend $50 billion - a book on how to get the best bang for the buck on interventions in the developing world. One of his simple conclusions is that trying to correct human-induced climate change is not a cost-effective intervention, whereas improving water supply is a far better initiative. And in the heat, ready access to water, whether in California or the Sahel, or the most arid continent on earth (Australasia), is vital.
Unfortunately Lomborg's analysis doesn't address the world's largest water problem -- gross misallocation of agricultural water. This is a pity because his destination, Australia, has a well-honed solution -- the market.
The Problem
Alarmists have been crying wolf about water wars for years, but like many green exaggerations they have a kernel of truth. Freshwater is being overused and polluted in many parts of the world. Aquifers from as far afield as Beijing and Dallas will last only another two or three decades; perennial rivers in many places are now often running dry at least during some parts of the year. In short, we have a problem: there is enough water but it is being used inefficiently almost everywhere and at current rates it will run out soon.
In India over one million children die due to diarrhea and other easily preventable water-borne diseases every year. Few Indians (perhaps 30 percent) have close access to decent sanitation and high quality drinking water. Not only does this expose the majority to dangerous dysenteries and other water-borne disease, but it provides requires back-breaking toil for those (usually women and children) who have to make long journeys to collect it every day. The indirect costs are even more staggering with salinity levels rising in so much irrigation water that crops fail, farmers commit suicide and thousands of the poorest starve.
The main water allocation problem is the result of Soviet-style management over agricultural water. In most places around the globe, governments decide who gets how much water, when they can use it and often what for, and if they don't use their allocation (regardless of how they use it) they will lose it. Once governmental allocations are made, officials rarely reallocate, even when massive changes in agriculture, industry, mining, domestic and rural demand occur. The result is politically favored allocation and grotesque situations where farmers often pay 100 times less than other types of users, and the poorest in slums often pay 10 times what rich domestic consumers pay, and for unsafe water.
While human access to drinking water and sanitation is obviously vital, far more water is used -- about 70 percent of globally withdrawn freshwater -- and vastly more water wasted in agriculture than in any other allocation. Improving agricultural water allocation use and assigning flexible rights to it can result in more efficient outcomes and ultimately fairer allocations to the world's poor in the aridest parts of the world.
Water reallocation is also becoming vital in the fastest growing areas of South East Asia. Due to burgeoning agriculture, China's surface water is rapidly depleting, and according to the respected think tank the Rand Corporation, water shortages could indefinitely lower annual growth by as much as 2 percent. India's quasi-illegal water rights trading system was valued at over US $1 billion a year in 1999 by the World Bank. While this questionable system is improving agricultural output, it is also leading to even faster aquifer depletion and pollution than in China. China needs to adopt individual and communal water rights, and India should legalize its own system, in order to prevent an ecological and health-related disaster in the coming decades; both nations can learn a lot from Australia's rights trading system as well as from successes elsewhere.
A partial solution
Countries and regions that have redefined and traded water rights have seen water access for the rural poor increase in volume and fall in price. All users -- agricultural, industrial and domestic -- have seen their supplies increase in reliability and quality with infrastructural improvements. Aside from making economic sense, there is a moral imperative for pushing for such a reform of water rights -- access to better quality water reduces disease and death.
Chile, South Africa and Australia provide the best examples of how trading can take place, improving farm output while benefiting the poor. Chile's trading has increased access to water for the vast majority of poor rural users. Meanwhile, the US has lost its way: Its western states initially led the pack with legal structures to encourage trade but overburdening federal environmental regulations and perverse litigation against market trades by environmental groups have limited flexible allocation.
Australia's trading system along the hundreds of miles of the Murray Darling Basin (MDB) is now the most sophisticated and effective in the world and should be analyzed closely by all countries where agriculture dominates water usage. Progress is perhaps best exemplified by the 'Watermove' website now operating in the MDB. This sophisticated system allows users to trade water on the internet. Moreover, it breaks down the right to water into its constituent parts, including access and distribution.
Trading has promoted a reduction in low-value cropping activity like cereal production; it has encouraged non-farming enterprise owners (including municipalities for domestic water use) to buy traded water in the very arid state of South Australia. Trading has lowered water use and increased farmer productivity; as some farmers leave the business others flourish and choose crops more suitable to the climate (including grapes to make great Australian wines). But regardless of which specific sector buys the water, the clear pattern has been a shift to higher value production and more efficient water use.
Only time will tell whether China and India, and western US states, which within 20 years will also have chronic and acute water problems, will adopt the sophisticated trading techniques of Australia, but it will be a great deal better than decision by government fiat. Water trading allows time for individuals to adapt to changing conditions -- man-made or natural -- and the conditions are changing. Sticking one's head in Gobi or Mojave sand won't help future Chinese or Californians.
Roger Bate is a Resident Fellow of the American Enterprise Institute. His book, All the Water in the World is published by Australia's Center for Independent Studies on 14th August, where Dr Bate and Bjorn Lomborg will discuss development issues.
28. Common Currency, Uncommon Problems
By MICHAEL O'SULLIVAN
WSJ August 2, 2006
The uncomfortable strictures of the euro-zone policy framework are becoming clearer all the time. The questionable rejection this spring of Lithuania as a candidate for the common currency garnered much attention. But there are more ominous signs -- such as recent rises in consumer price inflation and habitually strong property prices in Ireland and Spain -- that highlight the difficulties small countries in particular face in managing their economies without independent monetary policies.
When faced with inappropriately low real interest rates, countries like Spain and Ireland could vociferously make the case to the European Central Bank for higher rates, in much the same fashion that governments in the larger, more moribund economies like Italy have demanded lower ones. The reality, however, is that in the eyes of the ECB these small economies are merely interesting outliers. Slovenia, which joins the common currency on Jan. 1, will learn this hard fact soon enough. Yet quitting the euro zone, one far-fetched solution that has been touted by economic nationalists, is not a realistic alternative for any of these countries.
The only viable solution for relatively small European countries whose economies are out of sync with the larger lumbering ones and who have surrendered control over their currencies and interest rates to Frankfurt is to use fiscal policy inventively to marshal economic growth.
In the case of Ireland this problem is more of a dilemma because, like other Anglo-Saxon economies such as the U.S. and Britain, its chief problems are inflation, high levels of household debt, a property-market bubble and falling competitiveness. It does not face the economic ailments that affect larger euro-zone countries: pensions and demographics shortfalls, structurally inefficient labor markets and low growth rates.
There is already some evidence of economic policy innovation in Ireland -- notably in the establishment of a National Pension Reserve Fund, and in the creation of special savings accounts some five years ago. At the same time, while relatively new groups like the National Economic and Social Council and Forfas have mapped out future challenges with increasing clarity, their work often has only highlighted shortcomings such as poor physical infrastructure and an unremarkable domestic industrial sector.
Like Spain and many Eastern European countries, the real challenge for Ireland in the medium term lies in bringing public expectations of growth under control, and developing more balanced and sustainable foundations for economic growth. On these issues, the Central Bank of Ireland has been a vocal though neutered critic, with politicians somewhat less eager to remove the punch bowl. While the temptation to let the good times roll can often be overbearing, Ireland's property market -- as well as high consumer inflation -- has many of the characteristics of an asset bubble.
The culprit of inflation is usually cheap money, and Ireland is no exception. Real interest rates there often dip below zero because Ireland's growth has been greater than that of most other euro-zone countries, pushing inflation higher on the Emerald Isle than on most of the Continent. Again, as Irish policy makers have little control over interest rates, fiscal policy needs to take the form of surgical strikes. One example would be higher and targeted taxes on certain economic activities, such as speculation in commercial property development, that only make the bubble worse.
Managing expectations is more difficult. In countries like Ireland that have undergone great transformations of their economies, expectations of productivity, incomes and growth have been raised sharply. The most dangerous effect on expectations that globalization can have in an economic sense is to support the notion that the very high level of economic growth enjoyed by Ireland in the last 10 years, together with surges in private wealth and incomes, will continue in the long term. The sustainability of such high rates of growth is doubtful and any view that sees them lasting well into the future would be very optimistic, and most likely overconfident.
Two further constraints operate to make the job of steering this small and very open economy even more difficult. The first is the need for huge amounts of investment to improve Ireland's infrastructure, which is still on par with many Eastern European states and well behind other highly globalized states like Singapore. The other demand relates to human and social infrastructure, and the need to convert economic growth into more developed public services and institutions.
Underlying the above challenges is the fact that policy makers in Ireland operate with a limited arsenal. In this regard, policy innovations will be precious and will offer Irish policy makers, more than the European Commission or European Central Bank, the opportunity to truly distinguish themselves and offer a leading example to other small countries in and on the periphery of the euro zone.
Mr. O'Sullivan is the author of "Ireland and the Global Question," just out in Europe from Cork University Press.
Israel Advances, Stock Markets Rally? By Lawrence
Kudlow
Tuesday, August 1, 2006 http://www.townhall.com/columnists/LawrenceKudlow/2006/08/01/israel_advances,_stock_markets_rally
The U.S. stock market and world equity bourses are important measures of fear, hope, security, and the health of the world’s economy. And while you might not know it from today’s magnified headlines about war, terrorism, higher oil prices, and rising interest rates, the stock market message is one of reasonable hope, confidence, and optimism about the state of the world.
Could it also be that world stock markets are rallying as Israel and its freedom agenda advances toward a Hezbollah-free Lebanese border, highlighting a significant defeat not only of the thuggish and cowardly Hezbollah murderers, but their totalitarian backers in Syria and Iran?
At the close of business last Friday -- after another violent week in the Middle East -- Bloomberg chronicled the impressive performance of world stock markets: U.S. share prices had their best gain since November 2004; Canadian and European stocks had their top weekly performances all year; British and Brazilian equities rose for the second straight week; Asian stocks posted their strongest gain in over a month; Japan was up 3.5 percent; and India surged near 6 percent.
The wartime stock market is saying that things might be better than most people believe.
Think of it: On the world stage, there is more capitalism, free trade, and economic interconnectiveness (to use defense analyst Thomas Barnett’s term for bringing the worse-off countries online with the best-off nations) than ever before. Because of this, literally hundreds of millions of share-owning investors are voting daily on the great issues of war, peace, prosperity, and hope for the future. And their vote is optimistic.
Here at home, many groused about the 2.5 percent GDP report for the second quarter: Bears called it the first step into recession while bulls argued for a soft landing and an end to Fed rate hikes. But the whole debate may be misrepresenting a fundamentally strong economy. After all, GDP grew by 5.6 percent in the first quarter, making for a two-quarter trend of 4 percent growth. Over the last year, GDP is trending at 3.5 percent, which is pretty impressive for a fifth-year recovery buffeted by high gas prices, rising interest rates, and the uncertainties of war and terrorism. Since the June 2003 investor tax cuts, growth has averaged 4 percent.
While there are traces of higher inflation, non-energy price increases are still running just above 2 percent, about the same as 2004 and 2005. It’s also worth noting that inflationary expectations have been pulling back ever since the Fed’s May 10 rate hike to 5 percent and late-June hike to 5.25 percent. Gold prices are down about $100, inflation-sensitive commodity stocks have dropped 11 percent, and the bond-market yield curve has inverted again, with short-term rates popping above long-term yields. These are all non-inflationary signals.
In fact, the bond market is saying the Fed has tightened enough. A model of inflation-indexed bonds now shows the real fed funds rate to be above the real 10-year bond rate. This suggests that money is becoming scarce and that inflation is much less of a threat than it was a year ago.
Along with lower tax rates, strong profits, and ample bank credit, the entrepreneurial-driven growth model of the eminent classical economist Joseph Schumpeter is alive and well. Wall Street economist Michael Darda calls this “The wellspring of entrepreneurial capitalism, innovation, and wealth creation in the dynamic capitalist system.” It’s also what Tom Barnett means when he talks about global interconnectivity. Economic freedom both inside and outside the U.S. remains a critical (though much underestimated) factor in the world economic outlook.
If freedom, democracy, individual liberty, and economic liberalization are all vital cornerstones of the successful City on the Hill experiment that is the United States, campaigns such as Israel’s only mark an expansion of this freedom. Israel may be a relatively small hill in global terms, but the battle it is waging is incalculably large on the world stage. As Israel inflicts more punishment on Hezbollah, the more Syria and Iran will have their Axis of Evil ears pinned back. This is a huge positive step for democracy and a big potential defeat for totalitarianism. Does the global investor class get it? How could it not?
For a long two weeks Israel and Hezbollah have been going at it hard, and world stock markets have chosen to climb. The backward-looking media pessimists won’t see this, but the real world, real money votes of the global investor class should be noted and digested by all the rest of us. Indeed, I believe world investors are thankful for Israel’s courageous efforts in the cause of freedom, independence, security, and hope for the future.
Of course, the stakes are very high in this game. But
that is exactly why global investors are cheering Israel’s advance.
29. SOCIALISM IN REVERSE
------------------------------------------------------------------------
The 20th Anniversary Edition of the Reason Foundation's
annual global
privatization report by Robert Poole and other scholars
chronicles the
sweeping economic changes in Great Britain and the United
States in the
late 1970s and early 1980s, and more recently in China
and the former
communist nations of Eastern Europe, says the Wall Street
Journal.
Although the United States never went as far down the
socialist path as
China or Eastern Europe, privatization has yielded gains
here:
o Corporate subsidies and regulations
in banking, energy and
financial services
were rolled back in the 1980s.
o Under Bill Clinton, government-owned
oil fields, large
sections of the
electromagnetic spectrum for broadcasting and
the U.S. uranium-enrichment
facility were sold.
But the biggest U.S. revolution, says Reason, has been
at the state and
local level. Cities have learned to cut costs by
shifting
operations to the private sector:
o GOP Governors Jeb Bush of
Florida and Mitch Daniels of
Indiana have shifted
hundreds of millions of dollars of
government operations
into the private sector.
o Democratic Mayor Richard Daley
of Chicago recently sold the
Chicago Skyway for
$1.8 billion, and Mayor Jerry Brown of
Oakland outsourced
40 city services.
However, both in the United States and abroad, there
is still much more
privatization that could be done, particularly in vital
areas like
education. The steady erosion of productivity and
lack of
advancement of charter schools, vouchers and private
scholarship
programs has been much too slow for the well-being of
our poorest
children.
Looking forward, says Reason, entrenched interests, such
as unions and
public employees that intimidate politicians into opposing
competition
will continue to be privatization's biggest obstacle.
Building a
political strategy to overcome this opposition is one
of the main
challenges of our time.
Source: Editorial, "Socialism in Reverse," The Wall Street
Journal, July 29 2006
For text (subscription required):
http://online.wsj.com/article/SB115412585898220871-search.html
For report:
http://www.reason.org/apr2006/apr2006.pdf
For more on Privatization Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=37
Socialism in Reverse
July 29, 2006; Page A10
Way back in 1969, the late, great Peter Drucker predicted that the next big thing in global economic development would be the "reprivatization" of state-owned industries. It took a while, but Mr. Drucker was right as usual and the privatization revolution that was launched a decade later has transformed national economies and produced a remarkable surge in new wealth.
This week Robert Poole and other scholars at the Reason Foundation released the 20th Anniversary Edition of their annual global privatization report. It chronicles this sweeping economic trend that began in Margaret Thatcher's England, spread to the U.S. under Ronald Reagan, then to China and the former communist nations of Eastern Europe. A 2005 World Bank report also finds that, from 1990-2003, governments around the globe have generated $410 billion in privatization proceeds.
In her Reason essay, Mrs. Thatcher notes that government has a natural "temptation . . . to concentrate power in its own hands." So by the mid-1970s nearly every commercial activity in Britain was operated by the public sector -- in most cases poorly and at high cost to consumers and taxpayers. Mrs. Thatcher acted swiftly as Prime Minister to reverse 30 years of this creeping socialism, privatizing steel plants, coal mines, Rolls Royce, oil companies, the telephone system and a major airline.
She built a political constituency for this policy in part by selling the shares to the unionized work force, as well as by turning over some 600,000 public housing units to middle-class tenants. It's a testament to the resilience of her reforms that to this day the Labour Government hasn't reversed a single privatization. By the way, under Lady Thatcher Britain climbed to second from 19th among OECD nations in economic growth.
China's first experiment with privatization may be the most celebrated economic success of modern times. In the early 1980s, the Communists allowed peasant farmers to grow and sell their own crops and keep the profits. Food production nearly doubled in a decade. Private farm production has converted China into a food exporter, and by now roughly two-thirds of China's state-owned enterprises are partly or mostly private.
The U.S. never went as far down the socialist path as these nations, but privatization has also yielded gains here. Corporate subsidies and regulations in banking, energy and financial services were rolled back in the 1980s, and the freight railroad Conrail was sold. Under Bill Clinton, government-owned oil fields, large sections of the electromagnetic spectrum for broadcasting and the U.S. uranium-enrichment facility were sold, yielding billions of dollars in each case for the federal Treasury.
The biggest U.S. revolution, however, has been at the state and local level. Cities once did everything "in house," but they have learned under budget pressure to cut costs by contracting out more than one-third of their operations -- from garbage collection to payroll processing and municipal golf-course operations.
GOP Governors Jeb Bush of Florida and Mitch Daniels of Indiana have shifted hundreds of millions of dollars of government operations into the private sector. So have such big-city Democratic mayors as Richard Daley of Chicago and Jerry Brown of Oakland. Mr. Daley, who has outsourced 40 city services and recently sold the Chicago Skyway for $1.8 billion, has often said that relying on the private sector is not about ideology but about getting value for tax dollars.
Both in the U.S. and abroad, there is still much more privatization that could be done. In this digital age, it's inexplicable to have government deliver the mail or burn $1.2 billion a year for Amtrak's passenger-train service. But these are trivial wastes compared with the public monopoly over the vital social service of education. It is no accident that education is one of the only modern services that has experienced a steady erosion of productivity. The advancement of charter schools, vouchers and private scholarship programs has been much too slow for the well-being of our poorest children.
Looking ahead, the Reason editors see much more private investments in roads, water systems and airports. More than a dozen nations have privatized air-traffic operations -- including Britain and Canada -- though not the U.S. The main obstacle in all of these cases is entrenched interests, such as unions and public employees, that intimidate politicians into opposing competition. Building a political strategy to overcome this opposition is one of the main challenges of our time.
All in all, however, the story over the last 30 years
is one of remarkable progress. "All great ideas go through three stages.
In the first stage they are ridiculed. In the second stage, they are strongly
opposed. And in the third stage they are considered to be self-evident,"
the philosopher Schopenhauer once observed. Privatization may not have
reached stage three, but it's getting there.
Tuesday, July 25, 2006 ~ 9:14 p.m., Dan Mitchell Wrote:
Time to partition Iraq? This blog occasionally has wondered
whether Iraq should be split into three different nations in order to defuse
ethnic and religious rivalry. A new study, reported in the New York Times,
provides evidence that this is the wise approach:
…. for the optimists hoping
that war in the Middle East will soon end so the rebuilding can commence,
there is a serious problem. The political boundaries of these countries,
especially Iraq, make the long-term prospects bleak. The existence of ethnic
division in the countries will probably mar them permanently in a way that
bombs never could. Boundaries between many countries of the Middle East,
like those in Africa, were haphazardly put together in negotiations by
European colonizers who had little regard for ethnic realities. … In a
new study, three economists — Alberto F. Alesina and Janina Matuszeski
of Harvard University and William Easterly of New York University — document
how important internal cohesion is for the health of a society. … their
study compares the performance of countries with natural borders to those
with artificial ones and finds, overwhelmingly, that artificial nations
suffer terribly — lower income, horribly ineffective and corrupt governments,
less respect for the law, low literacy, limited access to clean water,
poor health care, you name it. … Viewed from this perspective, the long-term
economic prospects for Afghanistan and Iraq do not look good. It is not
the destruction of war. That will end and the countries can be rebuilt.
It is the fragmentation and ethnic hatred. That, typically, never goes
away.
http://www.nytimes.com/2006/07/20/business/worldbusiness/20scene.html?_r
=1&oref=slogin
30. ARE SOME PEOPLE NATURALLY CORRUPT?
------------------------------------------------------------------------
What causes corruption? Many economists believe
that corruption
is a response to perverse incentives. For example,
in Indonesia
it takes 151 days to legally establish a small business.
This is
a large incentive to pay bribes or keep a business unregistered,
says
Tim Harford, author of "The Undercover Economist."
It is not surprising that there is a strong correlation
between red
tape and corruption. In general, the harder it
is to make money
legally, the more tempting it will be to do so illegally;
and if people
are not punished for stealing, then they will be more
likely to steal,
says Harford.
Ray Fisman and Edward Miguel realized that diplomats
in New York City
are the perfect guinea pigs to study corruption.
Diplomatic
immunity meant that parking tickets issued to diplomats
could not be
enforced, and so parking legally was essentially a matter
of personal
ethics:
o Countries with corrupt systems,
as measured by Transparency
International, also
sent diplomats who parked illegally.
o From 1997 to 2005, the famously
incorruptible Scandinavians
committed only 12
unpaid parking violations, and most of them
were by a single
criminal mastermind from Finland.
o Over the same period of time,
Chad and Bangladesh, regularly
at the top of the
corruption tables, managed to produce more
than 2,500 violations
between them.
Perhaps poor countries are poor because they are full
of corrupt
people, after all, says Harford, however:
o In 2002 the Clinton-Schumer
Amendment gave New York City much
greater power to
punish diplomatic parking violations.
o Cars were towed, permits suspended,
and fines collected from
the relevant foreign-aid
budget.
o Unpaid violations immediately
fell 90 percent.
When it comes to parking violations, personal morality
matters, but
incentives matter more, says Harford.
Source: Tim Harford, "Are some people naturally corrupt?
Maybe, but incentives may trump lack of personal morals,"
Dallas
Morning News, July 23, 2006; based upon: Ray Fisman and
Edward Miguel,
"Cultures of Corruption: Evidence from Diplomatic Parking
Tickets," Bureau for Research in Economic Analysis of
Development,
Working Paper No. 122, May 2006.
For text (subscription required):
http://www.dallasnews.com/sharedcontent/dws/dn/opinion/points/stories/DN-economist_23edi.ART.State.Edition1.222e8e2.html
For Fisman-Miguel study:
http://www.cid.harvard.edu/bread/abstracts/122.htm
For more on Economic Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=17
31. What Do NGOs Have Against Poor Guatemalans?
By ANDREA TUNAROSA
WSJ July 21, 2006; Page A15
Residents of El Estor, a small Q'eqchi community of 40,000 people located in northeast Guatemala, cheered when they heard that Vancouver-based Skye Resources was interested in reopening a local abandoned nickel mine. According to local press, the town's mayor and several community leaders led a rally last September in favor of the mine with a banner that read, "El Estor says yes to responsible mining."
It's easy to see why there was such excitement. Skye Resources estimates that it will employ 1,000 people and create four indirect jobs in the community for every new mining job. That plus an overall investment of at least $539 million is not irrelevant for an impoverished town with one of the highest illiteracy rates in the country -- over 40% for indigenous men and 35% for indigenous women.
The festive mood didn't last long. Within months, opposition to the project began to swell. Well-organized protesters were soon demanding that the Guatemalan government withdraw the mining license it had issued, alleging environmental risks and inadequate consultation with the community.
The democratically elected government did not comply with the protestors' demands. Skye Resources has initiated a feasibility study for a 50 million pound ferro-nickel project and is already looking at a potential expansion that would double production. At the same time, it has also launched an environmental and social impact assessment to comply with Guatemala's regulatory framework. New lines of communication with the community have been opened and if all goes well, the mine could be working in 2008.
Had Skye Resources been less intent on its investment, Guatemala could have lost an important wealth-enhancing opportunity for thousands of Guatemalans. That came close to happening when another Canadian company, Glamis Gold Ltd., bought land to invest in a gold mine in the northwestern highlands town of Sipacapa. Locals were eager to get jobs in the mine and to provide services around the project. But last year organized and well-funded opposition nearly squelched the deal.
In a country with such dire needs for capital and technology to lessen the want of the poor, it is worth exploring whether such anti-mine activism truly expresses the will of the people. Looking behind the scenes, the funding and instigation of the activism appears heavily driven by international nongovernmental organizations that end up discouraging development while trying to fulfill their own mission.
Boston-based Oxfam America and Toronto's Rights Action are two anti-development NGOs active in Guatemala. Oxfam has partnered with MadreSelva (Mother Jungle), a Guatemala City environmental group headed by affluent urbanites, to block mining projects. Rights Action's agenda also coincides with that of MadreSelva. The nickel project was problematic in this regard because MadreSelva was already busy in Sipacapa, fighting the Glamis project. So it fell to Father Daniel Vogt, an American priest previously known for his involvement in a land dispute at El Estor, to take the lead in the opposition to the nickel mine.
International NGOs in Guatemala train local leaders to "empower" minorities and indigenous groups and to denounce the mines as "neo-colonial" ventures. But the reality is that the very nature of the NGO saves it from having a real stake in the communities it affects through its activism. It can blow through town like a hurricane disrupting development and then be gone.
The mines, on the other hand, have long-term relationships to manage. Concerned about its role in Sipacapa, for example, Glamis funded the construction of a local road that was not needed for the mine but was beneficial to the poor community. It offered to fund 32 new teaching positions to help meet the increasing demand for public education in the area. The company also took an unprecedented step by helping to launch an independent monitoring association that will provide environmental studies, while ensuring that Glamis reports back to the communities and to other stakeholders.
Activism against Skye Resources has been milder because nickel is not directly associated with wealth the way gold is. The days when the old mine was operating are remembered as prosperous, so it's been more difficult to incite the population against the project. For the mayor of El Estor, Rigoberto Chub, environmental and human-rights groups have not been able to put forward ideas that address the community's real needs. "They justify their campaigns with our poverty," he says. "That's unfair." On the day of the pro-mine rally, he declared Sept. 30 to be El Estorian Dignity and Foreign and National Investment Day.
With the price of nickel at a historic high of $13 a pound, and the sharp rise in China's demand for this major component of stainless steel, the Canadian firm is bullish about the future. Over the past year, it raised its stake in the project to 90% from 70%.
One thing is for sure: Even though Guatemala is still in the process of building solid political and social institutions and a lack of trust remains, this is not the Guatemala of the 1980s. Ten years have passed since the peace treaties were signed ending a 35-year civil war, and much has been done to modernize the telecommunications and financial sectors. In the case of mining, most experts consider the 1997 law an adequate legal framework that respects international standards.
Professor Thomas Wälde of the Center for Energy, Petroleum and Mineral Law and Policy at the University of Dundee, Scotland, puts it this way: If there were still doubts about the government's capacity to enforce proper rules, "an international enforcement process with NGO standing, like an arbitration procedure against non-complying companies, can guarantee proper mining activity" even when the quality of local governance is poor. According to a government official, no NGO has utilized the available legal channels to challenge the mining licenses.
If Guatemala were a "global investors' oasis," as Rights Action says, more than 50% of the population wouldn't be living below the national poverty line. So while NGOs are asserting that the country is not ready for investments in mining, the opposite would appear to be true for the people of El Estor and Sipacapa.
Ms. Tunarosa is a Robert L. Bartley fellow at the Journal.
32. Interview with R. Barro http://www.econtalk.org/July 17, 2006, Featuring Robert Barro
Episode 10
Russ Roberts interviews Robert Barro, Harvard University Professor and Hoover Institution Senior Fellow, on the economics of growth, what the developed world can do to help poor people around the world, and the role of US assets and the dollar in world finance.
Animated speaker graphic.Play Play time: 47.2 minutes.
Download (Right-click or Option-click, and select "Save Link/Target As") MP3. File size: 10.9MB.
Printed pages graphic.Read More! See these related readings:
"Economic Growth in a Cross-Section of Countries" by Robert J. Barro. Quarterly Journal of Economics, Vol. 106, No. 2 (May, 1991), pp. 407-443. Online at JStor (subscription required).
Working paper "Religion and Economic Growth" Robert Barro, Rachel McCleary
September 2005 interview with Robert Barro in The Region.
Robert Solow Bio in the Concise Encyclopedia of Economics
Gary Becker Bio and links on Human Capital in the Concise Encyclopedia of Economics
Free Trade by Alan Blinder in the Concise Encyclopedia of Economics
Productivity by Sylvia Nasar in the Concise Encyclopedia of Economics
Balance of Payments by Herbert Stein, and Foreign Investment in the United States by Mack Ott in the Concise Encyclopedia of Economics. How do the current account balance and foreign investment fit in?
Doha, Qatar. World Trade Organization (WTO) Meeting, November 2001.
June 2004 lecture at The Heritage Foundation, "Religious Faith and Economic Growth: What Matters Most—Belief or Belonging?"
"God, Man, and Growth". A November 2003 article in The Economist on Barro and McCleary's religion and economic growth project
"Research Around the World Links Religion to Economic Development" A January 2004 New York Times article on Barro and McCleary's research
Posted by Russ Roberts. Permanent Link | Comments (3)
33. Spending Warren's Money Font Size:
By Roger Bate : BIO| 19 Jul 2006
Discuss This Story! (2) Email
| Print | Bookmark | Save
http://channels.netscape.com/forum_center/?t
With Warren Buffett's largesse added to his own, Bill
Gates has about $60 billion to spend on health and development -- how should
he spend it? The Copenhagen Consensus, a group (and process) put together
by Danish academic Bjorn Lomborg, coordinated a response to this question
last year. The group commissioned papers from experts on the best life-saving
interventions in various fields and then reached a consensus on what provided
the best 'bang for the buck' if they were to be in charge of $50 billion
to spend. Their conclusions could be of use to Mr. Gates.
Top of the list of value-for-money aid investments was
combating HIV AIDS; improving nutrition, opening up trade, preventing malaria,
and improving clean water delivery were some of the next best interventions.
The Bill and Melinda Gates Foundation should be commended
for supporting HIV and malaria clinical research. However it has avoided
dirtying its hands by staying away from on-the ground interventions such
as drug delivery, spraying insecticides (for malarial mosquitoes) or running
bed net distribution and support programs -- all of which would save lives
today. Furthermore, although vaccine research is important, vaccines for
both HIV and malaria are still a mirage and one should recall that there
are millions who do not receive much-needed and widely available vaccinations
for other ailments.
Indeed, the Gates Foundation, like most aid agencies,
has done little in any of the actual areas of prioritization identified
by the Copenhagen Consensus. Aid agency chiefs, subject to the whims of
politicians under pressure from increasingly powerful interest groups (such
as specific disease/country proponents), will never say that disease/country/approach
'A' should take priority over the equivalent 'B' even if the case is obvious.
In short, aid agencies often behave as though ignorant of basic economics;
not optimizing scarce resources to save the most lives. The Copenhagen
Consensus exercise has contributed greatly to forcing the aid community
to prioritize programs.
The details in the Copenhagen Consensus report could
be challenged in terms of project performance. Using proxy indicators can
make measurements difficult. For example, bed net distribution is equated
with a reduction in malaria though existing evidence shows this is a terribly
flawed assumption, since many nets are never slept under. As importantly,
many of the programs considered successful have been driven endogenously
by poor country governments or the private sector; whereas many aid programs
are not (or no more than rhetorically) endorsed by recipient governments.
New aid announced at the G8 summit last year as well as new money from
Gates will be susceptible to this problem, too. Without full endorsement
aid usually fails, as has been repeatedly demonstrated, most recently in
The White Man's Burden, William Easterly's masterful book on the limits
of aid.
Gates must also realize that aid flows reflect the cost
of providing services for the poor, not the value of those services. As
Easterly says 'Would Microsoft Corp. promote an executive who bragged about
setting a record for costs? Would Berkshire Hathaway invest in a business
that headlined its remarkably high spending on office supplies? Unfortunately,
the foreign aid business has a sad history of bureaucrats under heavy pressure
to spend money on foreign consultants and four-wheel-drive vehicles but
with zero pressure to find out whether that spending translates into the
forever elusive "technical assistance," "capacity building" and "civil
service restructuring" that are supposed to help the poor. Mr. Gates' challenge
-- much harder in foreign aid than in business -- is to make sure his final
customers are satisfied.
The customers are the poor population, not government
officials. Gates, like so many western governments, has given money to
poor country governments and inadvertently made them less accountable to
their populations. Take Uganda, where approximately half of government
revenue comes from aid. As Andrew Mwenda, a Ugandan political commentator
has explained, with more and more aid the Ugandan Government has less need
to look after the electorate since it needs it less and less for revenue.
Aid can encourage the nepotistic patronage system in Uganda and weaken
any parts of the private sector by pushing the corrupting influences of
patronage into it. So whether the hypothetical aid of Lomborg's exercise
or the real money of Gates and Buffett, it may do more harm than good.
Perhaps, after all, Gates is well-advised to just back
disease research in western countries -- at least the money is not stolen
or misused. Thankfully, Mr. Gates (let's call him the G1) can be relied
upon to keep his eye on the ball and not be distracted when more immediate
concerns arise; last year's G-8/Live 8 celebrity extravaganza for saving
Africa is now mostly forgotten since Africa didn't rate much of a mention
at the recent G-8 meeting in St. Petersburg.
The G1 will likely perform better than the G8 but he
still has his work cut out in finding the right interventions, funding
the right groups to undertake them, and not undermining fledgling democracies
in the process. It's a much tougher job than becoming a multi-billionaire;
only time will tell if he's up to the task.
Dr Roger Bate is a Resident Fellow of the American Enterprise
Institute in Washington DC and a Director of health advocacy group Africa
Fighting Malaria. He has testified before US Congress several times on
the misuse of foreign aid.
34. LAST TANGO IN PARIS
------------------------------------------------------------------------
According to French government data, on average, at least
one
millionaire leaves France every day. It's not that
they're
finding other places more charming, it's that France
punishes its
wealthiest with burdensome tax rates that sometimes reach
as high as 72
percent, says Investor's Business Daily (IBD).
Many of those leaving aren't just the nouveau riche. Even
some old-line
families who have guided French business and industry
for decades are
saying au revoir.
o In addition to high income,
capital gains, inheritance and
social security
taxes, the wealthy French are hit with a
"solidarity tax."
o Like the alternative minimum
tax in the United State, the
solidarity tax is
meant to make sure the wealthy pay their
fair share for France's
out-of-control welfare state.
o In some cases that levy can
actually exceed a person's
income, making it
one of the greatest incentive killers of all
time.
This tendency to take from the rich and give to the poor,
which is
supposed to solve all the problems in France, is ruining
the country,
says Alain Marchand, a London-based consultant who helps
relocate
French business executives.
Eric Pinchet, who has written a French tax guide, reckons
that revenues
from the solidarity tax are roughly $2.6 billion a year.
That's a
trifling amount, especially considering that Pinchet
believes the tax
has cost France more than $125 billion in capital flight
since 1998.
Indeed, both the rich and the not-so-rich who are young,
skilled and
ambitious are leaving for countries where labor markets
are less
regulated by the state and taxes aren't as burdensome.
That
exodus might help explain why real gross domestic product
(GDP) in
France has grown just 1.5 percent a year on average since
2000 --
lagging the rest of Europe.
Source: Editorial, "Last Tango In Paris," Investor's Business
Daily, July 19, 2006.
or text (subscription required):
http://www.investors.com/editorial/IBDArticles.asp?artsec=20&artnum=1&issue=20060718
For more on Taxes:
http://www.ncpa.org/sub/dpd/?Article_Category=20
Tuesday, July 18, 2006 ~ 8:44 a.m., Sven Larson Wrote:
Big government more important than free trade according
to the UN. In its 2006 Asia-Pacific Human Development Report, the United
Nations Development Program takes a clear stance against free trade. The
report states that tariffs on trade are considered a critical revenue source
for governments and therefore cannot be reduced, let alone eliminated.
In addition to this blatant admission that big government matters more
than economic freedom, the UNDP also claims that two countries cannot have
free trade if they are "unequal." Somewhere in the UNDP's warped economic
thinking, free exchange of resources can only take place between economic
clones. Fortunately, this perverse thinking does not stop trade among American
states, notwithstanding their varying economic circumstances. The UNDP's
report illustrates the international bureaucracy's statist agenda:
It might be thought that
the best solution would be a simple division of responsibilities: let free
and liberal markets take care of economic growth while requiring governments
to address market failure and take responsibility for the implications
of rising inequality - for social concerns and for human development priorities.
However, this division ignores the fact that trade, economic growth and
human development have a symbiotic relationship. Each needs the other.
One direct link is through tariff revenue. Removing or reducing tariffs
can have a damaging impact on human development since many countries rely
on customs and other duties for a high proportion of government income
- in some Pacific Island countries, up to 70 per cent. Trade liberalization
may thus demand dramatic cuts in public services as revenues fall. A second
link concerns sequencing. Countries may need to achieve certain levels
of human development to prepare the ground for liberalization. Boosting
international trade requires not only capital and technology but also a
capable labour force. For this the state needs to take responsibility -
ensuring that the basic capacities are in place to enable the private sector
to take full advantage of liberalization.
http://www.undprcc.lk/rdhr2006/G2235H835352H/P243141432343443432
42_PDF_214335/Overview.pdf
35. France's New Poverty Font Size:
By John Rosenthal : BIO| 10 Jul 2006
Discuss This Story! (7) Email
| Print | Bookmark | Save http://www.tcsdaily.com/article.aspx?id=071006A
france-euro
In Summer 2004, the New York Times declared that the great day had arrived: Europe had eliminated -- nay, "abolished," as if by a legislative act-- poverty: or, at any rate, its "desperate" variety. "Even America's defenders must admit to the persistence of poverty amid plenty," the Times reporter Richard Bernstein wrote in an August 8 piece ("Does Europe Need to Get a Life?"), "and, by contrast, the abolition of desperate poverty in Europe."
Bernstein attributed this remarkable accomplishment to the European "continent": a continent that notably includes Albania, for instance: a country with a per capita Gross National Income, according to World Bank statistics, of roughly $2,000 per year. But let us be generous and allow that Bernstein was taking poetic license in referring to the "continent" and really meant to refer just to the European Union. And let us be even more generous and assume that the triumphal claim of Europe's "abolition" of poverty was in fact only meant to apply to the "EU-15" and not also the 10 mostly Eastern European countries -- including, for instance, Slovakia (2004 per capita GNI: $6,480) and Latvia (2004 per capita GNI: $5,580) -- that entered the EU in May 2004. It will presumably take a bit of time still for the EU to work its poverty-abolishing magic on these new member-states.
But even with these limitations, this still leaves us with several Southern European EU member-states, the residents of whose poorest regions -- the South of Italy, for instance, or Extremadura in Spain -- will undoubtedly be especially delighted to learn that the poverty that they experience daily has been "abolished." Thus, for example, according to the EU's own comparative income data (2001 "Laeken indicators"), the median income in Portugal for a single adult is roughly €8,000 per year and for a family of four, just under €17,000. This implies that roughly half of the Portuguese population lives below the monetary threshold of poverty as defined by the US Department of Health and Human Services.
Nonetheless, if it has not quite succeeded in "abolishing" poverty yet, the EU has indeed managed to make a remarkably large share of poverty in Europe disappear -- that is, as far as the official statistics are concerned. Thus, the EU statistical office, Eurostat, defines the poverty line -- or rather what it more gingerly describes as "the risk-of-poverty threshold" -- not in absolute terms, as in the US statistics, but rather as 60 percent of the median national income in each country. Thus, for example, the Portuguese "risk-of-poverty" threshold for a family of four gets set at around €10,000.
Given the massive disparities in income among European countries, this convention makes for some interesting results. Whereas, for instance, according to Eurostat, a German family of four is "at risk" of falling into poverty with an annual income of €20,000, a Romanian family of four only "risks" poverty with an income roughly ten times less. (See here for a comparative chart from Eurostat including Germany [DE] and Romania [RO].) In this way, the EU has already eliminated a great deal of poverty in Romania even before the country's formal adhesion to the EU scheduled for 2007. Reason enough for the New York Times to be impressed!
If EU statistical evidence does not lend itself to perceiving poverty in Europe, however, the evidence before one's eyes is less deceptive. Moreover, one does not have to go to the Eastern or Southern outskirts of the EU to see poverty in Europe. It is also very much present in the European "core" and in a form that neither allows it to be overlooked, nor for its degree of "desperation" to be doubted: namely, homelessness. In Summer 2004, at the very time that the New York Times was declaring poverty in Europe "abolished," the streets of Paris were already bearing ample witness to what has become an explosion in homelessness reminiscent of the worst years of the New York City homeless crisis of the 1980s.
On New Year's Eve 2005-2006, a Paris resident launched a photo blog, ironically titled "The French Social Model", documenting the phenomenon. The anonymous photographer's explanation of his or her motivations for placing the images on line speaks eloquently to the dimensions that the problem of homelessness in Paris has taken on:
I'm not here to show misery because of what it is: unbearable. Those images are the reality of France. I take pictures of them on my every day trips to earn my life.... I don't plan my trips in order to take pictures of homeless; they merely are here, sitting next to millions of Parisians. ...[T]he most dramatic thing is, admitting of course that they shouldn't be so numerous, homeless people became as familiar as pigeons are for Parisians: they can see them everywhere... I've been hesitating for a long time, thinking I had to respect those poor guys' privacy and dignity. But I had to do so, I had to show what France had become....
To date, "The French Social Model" contains some 397 photos of homeless people on the streets and in the subways of Paris.
It took a highly publicized campaign by the French NGO Médecins du Monde, which has been distributing tents to Paris's homeless, to induce the New York Times finally to take notice of the phenomenon in a May 4 article titled "For Migrants and the Poor, Tents Must Count as Homes."
Coming nearly two years after it pronounced European poverty non-existent, one might think that this belated acknowledgment of Parisian homelessness might be a source of some embarrassment for the paper. But no. As if in an attempt to salvage the postulate of the supreme efficacy of European social protection even in the face of manifest evidence to the contrary, the Times article manages to transform seemingly the vast majority of Paris's homeless into... Poles: "Two Poles live in the tents left by Doctors of the World and Franck shares his, left by a passer-by, with another Pole..."; "While the doctor examined Franck's ear, a tall Polish man dressed in denim and with a fresh haircut approached Mr. Borg..."; "On Boulevard Montparnasse, where Polish men have gathered eight tents under a railroad bridge...."; "Not far away three young Poles, who gave their names as Roberto, Raphael and Annette, huddled in a tent with a pit bull named Ares.... Though they speak only rudimentary French, Roberto and Raphael said they each earned about $2,000 a month in construction."
The article limits itself to asserting merely that "many" of Paris's homeless are "newly arrived immigrants from European Union countries to the east." But inasmuch as Times reporter Craig Smith managed to turn up only one French person amidst this veritable sea of Poles, the otherwise uninformed reader is left naturally to infer that this "many" is at least "most," if not indeed virtually all. This impression will only be reinforced by the fact that the single Frenchman, "Franck", is said to have been on the streets already for some 13 years.
The Times's remarkable discovery that Paris's new homeless are in fact relatively affluent Polish construction workers will come as news, above all, to Parisians. A similar article that appeared only days before the Times piece in the French daily Le Figaro ("Avec les naufrages de la vie"; April 28, 2006) portrayed a sample of Parisian homeless with a very different sociological background -- and who, oddly enough, were French. There was, for instance, Michel from the French provinces: "a chef by training, but who hasn't practiced his profession for a good three years." And Jean-Guy: "a painter-decorator. Just five years ago, he worked on jobs in Paris, at the Théâtre du Chatelet, and in the provinces." And Bruno: a 25-year-old who has been unemployed for nearly three years and who reports: "I worked in delivery, until my boss had to close shop. Then I took retraining courses to become a driver for corporations. But I didn't get taken! For a year and half now, it's been hell. I don't have enough money to get an apartment....The only choice I've got is the street."
One of the most telling features of Paris's new homeless, moreover, is the striking presence of retirement age women among them. This is not exactly the profile that one would expect for a Polish construction worker. Such women can sometimes be seen sitting on the street surrounded by what are evidently their life possessions. (The author has himself photographed such cases on the Rue de Rivoli in the very heart of Paris's posh 4th arrondissement.) A more glaring symptom of just how porous France's social safety net has in fact become is hardly imaginable.
But the New York Times's man in Paris evidently does not see such things or does not understand them when he does. Thus despite homeless people having become "as familiar as pigeons" to Parisians, Craig Smith can write reassuringly that "there are still relatively few homeless people in France." To support this wildly counterintuitive assertion, he vaguely alludes to a "2001 survey": i.e. a study that was conducted before Paris's current homeless crisis became manifest. The fact is that we do not know how many homeless persons there are in France today. France's National Institute for Statistics and Economic Studies (INSEE) has yet to repeat the headcount it conducted in 2001.
Some hard data are, however, available. For example the following: from November 2005 to May 2006, 122 homeless people are known to have died in the street in France. This figure represents only those cases that the Parisian association Les Morts dans la rue [The Dead of the Street] has been able to document. The real number of such cases is presumably much higher. Lists of persons buried by the association Morts dans la rue in 2005 and 2006 (through May) are available here and here on the site of the Paris Mayor's office. The lists concern only persons who died in Paris. When available, the place of birth is also provided. As readers will be able to confirm for themselves, the vast majority were born in France.
John Rosenthal's writings on international politics have
appeared in Policy Review, the Opinion Journal, Les Temps Modernes and
Merkur. He is the editor of the Transatlantic Intelligencer (www.trans-int.com).
July 12, 2006
Foreign Policy Briefing no. 88 http://www.cato.org/pub_display.php?pub_id=6463
"World Bank president Paul Wolfowitz yesterday ratcheted up pressure on the Group of Eight (G8) leading industrialized countries to follow through on development pledges for emerging economies made to Africa last year," reports Business Day. One year after G8 leaders promised substantial Western help for Africa, Andrew Mwenda, a prominent African opinion leader, has this advice for the G8 as it meets in St. Petersburg later this week: stop the foreign aid. In a new Cato study, "Foreign Aid and the Weakening of Democratic Accountability in Uganda," Mwenda argues that aid in sub-Saharan Africa has been counterproductive, reducing democratic accountability, delaying needed reforms and enabling governments to remain highly indebted.
36. Foreign Aid and the Weakening of Democratic Accountability in Uganda
by Andrew Mwenda
Andrew Mwenda is the political editor of the Daily Monitor, a newspaper in Kampala, Uganda, and a presenter on the KFM radio station, also in Kampala.
Executive Summary
Africa is the world's poorest continent. Between 1974 and 2003, the per capita income in sub-Saharan Africa declined by 11 percent. Africa continues to trail the rest of the world on human development indicators including life expectancy; infant mortality; undernourishment; school enrollment; and the incidence of HIV/AIDS, malaria, and tuberculosis. The international aid lobby advocates more foreign aid and greater debt relief for Africa as solutions.
Unfortunately, as the case of Uganda shows, foreign aid and debt relief can exacerbate Africa's problems by postponing economic reforms and the emergence of a transparent and accountable government.
Uganda implemented significant economic reforms in the 1990s because of domestic economic and political factors. That progress led many observers to label Uganda as an economic success story and brought the country debt relief and an increase in foreign aid. But foreign aid, which makes up 50 percent of the Ugandan government's budget, is providing the government with an independent source of "unearned" revenue. That allows the government to avoid accountability to Uganda's citizens. Moreover, foreign aid enables the government to pay its bills without having to undertake further necessary economic reforms.
Similarly, debt relief to Uganda has had some unintended consequences. It has enabled the government to borrow still more money and remain highly indebted by significantly increasing its level of absolute debt. The country's debt as a share of gross domestic product is still more than 50 percent. The government is wasting much of the new money on military equipment and political patronage. To promote democracy and accountability, the West should discontinue future aid flows.
Full Text of Foreign Policy Briefing no. 88 (PDF, 146 KB)
©
June 29, 2006
37. Why China Stagnated Don Boudreaux http://cafehayek.typepad.com/hayek/
In his compelling lead article in the Spring 2006 issue of the Journal of Economic Perspectives, economic historian David Landes wonders why the industrial revolution didn't happen first in China. His answer is unequivocal: although it had lots of genius, China had neither the institutions nor the culture to transform this genius into widespread prosperity.
Almost every element usually regarded by historians as a major contributory cause to the Industrial Revolution in north-western Europe was also present in China [some 500 years before the wealth explosion that began in Europe in the 18th century].
So why, specifically, was there no industrial revolution in China?
Why indeed? Sinologists have put forward several partial explanations. Those that I find most persuasive are the following:
First, China lacked a free market and institutionalized property rights. The Chinese state was always stepping in to interere with private enterprise -- to take over certain activities, to prohibit and inhibit others, to manipulate prices, to exact bribes [p. 6].
And as Landes points out on page 7, the Ming dynasty's attempt to prohibit all trade overseas certainly didn't help matters.
Landes goes on to criticize severely the Chinese state's -- and people's -- ignorant belief that their culture was so superior to others that they had nothing much to learn from others.
Note that such a belief is truly ignorant and fatal -- not just of and for the Chinese centuries ago, but of and for any people at any time and at any place.
Posted in History | Permalink | Comments (18) | TrackBack
(2)
38. Does Culture Affect Economic Outcomes?
Author(s): Luigi Guiso1, | Paola Sapienza2, | Luigi Zingales3
doi: 10.1257/jep.20.2.23
View PDF article (183 K) View PDF with links
(193 K)
View table of contents Email this link
Add to my alerts
What is RSS?
Trouble viewing articles as PDF?
Journal of Economic Perspectives
Print ISSN: 0895-3309
Volume: 20 | Issue: 2
Cover date: Summer 2006
Page(s): 23-48
Abstract text
Until recently, economists have been reluctant to rely
on culture as a possible determinant of economic phenomena. Much of this
reluctance stems from the very notion of culture: it is so broad and the
channels through which it can enter the economic discourse so ubiquitous
(and vague) that it is difficult to design testable, refutable hypotheses.
In recent years, however, better techniques and more data have made it
possible to identify systematic differences in people's preferences and
beliefs and to relate them to various measures of cultural legacy. These
developments suggest an approach to introducing culturally-based explanations
into economics that can be tested and may substantially enrich our understanding
of economic phenomena. This paper summarizes this approach and its achievements
so far, and outlines directions for future research.
Author(s): Luigi Guiso1, | Paola Sapienza2, | Luigi Zingales3
Author(s) affiliations
1Professor of Economics, University of Rome Tor Vergata,
Rome, Italy; Research Fellow, Center for Economic Policy Research, London,
United Kingdom.
2Assistant Professor of Finance, Kellogg School of Management,
Northwestern University, Evanston, Illinois; Faculty Research Fellow, National
Bureau of Economic Research, Cambridge, Massachusetts; Research Fellow,
Center for Economic Policy Research, London, United Kingdom.
3Professor of Entrepreneurship and Finance, Graduate
School of Business, University of Chicago, Chicago, Illinois; Faculty Research
Fellow, National Bureau of Economic Research, Cambridge, Massachusetts;
Research Fellow, Center for Economic Policy Research, London, United Kingdom.
http://www.freedomandprosperity.org/blog/blog.shtml
Estonia's free-market renaissance. Business journalists
sometimes write about the "Estonian miracle." But like the "Irish miracle,"
this is a misnomer. Rapid economic growth is the logical and expected result
when nations reduce the burden of government. The former Prime Minister
of Estonia, in an interview with the Heartland Institute, comments on the
flat tax and other pro-growth initiatives that helped his country boom:
Mart Laar was barely 32
years old in 1992, when he became prime minister of Estonia, a small nation
on the Baltic Sea that had just emerged from decades of Communist oppression
as a satellite state of the Soviet Union. He inherited leadership of a
country with 1,000 percent inflation, 30 percent unemployment, and government-owned
businesses that were a shambles. Laar's government removed price controls,
cut regulations and welfare programs, sold state-owned businesses, introduced
a new currency, and instituted a simple, flat-rate income tax that is being
emulated in countries across Central and Eastern Europe. The rate has been
lowered several times over the years and is now at 20 percent. The result?
Inflation in Estonia has dropped below 3 percent, unemployment has plunged
below 6 percent, and foreign investment has poured in. Estonia has enjoyed
the greatest growth in real per-capita income of any of the former Soviet
states. ...Laar: "Last year in Estonia, 83 percent of people did their
taxes electronically, and it took from five to 20 minutes for each of them.
So you don't need tax lawyers or a big tax bureaucracy. ...It brings more
money to the budget. It supports growth. Its relevance has been proved.
It works."
http://www.heartland.org/Article.cfm?artId=19289
39. Estonia Creates an Economic Miracle A conversation
with Friedman Prize winner Mart Laar http://www.heartland.org/Article.cfm?artId=19289
Written By: Steve Stanek
Published In: Budget & Tax News
Publication Date: July 1, 2006
Publisher: The Heartland Institute
Mart Laar was barely 32 years old in 1992, when he became prime minister of Estonia, a small nation on the Baltic Sea that had just emerged from decades of Communist oppression as a satellite state of the Soviet Union.
He inherited leadership of a country with 1,000 percent inflation, 30 percent unemployment, and government-owned businesses that were a shambles. Laar's government removed price controls, cut regulations and welfare programs, sold state-owned businesses, introduced a new currency, and instituted a simple, flat-rate income tax that is being emulated in countries across Central and Eastern Europe. The rate has been lowered several times over the years and is now at 20 percent.
The result? Inflation in Estonia has dropped below 3 percent,
unemployment has plunged below 6 percent, and foreign investment has poured
in. Estonia has enjoyed the greatest growth in real per-capita income of
any of the former Soviet states. Today the country is a member of NATO,
the European Union, and the World Trade Organization.
Awarded for Advancing Liberty
For his achievements and continuing commitment to personal and economic freedom for Estonia and elsewhere, Laar on May 18 traveled to Chicago to receive the Cato Institute's 2006 Milton Friedman Prize for Advancing Liberty. He is the third recipient of the $500,000 biannual prize, named in honor of famed American economist Milton Friedman.
Laar served two terms as prime minister. His accomplishments
and those of his team of government reformers are particularly remarkable
because Laar is not an economist. He is a historian. He read his first
Western book on economics--Friedman's Free to Choose--shortly before becoming
prime minister. Laar determined to put Friedman's principles of free markets,
low and fair taxation, and trust in people into practice.
Budget & Tax News Managing Editor Steve Stanek met
with Laar shortly before the latter's acceptance of the Friedman Prize.
Here are Laar's thoughts on freedom, taxation, and the "Estonia miracle."
Stanek: I understand the first book on economics you read
was Milton Friedman's Free to Choose. How did someone who grew up under
Communism come across a book by Milton Friedman?
Laar: First of all, when you grow up in Communism, you
know books on economics are not really on economics. They are Communist
political propaganda. It is very hard to believe in Karl Marx when you
see what is happening around you. Ronald Reagan once said, "What is the
difference between a Marxist and an anti-Marxist? A Marxist reads the books
of Karl Marx. An anti-Marxist understands them."
The first time I heard the name Milton Friedman, it was
in propaganda newsletters that said there is one very bad and very dangerous
economist, and his name is Milton Friedman. I was quite sure, when he is
so dangerous for the Communists to be telling me this, he must be a good
man.
Free to Choose was one of the first Western books translated
into Estonian at the end of the 1980s. That is how I had the chance to
look at these ideas, which, when they were introduced in Estonia, looked
quite crazy to many Western people but which to me looked quite logical,
I must say.
Stanek: We have some debate in the United States about
our income tax system and other taxes. If you had a room full of congressmen
and senators here, what would you tell them about the flat tax?
Laar: I think nearly all of them know it is a good thing.
When you look logically at how the tax works and at the current tax system
in the United States, it is very hard to find anyone who is satisfied with
it. The problem is, even when the people know the flat tax is a good idea,
it looks like the politicians are afraid to do it. This is because they
are afraid to lose the wealth; they are afraid to lose the power; they
are afraid of the discussion.
It's quite radical reform. There are influential groups
in the United States who are against this kind of reform, starting with
tax lawyers. This is one group that would be out of a job if you could
do your taxes on a postcard. Last year in Estonia, 83 percent of people
did their taxes electronically, and it took from five to 20 minutes for
each of them. So you don't need tax lawyers or a big tax bureaucracy.
Stanek: Were you surprised at how rapidly Estonia began to improve economically after embracing these ideas?
Laar: I must say we are a little bit surprised, to be
very frank, because when we started the reforms, the administration was
really very bad. Even as we taught that we would get up and get development,
as we started to see development, it was actually more than we expected.
Stanek: Have you been surprised at how many of the other countries in Europe have been embracing the flat tax? I understand eight other countries have a flat tax and others are moving toward it.
Laar: At first everybody was a little cautious to see
whether this would work. When it was seen that it worked, they were willing
to do it. Our closest neighbors Latvia and Lithuania did it, and then it
was some small distance to ask would it work in free countries? And would
it be sustainable in the European Union? And when it was seen what was
happening [in Estonia, Latvia, and Lithuania], there was the next big wave
of tax reform, because it really is a working model. It brings more money
to the budget. It supports growth. Its relevance has been proved. It works.
Stanek: What would you say are the greatest benefits Estonia has enjoyed from the transition to a new economy? Are they simply economic, or is it more encompassing, with people feeling better about their lives? Do they feel they have control over themselves and their families that they didn't have before?
Laar: I think to have control over your life and family is a challenge. It will not always make you happy. Nevertheless, it is one of the greatest feelings you can have.
Liberty is something that, when it's there, you maybe are not noticing it, but you understand absolutely when you don't have it. We are coming from a society where we did not have it. And this is something which is very important to us.
I think the most important thing in our reforms is that
we gave the power to the people. We trusted the people. We made them free.
That was the goal of the tax reform and our other reforms.
Stanek: Tell me a little about your acceptance of the award. What did you think when you learned you were named to receive the Milton Friedman Prize for Advancing Liberty?
Laar: I was quite positively surprised, because I am not an economist. Getting a prize named after a great economist, a man I admire very much, I am very honored.
Of course it is not a prize for me. It is a prize for
my countrymen and country, because the government's task is only to make
the conditions. The people are the ones who are doing the miracles.
40. Democracy Lives By MARY ANASTASIA O'GRADYWSJ July 5, 2006; Page A24
MEXICO CITY -- Felipe Calderón of the National Action Party hasn't any doubt that he won Sunday's presidential election, and he says that his adversary, Andres Manuel López Obrador of the Democratic Revolutionary Party (PRD), knows it, too. In an interview with The Wall Street Journal at his campaign headquarters yesterday, Mr. Calderón appeared rested and confident. "I'm not going to get into personalities," he told me, "but all the parties have copies of the tally sheets showing the voting, and the PRD knows that it lost."
Mr. Calderón's numbers jibe with those of Mexico's Federal Electoral Institute (IFE) and it seems almost certain that he won. But as we go to press, an official announcement has not yet been made. A preliminary ruling is scheduled for today, with the official decision to come on Friday. And even then the country may be in for weeks of the Mexican equivalent of challenges to hanging chads.
The big victory in this race goes to the IFE in carrying
out a spectacularly clean, transparent and well-organized election. If
institutions matter to development, as Nobel laureate Douglass North contends,
then Mexico is well on the way to progress. Mr. Calderón echoed
the sentiments of millions of Mexicans when he told me yesterday that watching
the electoral process made him "proud to be a Mexican." Mexico's next test
will be how it stands up to Mr. López Obrador's threat to call street
protests if the IFE decision goes against him.
* * *
For the past four months this nation has been bracing
for a nail-biter of a race. The chief concern was that Mr. López
Obrador, a renowned sore loser, would respond in a manner detrimental to
Mexican democracy if he were edged out by the competition.
[Calderon]
Felipe Calderon: 'Proud to be a Mexican.'
The race was every bit as tight as pollsters had predicted. And by Monday morning when it began to appear that Mr. López Obrador had secured only second place, Mexicans were treated, on national television, to a flash of anger that revealed the trademark intolerance that has made him such a polarizing figure: The red- faced candidate gripped the podium in frustration, pledging to exhaust every available legal channel. His head shook uncontrollably as he demanded that the country "respect" his "triumph." Yesterday, his senior aides told Reuters that his supporters would take to the streets if the election authorities don't go his way.
The problem for Mr. López Obrador is that in order to prevail, he has to do more than convince Mexicans that Mr. Calderón is a thieving opponent who managed a massive conspiracy against the will of the people. He also has to portray the IFE and the thousands of citizen volunteers -- who on Sunday put on a clinic for the rest of the world on how to run a transparent and orderly election -- as enemies of the Mexican people. That won't be easy, and public opinion is fast turning against him.
The Sunday vote was an amazing electoral symphony, featuring thousands of small polling stations all over this sprawling metropolis, in private homes, schools and community centers. I passed by or visited a mere fraction of them. Yet my impressions were confirmed by wider press reports and independent observers. Everywhere I went, from well-to-do districts in the north and south to the popular neighborhoods downtown, the scene was one of saintly patience and First World order. A summer downpour didn't faze voters one bit. They covered their heads with newspapers, shared umbrellas -- and waited.
The rest of the city was calm as well. In the main downtown city square, the Zócalo, which was ground zero for the López Obrador campaign, life was normal. A couple of hammer-and-sickle flags fluttered in the breeze near a tent that read "Zapata Vive" -- Zapata Lives -- and rickshaw drivers pedaled their passengers through the narrow streets of colonial Mexico.
This city was voting to fill six seats, including that of the president and the mayor. Voters presented identification cards and were handed six large ballots, one for each open office. The names of candidates were also color-coded to assist the illiterate. Voting booths were small, waist-high writing tables enclosed by hanging plastic sheets printed with the reassuring words, "The vote is free and secret." Voters emerged from the booths, folded the ballots and slid each one into the box corresponding to the contested seat. To complete the process, thumbs were marked with indelible ink and ID cards were returned. Observers from each party monitored the flow.
As a former resident of this city, renowned for its "ungovernability," I was profoundly impressed by the precision of this exercise; and official observers echoed my anecdotal observations on Sunday night. Mexico pulled off a near "10" in electoral order.
As polls closed around the country on Sunday evening, poll workers from each party signed off on tally sheets and sent the totals to the IFE. There was a marked absence of complaints from any polling station about irregularities, but there was a surprise. There had been wide expectations that Mr. López Obrador would have the early lead, since this city -- which is his stronghold -- was expected to report first. Instead, the northern state of Coahuila seems to have reported ahead of the national capital, and so, from the earliest tallies, Mr. Calderón had the lead. It was a lead he would never lose.
The IFE had worked hard to make all this happen and it wasn't about to commit a misstep. IFE president Luis Carlos Ugalde announced at 11 p.m. that Mexicans would have to wait until Wednesday morning for a winner. Still, the transparency of the process was working against Mr. López Obrador, and as polling stations reported -- and tallies were posted on the Web -- it became clear that Mr. Calderón had won by a whisker. On Sunday evening, the head of the European Union observer team attested to the fairness and transparency of the election.
Mr. López Obrador smelled defeat and swung into action with Plan B. Just after Mr. Ugalde asked the candidates not to declare victory, the PRD candidate jumped in front of the cameras and told all of Mexico that he had won, adding that he had "information" from the "quick count" showing that he was up by 500,000 votes.
It is doubtful that he had any such information. Rather it looked like classic López Obrador, working to arouse suspicion among his supporters that the establishment had carried out "a plot" against them. Arturo Sarukhan, campaign adviser for the PAN (Mr. Calderón's party), told me that his side had no choice but to respond: "We were standing in the 'war room' at campaign headquarters, discussing how to calibrate Felipe Calderón's message in light of the request that Mr. Ugalde had made when we heard him [Mr. López Obrador] claiming a lead of 500,000 votes. That's when we decided we had to report the independent exit polls." Mr. Calderón appeared shortly thereafter on television, rattling off a string of independent exit polls that showed him in the lead.
Mr. López Obrador now claims that there are three million "lost" votes, and that he senses all kinds of "irregularities," none of which are backed up with evidence. While all the votes are not yet in the official tallies because of a technicality in reporting, the Calderón team remains confident that they are accounted for in the totals that all parties now have, and that the outcome will not change.
Mr. Calderón, for his part, is reaching out to his political competition and looking presidential and civil. In a clear reference to the López Obrador campaign, he told me on Tuesday that Mexicans sent a message at the polls that they want a tolerant, pluralistic society, not one of "hatred." This "is the hour of reconciliation and unity." He is already talking about a coalition government that will reach across the aisle to get things done, and has noted that the way in which Colombian President Alvaro Uribe has worked across parties lines has been instructive to him.
In the past 48 hours, Mexico has watched two distinct management styles unfold. Indeed, it is not unreasonable to conclude that the very reason that Mr. Calderón seems set to take the office of president is precisely because Mexicans feared the López Obrador they are now witnessing.
Ms. O'Grady, a member of The Wall Street Journal's editorial
board, is editor of the weekly Americas column.