Category: Economic Growth

Government Administrators Steal Money, Food and Benefits from Poor in India

(p. A8) NEW DELHI — India spends more on programs for the poor than most developing countries, but it has failed to eradicate poverty because of widespread corruption and faulty government administration, the World Bank said Wednesday.
. . .
One of the primary problems, the World Bank said, was “leakages” — an often-used term in development circles that refers to government administrators and middle men stealing money, food and benefits. The bank said that 59 percent of the grain allotted for public distribution to the poor does not reach those households.

For the full story, see:
“India’s Anti-Poverty Programs Are Big but Troubled.” The New York Times (Thurs., May 19, 2011): A8.
(Note: ellipsis added.)
(Note: the online version of the story is dated May 18, 2011, has the title “India’s Anti-Poverty Programs Are Big but Troubled,” is attributed to Heather Timmons, and is considerably more detailed than the published version.)

Chinese Government Created Real Estate Bubble in a Dozen Ghost Towns Like Kangbashi Area of Ordos

KangbashiRealEstateBubble2011-06-02.jpg“As China’s roaring economy fuels a wild construction boom around the country, critics cite places like Kangbashi as proof of a speculative real estate bubble they warn will eventually burst.” Source of photo: online version of the NYT article quoted and cited below. Source of caption: online version of the NYT slideshow that accompanied the online article quoted and cited below.

The October 19, 2010 New York Times front page story (quoted below) on the Ordos ghost town in China, was finally picked up by the TV media on May 30 in a nice NBC Today Show report.
It should be clear that the Chinese real estate bubble will burst, just as real estate bubbles eventually burst in places like Japan and the United States. What is not clear is what the effects will be on the Chinese and world economies.

(p. A1) Ordos proper has 1.5 million residents. But the tomorrowland version of Ordos — built from scratch on a huge plot of empty land 15 miles south of the old city — is all but deserted.

Broad boulevards are unimpeded by traffic in the new district, called Kangbashi New Area. Office buildings stand vacant. Pedestrians are in short supply. And weeds are beginning to sprout up in luxury villa developments that are devoid of residents.
. . .
(p. A4) As China’s roaring economy fuels a wild construction boom around the country, critics cite places like Kangbashi as proof of a speculative real estate bubble they warn will eventually pop — sending shock waves through the banking system of a country that for the last two years has been the prime engine of global growth.
. . .
Analysts estimate there could be as many as a dozen other Chinese cities just like Ordos, with sprawling ghost town annexes. In the southern city of Kunming, for example, a nearly 40-square-mile area called Chenggong has raised alarms because of similarly deserted roads, high-rises and government offices. And in Tianjin, in the northeast, the city spent lavishly on a huge district festooned with golf courses, hot springs and thousands of villas that are still empty five years after completion.
. . .
In 2004, with Ordos tax coffers bulging with coal money, city officials drew up a bold expansion plan to create Kangbashi, a 30-minute drive south of the old city center on land adjacent to one of the region’s few reservoirs. . . .
In the ensuing building spree, home buyers could not get enough of Kangbashi and its residential developments with names like Exquisite Silk Village, Kanghe Elysees and Imperial Academic Gardens.
Some buyers were like Zhang Ting, a 26-year-old entrepreneur who is a rare actual resident of Kangbashi, having moved to Ordos this year on an entrepreneurial impulse.
“I bought two places in Kangbashi, one for my own use and one as an investment,” said Mr. Zhang, who paid about $125,000 for his 2,000-square-foot investment apartment. “I bought it because housing prices will definitely go up in such a new town. There is no reason to doubt it. The government has already moved in.”
Asked whether he worried about the lack of other residents, Mr. Zhang shrugged off the question.
“I know people say it’s an empty city, but I don’t find any inconveniences living by myself,” said Mr. Zhang, who borrowed to finance his purchases. . . .

For the full story, see:
DAVID BARBOZA. “A City Born of China’s Boom, Still Unpeopled.” The New York Times (Weds., October 19, 2010): A1 & A4.
(Note: ellipses added.)
(Note: the online version of the commentary is dated October 19, 2010 and has the title “Chinese City Has Many Buildings, but Few People.”)

KangbashiRealEstateGraph2011-06-02.jpg

Source of graph: online version of the NYT article quoted and cited above.

“If You Could Choose, Would You Prefer to Live Then or Now?”

(p. 78) ‘Perhaps I have not made myself clear,’ he said. ‘What I’m trying to say is this. You have been alive a very long time; you lived half your life before the Revolution. In 1925, for instance, you were already grown up. Would you say from what you can remember, that life in 1925 was better than it is now, or worse? If you could choose, would you prefer to live then or now?’

Source:
Orwell, George. Nineteen Eighty-Four. New York: The New American Library, 1961 [1949].

By Canadian law, 1984 is no longer under copyright. The text has been posted on the following Canadian web site: http://wikilivres.info/wiki/Nineteen_Eighty-Four

Corruption, Inefficiency, Inflation and Bad Policies Lead to Decline in Foreign Investment in India

ForeignDirectInvestmentGraph2011-05-19.jpg Source of graph: online version of the NYT article quoted and cited below.

(p. B1) While inefficiency and bureaucracy are nothing new in India, analysts and executives say foreign investors have lately been spooked by a highly publicized government corruption scandal over the awarding of wireless communications licenses. Another reason for thinking twice is a corporate tax battle between Indian officials and the British company Vodafone now before India’s Supreme Court.

Meanwhile, the inflation rate — 8.2 percent and rising — seems beyond the control of India’s central bank and has done nothing to reassure foreign investors.

And multinationals initially lured by India’s growth narrative may find that the realities of the Indian marketplace tell a more vexing story. Some companies, including the insurer MetLife and the retailing giant Wal-Mart, for example, are eager to invest and expand here but have been waiting years for policy makers to let them.

For the full story, see:
VIKAS BAJAJ. “Foreign Investment Ebbs in India.” The New York Times (Fri., February 25, 2011): B1 & B6.

(Note: the online version of the article is dated February 24, 2011.)

Garbage Landfill Is Home to 80,000 in Payatas

(p. 281) Perhaps you’ve heard of Smoky Mountain, the town-sized garbage landfill in Payatas, outside Manila in the Philippines, that is home to an estimated eighty thousand desperately poor Filipinos who eke out a miserable existence scavenging what others throw away. Eighty thousand people is more than the population of Utica, New York. Entire families have been born at the Smoky Mountain landfill and lived their lives there, amidst squalor, stench, and constant smoke of smoldering trash. In July 2000, about two hundred residents of the Payatas landfill died when a large hill of trash collapsed, burying them under a garbage avalanche.

Source:
Easterbrook, Gregg. The Progress Paradox: How Life Gets Better While People Feel Worse. Paperback ed. New York: Random House, 2004.

Italy’s Dynastic Capitalism “Is Built Around Loyalty, Not Performance”

AltomonteCarloItalianEconomist2011-03-12.jpg“Carlo Altomonte, an economist, says that “Italy’s problem isn’t that we have a lot of debt. It’s that we don’t grow.”” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 6) “I know that in the States, all Mediterranean countries get lumped together,” says Carlo Altomonte, an economist with Bocconi University in Milan. “But Italy’s problem isn’t that we have a lot of debt. It’s that we don’t grow.”
. . .
“There is no sense of what a market economy is in this country,” says Professor Altomonte. “What you see here is an incredible fear of competition.”
. . .
FIVE years ago, Francesco Giavazzi needed a taxi. Cabs are relatively scarce in Milan, especially at 5 a.m., when he wanted to head to the airport, so he called a company at 4:30 to schedule a pickup. But when he climbed into the cab half an hour later, he discovered that the meter had been running for more than 20 minutes, because the taxi driver had arrived soon after the call and started charging for (p. 7) his time. Allowed by the rules, but to Mr. Giavazzi, utterly unfair.
“So it was 20 euros before we started the trip to the airport,” recalls Mr. Giavazzi, who is an economics professor at Bocconi University. “I said, ‘This is impossible.’ ”
Professor Giavazzi later wrote an op-ed article denouncing this episode as another example of the toll exacted by Italy’s innumerable guilds, known by several names here, including “associazioni di categoria.” (These are different from unions, another force here, in that guilds are made up of independent players in a trade or profession who have joined to keep outsiders out and maintain standards, as opposed to representing employees in negotiations with management, as a union might.) Even baby sitters have associations in Italy.
The op-ed did not endear Professor Giavazzi to the city’s cab drivers. They pinned leaflets with his name and address at taxi stands around Milan and for the next five nights, cabs drove around his home, honking their horns.
“This is a country with a lot of rents,” says Professor Giavazzi, sitting in his office one recent afternoon, . . . “You need a notary public, it’s like 1,000 euros before you even open your mouth. If you’re a notary public in this country, you live like a king.”
For Mr. Barbera, as is true with every entrepreneur here, the prevalence and power of Italy’s guilds explains much of what is driving up costs. He says he must overspend for accountants, lawyers, truckers and other members of guilds on a list that goes on and on: “Everything has a tariff, and you have to pay.”
. . .
Italians, notes Professor Altomonte, are among the world’s heaviest consumers of bottled water. “Do you know why? Because the water in the tap comes from the government.”
The suspicion of Italians when it comes to extra-familial institutions explains why many here care more about protecting what they have than enhancing their wealth. Most Italians live less than a mile or two from their parents and stay there, often for financial benefits like cash and in-kind services like day care. It’s an insularity that runs all the way up to the corporate suites. The first goal of many entrepreneurs here isn’t growth, so much as keeping the business in the family. For a company to really expand, it needs capital, but that means giving up at least some control. So thousands of companies here remain stubbornly small — all of which means Italy is a haven for artisans but is in a lousy position to play the global domination game.
“The prevailing management style in this country is built around loyalty, not performance,” says Tito Boeri, scientific director at Fondazione Rodolfo Debenedetti, who has written about Italy’s dynastic capitalism.

For the full story, see:
DAVID SEGAL. “Is Italy Too Italian?” The New York Times (Sun., August 1, 2010): 1 & 6-7.
(Note: ellipses added.)
(Note: the online version of the article is dated July 31, 2010.)

BarberaSpaForYarn2011-03-12.jpg“The clothier Luciano Barbera in his family’s “spa for yarn,” where crates of thread rest for months. Economists fear that such small-scale artisanship cannot sustain Italy’s economy forever.” Source of caption and photo: online version of the NYT article quoted and cited above.

In Greece It Is Illegal for Brewers to Produce Tea

PolitopooulosDemetriGreekEntrepreneur2011-03-09.jpg “Demetri Politopoulos at his microbrewery in northern Greece. He says Greek leaders need to do more to make the country an easier place to do business.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) DEMETRI POLITOPOULOS says he has suffered countless indignities in his 12-year battle to build a microbrewery and wrest a sliver of the Greek beer market from the Dutch colossus, Heineken.

His tires have been slashed and his products vandalized by unknown parties, he says, and his brewery has received threatening phone calls. And he says he has had to endure regular taunts — you left Manhattan to start up a beer factory in northern Greece? — not to mention the pain of losing 5.3 million euros.
Bad as all that has been, nothing prepared him for this reality: He would be breaking the law if he tried to fulfill his latest — and, he thinks, greatest — entrepreneurial dream. It is to have his brewery produce and export bottles of a Snapple-like beverage made from herbal tea, which he is cultivating in the mountains that surround this lush pocket of the country.
An obscure edict requires that brewers in Greece produce beer — and nothing else. Mr. Politopoulos has spent the better part of the last year trying fruitlessly to persuade the Greek government to strike it. “It’s probably a law that goes back to King Otto,” said Mr. Politopoulos with a grim chuckle, referring to the Bavarian-born king of Greece who introduced beer to the country around 1850.
Sitting in his office, Mr. Politopoulos took a long pull from a glass of his premium Vergina wheat beer and said it was absurd that he had to lobby Greek politicians to repeal a 19th-century law so that he could deliver the exports that Greece urgently needed. And, he said, his predicament was even worse than that: it was emblematic of the web of restrictions, monopolies and other distortions that have made many Greek companies uncompetitive, and pushed the country close to bankruptcy.

For the full story, see:
LANDON THOMAS Jr. “What’s Broken in Greece? Ask an Entrepreneur.” The New York Times, SundayBusiness Section (Sun., January 30, 2011): 1 & 5.
(Note: the online version of the article is dated January 29, 2011.)

The Progress Paradox Documents How Life Is Better Here and Now

ProgressParadoxBK.jpg

Source of book image: http://grigr.com/

Greg Easterbrook’s book has been out for several years, but I am a slow reader and have a long “to read” list. I enjoyed the first half or so of the book very much, and also enjoyed some parts of the second half. Roughly speaking, the first half is devoted to illustrating how much better life is now than before, and here (the West) than there (the less-developed countries). Roughly speaking, the second half of the book asks why we aren’t happier, and complains about areas of life where Easterbrook sees room for improvement.
Some of the part I like has now been updated, or written with better argument or more panache, by Matt Ridley in The Rational Optimist. But even so, Easterbrook often gives examples, or arguments, that complement Ridley’s case.
And even though Ridley is on average more eloquent than Easterbrook, the latter is eloquent plenty often enough to be worth reading. (And maybe my judgment about eloquence is colored by my agreeing with Ridley 90% of the time, and only agreeing with Easterbrook 75% of the time.)
On the less-satisfying second half of the book: worthwhile questions are often asked, but the answers are few and not very satisfying.
In the next few weeks, I’ll occasionally be quoting a few of the more illuminating or edifying passages in the Easterbrook book.

Easterbrook’s book:
Easterbrook, Gregg. The Progress Paradox: How Life Gets Better While People Feel Worse. Paperback ed. New York: Random House, 2004.

The Ridley book that I mention:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Egypt’s Urban Decline as Cause (or Symptom) of Slow Growth

EgyptUrbanChangeAndGrowthGraphs2011-02-27.jpg

Source of graphs: online version of the NYT article quoted and cited below.

We all know that correlation is not the same as causation. The main cause of Egypt’s slow growth is its lack of institutions and policies supporting entrepreneurial capitalism, and not the decline of Egyptian cities. (But the decline of Egyptian cities does not help.)

(p. B1) Since then, the cities of Asia have expanded rapidly, drawing in millions of peasant farmers looking for a better life — and, more often than not, finding it. Almost 50 percent of East Asians now live in cities. And Egypt? It is the only large country to have become less urban in the last 30 years, according to the World Bank. About 43 percent of Egyptians are city dwellers today.

This urban stagnation helps explain Egypt’s broader stagnation. As tough as city life in poor countries can be, it’s also fertile ground for economic growth. Nearly everything can be done more efficiently in a well-run city, be it plumbing, transportation or the generation of new ideas and businesses. “Being around other people,” says Paul Romer, the economist and growth expert, “helps make us smarter.”
Edward Glaeser, a Harvard economist (and weekly contributor to the Times’s Economix blog), has just published a book, “The Triumph of the City, making the case that cities are humanity’s greatest invention. Countries that become more urban tend to become far more productive, Mr. Glaeser writes. The effect is even bigger for poor countries than rich ones.
. . .
Three researchers — Michael Clemens, Lant Pritchett and Claudio Montenegro — recently found a novel way to measure how well various countries use the workers they have. The three compared the wages of immigrants to the United States with the wages of similar workers from the same country who remained home.
A 35-year-old urban Egyptian man with a high school education who moves to the United States can expect an incredible eightfold increase in living standards, the researchers found. Immigrants from only two countries, Yemen and Nigeria, receive a larger boost. In effect, these are the countries with the biggest gap between what their workers can produce in a different environment and what they are actually producing at home.
No wonder 19 percent of Egyptians told Gallup (well before the protests) that they would move to another country if they could. Mr. Clemens says that for every green card the United States awarded in a recent immigration lottery, 146 Egyptians had applied.

For the full commentary, see:
DAVID LEONHARDT. “Economic Scene; For Egypt, a Fresh Start, With Cities.” The New York Times (Weds., February 16, 2011): B1 & B11.
(Note: ellipsis added.)
(Note: the online version of the article was dated February 15, 2011.)

The scholarly article summarized is:
Clemens, Michael, Claudio Montenegro, and Lant Pritchett. “The Place Premium: Wage Differences for Identical Workers across the Us Border.” HKS Faculty Research Working Paper Series # RWP09-004, January 2009.

The Glaeser book is:
Glaeser, Edward L. Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. New York: Penguin Press, 2011.

Paul Romer Looking to Found a “Charter City”

Romer’s idea of setting up a Charter City sounds like a more advanced version of a free trade zone. It might work if you could find a well-governed nation to serve as guarantor of the city’s charter. That’s a big “if.”
Still, it’s a more intriguing idea for advancing economic development than most of the default policies (like sending foreign aid to be stolen by corrupt dictators).

(p. A2) For the past couple of years, economist Paul Romer has been hopscotching the globe looking for a country desperate enough to try his audacious notion: Start a new “charter city,” an enclave free of old laws and practices, as William Penn did in Pennsylvania. (Think “charter school,” a school free of union contracts and school bureaucracy.)

. . .
About a decade ago, he walked away from academia, started an online teaching company, sold it and then turned to his next big idea: To create jobs to lift millions out of poverty, take an uninhabited 1,000 square-kilometer tract (386 square miles), about the size of Hong Kong, preferably government-owned. Write a charter: the all-important rules. Allow anyone to move in or out. Invite foreign investors to build infrastructure for profit. And sign a treaty with a well-governed country, say Norway or Canada, to serve as “guarantor” to assure investors and residents that the charter will be respected, much as the British once did for Hong Kong, and–. . . .

For the full story, see:
DAVID WESSEL. “CAPITAL; The Quest for a ‘Charter City’.” The Wall Street Journal (Thurs., FEBRUARY 3, 2011): A2.
(Note: ellipses added.)

“A Great Artisan Can Make a Family Prosperous; A Great Inventor Can Enrich an Entire Nation”

(p. 247) We feel real poignancy when we recall the bucolic life (even if we do so through the soft focus of nostalgia) of a country weaver happy in his work skills and content with his life. But those skills, like those of a medieval goldsmith or an ancient carpenter, could not, by their very nature, reproduce themselves outside the closed community of the initiates. One lesson of the Luddite rebellion specifically, and the Industrial Revolution generally, is that maintaining the prosperity of those closed communities–their pride in workmanship as well as their economic well-being—-can only be paid for by those outside the communities: by society at large. A great artisan can make a family prosperous; a great inventor can enrich an entire nation.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.