Category: Economic Growth

John Mackey: “I Believe in the Dynamic Creativity of Capitalism”

MackeyJohn2009-10-28.jpg Whole Foods CEO John Mackey. Source of the caricature: online version of the WSJ interview quoted and cited below.

(p. A11) “I honestly don’t know why the article became such a lightning rod,” says John Mackey, CEO and founder of Whole Foods Market Inc., as he tries to explain the firestorm caused by his August op-ed on these pages opposing government-run health care.
. . .
. . . his now famous op-ed incited a boycott of Whole Foods by some of his left-wing customers. His piece advised that “the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us closer to a complete government takeover of our health-care system.” Free-market groups retaliated with a “buy-cott,” encouraging people to purchase more groceries at Whole Foods.
. . .
What Mr. Mackey is proposing is more or less what he has already implemented at his company–a plan that would allow more health savings accounts (HSAs), more low-premium, high-deductible plans, more incentives for wellness, and medical malpractice reform. None of these initiatives are in any of the Democratic bills winding their way through Congress. In fact, the Democrats want to kill HSAs and high-deductible plans and mandate coverage options that would inflate health insurance costs.
. . .
Mr. Mackey’s latest crusade involves traveling to college campuses across the country, trying to persuade young people that business, profits and capitalism aren’t forces of evil. He calls his concept “conscious capitalism.”
What is that? “It means that business has the potential to have a deeper purpose. I mean, Whole Foods has a deeper purpose,” he says, now sounding very much like a philosopher. “Most of the companies I most admire in the world I think have a deeper purpose.” He continues, “I’ve met a lot of successful entrepreneurs. They all started their businesses not to maximize shareholder value or money but because they were pursuing a dream.”
Mr. Mackey tells me he is trying to save capitalism: “I think that business has a noble purpose. It’s not that there’s anything wrong with making money. It’s one of the important things that business contributes to society. But it’s not the sole reason that businesses exist.”
What does he mean by a “noble purpose”? “It means that just like every other profession, business serves society. They produce goods and services that make people’s lives better. Doctors heal the sick. Teachers educate people. Architects design buildings. Lawyers promote justice. Whole Foods puts food on people’s tables and we improve people’s health.”
Then he adds: “And we provide jobs. And we provide capital through profits that spur improvements in the world.
. . .
“I don’t think anybody’s too big to fail,” he says. “If a business fails, what happens is, there are still assets, and those assets get reorganized. Either new management comes in or it’s sold off to another business or it’s bid on and the good assets are retained and the bad assets are eliminated. I believe in the dynamic creativity of capitalism, and it’s self-correcting, if you just allow it to self-correct.”
That’s something Washington won’t let happen these days, which helps explain why Mr. Mackey felt compelled to write that the Whole Foods health-insurance program is smarter and cheaper than the latest government proposals.

For the full interview, see:
STEPHEN MOORE. “The Conscience of a Capitalist; The Whole Foods founder talks about his Journal health-care op-ed that spawned a boycott, how he deals with unions, and why he thinks CEOs are overpaid.” The Wall Street Journal (Sat., OCTOBER 3, 2009): A11.
(Note: ellipses added.)

“The Single Most Important Question for the Future of America Is How We Treat Our Entrepreneurs”

(p. 13) The single most important question for the future of America is how we treat our entrepreneurs. If we smear, harass, overtax, and overregulate them, our liberal politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production collapse into so much corroded wire, eroding concrete, scrap metal, and jungle rot.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Property Rights Would Allow American Indians to Prosper

(p. A19) President Barack Obama courted the Indian vote. During the campaign, he visited Montana’s Crow Reservation last May and was adopted into the tribe under the Crow name “One Who Helps People Throughout the Land.” There he said, “Few have been ignored by Washington for as long as Native Americans,” and vowed to improve their economic opportunities, health care and education.

Two vital steps in this direction are to strengthen property rights and the rule of law on reservations. Virtually every study of international development shows that both of these are crucial to prosperity. Indian country is no different. The effect of insecure property rights is evident on a drive through any western reservation. When you see 160 acres overgrazed and a house unfit for occupancy, you can be sure the title to the land is held by the federal government bureaucracy.
. . .

My own research, published in the Journal of Law and Economics, shows that for tribes with state jurisdiction, per capita income grew 20% faster between 1969 and 1999 than for their counterparts under tribal court jurisdiction. All Indians are less likely than whites to get home loans, but the likelihood of a loan rejection falls by 50% on reservations under state jurisdiction.
. . .

Mr. Obama’s rallying cry was “change,” and that is exactly what he needs to bring about in Indian policy. The first Americans deserve to be freed from the bureaucratic shackles that have made them victims, and allowed to establish property rights and legal systems that can make them victors.

For the full commentary, see:
TERRY L. ANDERSON. “OPINION; Native Americans Need the Rule of Law.” The Wall Street Journal (Mon., MARCH 16, 2009): A19.
(Note: ellipses in original.)

“It Is No Time to Concede”

BeckerGaryCartoon2009_07_10.jpg

Gary Becker. Source of caricature: online version of the WSJ interview quoted and cited below.

(p. A9) “What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on.”
. . .
What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.
As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, “that taught me a lesson.” Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.

For the full interview, see:
MARY ANASTASIA O’GRADY. “OPINION: THE WEEKEND INTERVIEW; Now Is No Time to Give Up on Markets.” The Wall Street Journal (Sat., MARCH 21, 2009): A9.
(Note: ellipsis added.)

Gary Becker_2009_07_10.jpg Gary Becker. Source of photo: http://larryevansphotography.com/Gary%20Becker_2.jpg

Today’s Middle Class Citizens of the U.S. Are Better Off Than Emperor Tiberius, Emperor Napoleon, and Saint Thomas Aquinas

In conversation at the HES meeting in Denver, Pete Boettke mentioned that the opportunity cost of blogging can be very high.
The passage below is from a draft of a key chapter of a long-awaited book authored by Berkeley economist and world-renowned blogger Brad DeLong. (At least in this case, Boettke is right.)

(p. 3) Could the Emperor Tiberius have eaten fresh grapes in January? Could the Emperor Napoleon have crossed the Atlantic in a night, or gotten from Paris to London in two hours? Could Thomas Aquinas have written a 2000-word letter in two hours–and then dispatched it off to 1,000 recipients with the touch of a key, and begun to receive replies within the hour? Computers, automobiles, airplanes, VCR’ s, washing machines, vacuum cleaners, telephones, and other technologies–combined with mass production–give middle-class citizens of the United States today degrees of material wealth–control over commodities, and the ability to consume services–that previous generations could barely imagine.

Source:
DeLong, J. Bradford. “Cornucopia: The Pace of Economic Growth in the Twentieth Century.” NBER Working Paper, w7602, 2000.

Foreign Aid to Africa “Underwrites Brutal and Corrupt Regimes”

DeadAimBK.jpg

Source of book image: online version of the WSJ review quoted and cited below.

(p. A13) It is one of the great conundrums of the modern age: More than 300 million people living across the continent of Africa are still mired in poverty after decades of effort — by the World Bank, foreign governments and charitable organizations — to lift them out if it. While a few African countries have achieved notable rates of economic growth in recent years, per-capita income in Africa as a whole has inched up only slightly since 1960. In that year, the region’s gross domestic product was about equal to that of East Asia. By 2005, East Asia’s GDP was five times higher. The total aid package to Africa, over the past 50 years, exceeds $1 trillion. There is far too little to show for it.

Dambisa Moyo, a native of Zambia and a former World Bank consultant, believes that it is time to end the charade — to stop proceeding as if foreign aid does the good that it is supposed to do. The problem, she says in “Dead Aid,” is not that foreign money is poorly spent (though much of it is) or that development programs are badly managed (though many of them are). No, the problem is more fundamental: Aid, she writes, is “no longer part of the potential solution, it’s part of the problem — in fact, aid is the problem.”
In a tightly argued brief, Ms. Moyo spells out how attempts to help Africa actually hurt it. The aid money pouring into Africa, she says, underwrites brutal and corrupt regimes; it stifles investment; and it leads to higher rates of poverty — all of which, in turn, creates a demand for yet more aid. Africa, Ms. Moyo notes, seems hopelessly trapped in this spiral, and she wants to see it break free. Over the past 30 years, she says, the most aid-dependent countries in Africa have experienced economic contraction averaging 0.2% a year.

For the full review, see:

MATTHEW REES. “Bookshelf; When Help Does Harm.” Wall Street Journal (Tues., Mach 17, 2009): A13.

The reference to the book under review, is:
Moyo, Dambisa. Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. New York: Farrar, Straus and Giroux, 2009.

“Build a Wall Around the Welfare State”

For a long time, I’ve been meaning to post a pithy comment on immigration policy from the Cato Institutes’s Bill Niskanen.
The comment was related to the proposal to erect a wall between the United States and Mexico, in order to reduce illegal immigration. Some libertarians favor open immigration. Others believe that so long as we have a large welfare state, open immigration would impose high costs on the taxpayer, and thereby reduce economic growth. (I believe that I read Milton Friedman supporting this latter position, in the year or two before he died in 2006.)
In this context, Niskanen’s pithy comment has appeal:

“Build a wall around the welfare state, not around the country.”

Source:
William A. Niskanen on 11/19/07 at the meetings of the Southern Economic Association in New Orleans.

Government Regulators Again Suppress Entrepreneurial Innovation

FeetNibblingFish2009-06-20.jpgSource of photo: http://images.quickblogcast.com/82086-71861/pedicurex_large.jpg

(p. A1) Until Mr. Ho brought his skin-eating fish here from China last year, no salon in the U.S. had been publicly known to employ a live animal in the exfoliation of feet. The novelty factor was such that Mr. Ho became a minor celebrity. On “Good Morning America” in July, Diane Sawyer placed her feet in a tank supplied by Mr. Ho and compared the fish nibbles to “tiny little delicate kisses.”

Since then, cosmetology regulators have taken a less flattering view, insisting fish pedicures are unsanitary. At least 14 states, including Texas and Florida, have outlawed them. Virginia doesn’t see a problem. Ohio permitted fish pedicures after a review, and other states haven’t yet made up their minds. The world of foot care, meanwhile, has been plunged into a piscine uproar. Salon owners who (p. A12) bought fish and tanks before the bans were imposed in their states are fuming.
The issue: cosmetology regulations generally mandate that tools need to be discarded or sanitized after each use. But epidermis-eating fish are too expensive to throw away. “And there’s no way to sanitize them unless you bake them for 20 minutes at 350 degrees,” says Lynda Elliott, an official with the New Hampshire Board of Barbering, Cosmetology and Esthetics. The board outlawed fish pedicures in November.
In Ohio, ophthalmologist Marilyn Huheey, who sits on the Ohio State Board of Cosmetology, decided to try it out for herself in a Columbus salon last fall. After watching the fish lazily munch on her skin, she recommended approval to the board. “It seemed to me it was very sanitary, not sterile of course,” Dr. Huheey says. “Sanitation is what we’ve got to live with in this world, not sterility.”
. . .
State bans have disrupted Mr. Ho’s plans to build a nationwide franchise network. Currently, he has four active franchises, in Virginia, Delaware, Maryland and Missouri. But others have terminated franchise agreements. In Calhoun, Ga., Tran Lam, owner of Sky Nails, says she paid Mr. Ho $17,500 in exchange for fish and custom-made pedicure tanks. A few weeks later, in October, the Georgia Board of Cosmetology deemed fish pedicures illegal. “I’m very mad,” says Ms. Lam. “I lost a lot of money and the economy is so bad.”

For the full story, see:
JOHN SCHWARTZ. “Ban on Feet-Nibbling Fish Leaves Nail Salons on the Hook; Mr. Ho’s Import From China Caught On, But Some State Pedicure Inspectors Object.” Wall Street Journal (Mon., MARCH 23, 2009): A1 & A12.
(Note: ellipsis added.)

Our “Patently Absurd” Patent System

(p. A15) The Founders might have used quill pens, but they would roll their eyes at how, in this supposedly technology-minded era, we’re undermining their intention to encourage innovation. The U.S. is stumbling in the transition from their Industrial Age to our Information Age, despite the charge in the Constitution that Congress “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
. . .

Both sides may be right. New empirical research by Boston University law professors James Bessen and Michael Meurer, reported in their book, “Patent Failure,” found that the value of pharmaceutical patents outweighed the costs of pharmaceutical-patent litigation. But for all other industries combined, they estimate that since the mid-1990s, the cost of U.S. patent litigation to alleged infringers ($12 billion in legal and business costs in 1999) is greater than the global profits that companies earn from patents (less than $4 billion in 1999). Since the 1980s, patent litigation has tripled and the probability that a particular patent is litigated within four years has more than doubled. Small inventors feel the brunt of the uncertainty costs, since bigger companies only pay for rights they think the system will protect.
These are shocking findings, but they point to the solution. New drugs require great specificity to earn a patent, whereas patents are often granted to broad, thus vague, innovations in software, communications and other technologies. Ironically, the aggregate value of these technology patents is then wiped out through litigation costs.
Our patent system for most innovations has become patently absurd. It’s a disincentive at a time when we expect software and other technology companies to be the growth engine of the economy. Imagine how much more productive our information-driven economy would be if the patent system lived up to the intention of the Founders, by encouraging progress instead of suppressing it.

For the full commentary, see:
L. GORDON CROVITZ. “OPINION: INFORMATION AGE; Patent Gridlock Suppresses Innovation.” Wall Street Journal (Mon., JULY 14, 2008): A15.
(Note: ellipsis added.)

The Middle Ages Were Poor Ages (and, Yes, Dark Ages Too)

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Source of book image: http://images.barnesandnoble.com/images/11610000/11613340.jpg

(p. A19) . . . some excellent books for general readers in the past few years, notably Brian Ward- Perkins’s “The Fall of Rome and the End of Civilization” (2005), have shown how devastating was the economic and human cost paid between 450 and 900. It is still unfashionable to speak of the Dark Ages (there was continuing cultural life), but these were certainly the Poor Ages, in which protection for the weak and vulnerable, from roaming killers and even from the weather, was much more precarious than it had been under Roman rule.

For the full review, see:
SCOTT PATTERSON. “Bookshelf; The Emperor Left Town.” Wall Street Journal (Tues., APRIL 21, 2009): A19.
(Note: ellipsis added.)
(Note: the book mainly under review by Patterson, is NOT the book featured in this blog entry.)

The reference for the Ward-Perkins book, is:
Ward-Perkins, Bryan. The Fall of Rome: And the End of Civilization. Oxford, UK: Oxford University Press, 2005.

“Don’t Kill the Goose”

(p. A11) I think there are two major but not fully formed or fully articulated fears among thinking Americans right now, and the deliberate obscurity of official language only intensifies those fears.

The first is that Mr. Obama’s government, in all its flurry of activism, may kill the goose that laid the golden egg. This is as dreadful and obvious a cliché as they come, but too bad, it’s what people fear. They see the spending plans and tax plans, the regulation and reform hunger, the energy proposals and health-care ambitions, and they–we–wonder if the men and women doing all this, working in their separate and discrete areas, are being overseen by anyone saying, “By the way, don’t kill the goose.”
The goose of course is the big, messy, spirited, inspiring, and sometimes in some respects damaging but on the whole brilliant and productive wealth-generator known as the free-market capitalist system. People do want things cleaned up and needed regulations instituted, and they don’t mind at all if the very wealthy are more heavily taxed, but they greatly fear a goose killing. Economic freedom in all its chaos and disorder has kept us rich for 200 years, and allowed us as a nation to be generous and strong at home and in the world. But the goose can be killed–by carelessness, hostility, incrementalism, paralysis, and by no one saying, “Don’t kill the goose.”

For the full commentary, see:
PEGGY NOONAN. “What’s Elevated, Health-Care Provider? Economy of language would be good for the economy.” Wall Street Journal (Sat., MAY 15, 2009): A11.