Category: Economic Growth

The U.S. has Exceled at Turning Information Technology into Greater Productivity

 

To explain the experience in the United States, one would have to believe that Americans have some better way of translating the new technology into productivity than other countries. And that is precisely what Professor Van Reenen’s research suggests.

His paper ”Americans Do I.T. Better: U.S. Multinationals and the Productivity Miracle,” (with Nick Bloom of Stanford University and Raffaella Sadun of the London School of Economics) looked at the experience of companies in Britain that were taken over by multinational companies with headquarters in other countries. They wanted to know if there was any evidence that the American genius with information technology transfers to locations outside the United States. If American companies turn computers into productivity better than anyone else, can businesses in Britain do the same when they are taken over by Americans?

And in the huge service sectors — financial services, retail trade, wholesale trade — they found compelling evidence of exactly that. American takeovers caused a tremendous productivity advantage over a non-American alternative.

When Americans take over a business in Britain, the business becomes significantly better at translating technology spending into productivity than a comparable business taken over by someone else. It is as if the invisible hand of the American marketplace were somehow passing along a secret handshake to these firms.

. . .

But there is a chance that the 1990s represent a fundamental shift in the global economy. Perhaps the greater amount of uncertainty and churn in the world economy in the 1990s is the new norm. Perhaps the 21st century will continually favor those who adjust best to changes. As Professor Van Reenen put it, ”If the world has become one in which everyone is trying to hit a moving target, it certainly helps to be the best at changing one’s aim.”

But that is, of course, the paradox of the American position. We hate experiencing major adjustments and industry transformations that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting. 

 

For the full commentary, see: 

AUSTAN GOOLSBEE. "ECONOMIC SCENE; How the U.S. Has Kept the Productivity Playing Field Tilted to Its Advantage."  The New York Times  (Thurs., June 21, 2007)  C3.

(Note:  ellipsis added.)

(Note:  I thank Aaron Brown for calling the above article to my attention.)

 

How to End Poverty

 

To find policies that are likely to alleviate poverty, it is best to look at actual successes and failures. In recent decades, the biggest single accomplishment is the post-1979 (post-Mao) economic growth in China. Xavier Sala-i-Martin ("The World Distribution of Income," Quarterly Journal of Economics, May 2006) finds that the number of persons below a standard poverty line fell in China by about 250 million from 1970 to 2000. This massive poverty reduction occurred despite an increase in the Chinese population of more than 400 million and rising income inequality within China. The second-best story is the economic growth in India, where the poverty count fell by around 140 million people from 1970 to 2000.

Also illuminating is the greatest tragedy for world poverty — the low economic growth in sub-Saharan Africa. In this case, the number of people in poverty rose by around 200 million from 1970 to 2000.

These examples suggest that the key question for poverty alleviation is how to get Africa to grow like China and India. An important clue is that the triumphs in China and India derive mainly from improvements in governance, notably in the opening up to markets and capitalism. Similarly, the African tragedy derives primarily from government failure. Another clue is that foreign aid had nothing to do with the successes and did not prevent the African tragedy.

One reason for this is that foreign aid is typically run through governments and, thereby, tends to promote public sectors that are large, corrupt and unresponsive to market forces.

 

For the full commentary, see: 

ROBERT BARRO.  "COMMENTARY; Bill Gates’s Charitable Vistas." The Wall Street Journal  (Tues., June 19, 2007):  A17.

 

Let There Be Light

 

  One of Mark Bent’s solar flashlights stuck in a wall to illuminate a classroom in Africa.  Source of the photo:   http://bogolight.com/images/success6.jpg

 

What Africa most needs, to grow and prosper, is to eject kleptocratic war-lord governments, and to embrace property rights and the free market.  But in the meantime, maybe handing out some solar powered flashlights can make some modest improvements in how some people live.

The story excerpted below is an example of private, entrepreneur-donor-involved, give-while-you-live philanthropy that holds a greater promise of actually doing some good in the world, than other sorts of philanthropy, or than government foreign aid. 

 

FUGNIDO, Ethiopia — At 10 p.m. in a sweltering refugee camp here in western Ethiopia, a group of foreigners was making its way past thatch-roofed huts when a tall, rail-thin man approached a silver-haired American and took hold of his hands. 

The man, a Sudanese refugee, announced that his wife had just given birth, and the boy would be honored with the visitor’s name. After several awkward translation attempts of “Mark Bent,” it was settled. “Mar,” he said, will grow up hearing stories of his namesake, the man who handed out flashlights powered by the sun.

Since August 2005, when visits to an Eritrean village prompted him to research global access to artificial light, Mr. Bent, 49, a former foreign service officer and Houston oilman, has spent $250,000 to develop and manufacture a solar-powered flashlight.

His invention gives up to seven hours of light on a daily solar recharge and can last nearly three years between replacements of three AA batteries costing 80 cents.

Over the last year, he said, he and corporate benefactors like Exxon Mobil have donated 10,500 flashlights to United Nations refugee camps and African aid charities.

Another 10,000 have been provided through a sales program, and 10,000 more have just arrived in Houston awaiting distribution by his company, SunNight Solar.

“I find it hard sometimes to explain the scope of the problems in these camps with no light,” Mr. Bent said. “If you’re an environmentalist you think about it in terms of discarded batteries and coal and wood burning and kerosene smoke; if you’re a feminist you think of it in terms of security for women and preventing sexual abuse and violence; if you’re an educator you think about it in terms of helping children and adults study at night.”

Here at Fugnido, at one of six camps housing more than 21,000 refugees 550 miles west of Addis Ababa, the Ethiopian capital, Peter Gatkuoth, a Sudanese refugee, wrote on “the importance of Solor.”

“In case of thief, we open our solor and the thief ran away,” he wrote. “If there is a sick person at night we will took him with the solor to health center.”

A shurta, or guard, who called himself just John, said, “I used the light to scare away wild animals.” Others said lights were hung above school desks for children and adults to study after the day’s work.

 

For the full story, see:

Will Connors and Ralph Blumenthal.  "Letting Africa’s Sun Deliver the Luxury of Light to the Poor."  The New York Times, Section 1  (Sun., May 20, 2007):  8.

(Note:  the title of the article on line was:  "Solar Flashlight Lets Africa’s Sun Deliver the Luxury of Light to the Poorest Villages.")

 

 EthiopiaMap.gif   Source of map:  online version of the NYT article cited above.

 

“The Engine of Prosperity is Technological Progress”

 

Steve sometimes writes clever, entertaining essays on issues of little policy importance (like whether a rational person should stand still, or move forward, on escalators).  But in the piece excerpted below, he does a great job of discussing the biggest policy issue of them all:  what drives economic progress?

 

Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture — but none of that stuff had much effect on the quality of people’s lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. True, there were always tiny aristocracies who lived far better, but numerically they were quite insignificant.

Then — just a couple of hundred years ago, maybe 10 generations — people started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year. A couple of decades later, the same thing was happening around the world.

Then it got even better. By the 20th century, per capita real incomes, that is, incomes adjusted for inflation, were growing at 1.5% per year, on average, and for the past half century they’ve been growing at about 2.3%. If you’re earning a modest middle-class income of $50,000 a year, and if you expect your children, 25 years from now, to occupy that same modest rung on the economic ladder, then with a 2.3% growth rate, they’ll be earning the inflation-adjusted equivalent of $89,000 a year. Their children, another 25 years down the line, will earn $158,000 a year.

Against a backdrop like that, the temporary ups and downs of the business cycle seem fantastically minor. In the 1930s, we had a Great Depression, when income levels fell back to where they had been 20 years earlier. For a few years, people had to live the way their parents had always lived, and they found it almost intolerable. The underlying expectation — that the present is supposed to be better than the past — is a new phenomenon in history. No 18th-century politician would have asked "Are you better off than you were four years ago?" because it never would have occurred to anyone that they ought to be better off than they were four years ago.

. . .

The source of this wealth — the engine of prosperity — is technological progress. And the engine of technological progress is ideas — not just the ideas from engineering laboratories, but also ideas like new methods of crop rotation, or just-in-time inventory management.

 

For the full commentary, see: 

STEVEN LANDSBURG.  "A Brief History of Economic Time."   The Wall Street Journal  (Sat., June 9, 2007):  A8. 

(Note:  ellipsis added.)

 

Mugabe Prints More Money and Beats Up Shopkeepers, as Inflation Soars: More on Why Africa is Poor

 

     "Inflation made food cost a fortune in Harare this week.  The government imposed controls that required vendors to sell some items below cost."  Source of caption and photo:  online version of the NYT article cited below. 

 

JOHANNESBURG, July 3 — Zimbabwe’s week-old campaign to quell its rampant inflation by forcing merchants to lower prices is edging the nation close to chaos, some economists and merchants say.

As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses. News reports said that some shopkeepers who had refused to lower prices had been beaten by the youth militia, known as the Green Bombers for the color of their fatigues.

In interviews, merchants said that crowds of people were following the police and militia from shop to shop to buy goods at the government-ordered prices.

“People are losing millions and millions and millions of dollars,” said one merchant in Bulawayo, referring to the Zimbabwean currency, which is becoming worthless given the nation’s inflation, the world’s highest. “Everyone is now running out of stock, and not being able to replace it.”

. . .

Gasoline was reported to be vanishing from stations as the going price, about 180,000 dollars per liter, was slashed by the government to something closer to the officially approved price of 450 dollars per liter. Mr. Mugabe’s government intends to cope with the shortages by subsidizing producers of basic goods. One of the few newspapers not under government control, The Zimbabwe Independent, reported last week that flour, which is controlled entirely by the state, will be sold to bakers for 10 million dollars a ton, half the market price. Similarly, many suppliers of basic goods have been told by the government that they will be allowed to buy gasoline at one tenth the going price, the newspaper reported. The government apparently plans to make up those losses by printing more money. Zimbabwe’s dollar has lost more than half its value in recent weeks because the government has constantly issued new bills to pay its mounting debts.

 

For the full story, see: 

MICHAEL WINES.  "Anti-Inflation Curbs on Prices Create Havoc for Zimbabwe."  The New York Times  (Weds., July 4, 2007):  A8. 

(Note:  ellipsis added.)

 

CNN on 7/10/07 broadcast a great clip from ITN, that had been courageously recorded undercover by Martin Geissler.  See  "Desperation in Zimbabwe":

http://www.cnn.com/video/#/video/offbeat/2007/06/23/vo.mi.ugly.dogs.ap?DPFPR=true

(Note:  ITN is sometimes also called ITV.  "ITN" stands for the International Television Network.)

 

Postscript:  According to an entry on the ITV web site entitled "Mugabe Battles Economic Crises," Mugabe "has warned he will not be restrained by "bookish economics"."  (He makes a great case for cracking open the books, doesn’t he?  Or at least for opening the window and looking at what is happening outside?)

For the Mugabe quote on bookish economics, see:

http://itn.co.uk/news/a1d7763de3c4778b619a72cbeab24d6d.html

 

“Roosevelt Warned us of Fearing Fear Itself; Now We Fear Life Itself”

 

   Source of book image:  http://ec1.images-amazon.com/images/P/159523005X.01._SCLZZZZZZZ_V46468787_SS500_.jpg

 

I saw Todd Buchholz on C-Span and on CNBC, and I enjoyed hearing his views, so I decided to buy his Bringing the Jobs Home.  I don’t like the title, because it sort of implies that the job market is a zero-sum-game, in which one country’s gain implies another country’s loss.  Us true-blue free marketers believe that the market is a non-zero-sum game in which everyone everywhere can have jobs, and have better ones over time.

But Buchholz’s little book is fun to read, and says much that is plausible about how the government hurts the worker and reduces the efficiency of the labor market. 

Read the following excerpt for part of his rousing conclusion to the book.

(And, Aaron, I agree with you that Buchholz is wrong to say the American spirit is "innate.") 

 

(p. 177)  . . . :  Since the 1960s, each year we’ve lost a little nerve, gained another bureaucrat, another lawyer, another layer of protection against life’s uncertainties.  We have gotten used to a government that aims to coddle us but ends up both preventing us from growing and dampening the innate American spirit.  The spirit still stirs but gets buried under the weight of the nanny state.

. . .

(p. 178)  American government officials today cannot put our standard of living in a lockbox to preserve, protect and defend us.  Franklin D. Roosevelt warned us of fearing fear itself; now we fear life itself. 

. . .

(p. 179)  To paraphrase Churchill, Americans did not sail the perilous Atlantic, scale the Appalachians and struggle past the Rockies because we were made of cotton candy.

 

Source: 

Buchholz, Todd G. Bringing the Jobs Home: How the Left Created the Outsourcing Crisis–and How We Can Fix It. New York: Sentinel, 2004.

 

Bjorn Lomborg’s Copenhagen Consensus Against Kyoto

 

(p. 8) Bjorn Lomborg, a Danish statistician who recently led the Copenhagen Consensus, an economic analysis of global environment and development issues , said that while global warming was a serious problem, Kyoto-style limits would have little impact and would divert resources better spent on alleviating poverty.

He said one element missing from most climate discussions was the need for a more vigorous effort to improve climate-friendly energy technologies like solar power and carbon capture, in which greenhouse emissions are trapped and pumped underground before they can escape into the atmosphere.

While many advocates have proposed an emissions tax, Dr. Lomborg said a much smaller investment in research and development on such technologies would be more likely to help in the long run.

 

For the full story, see: 

ANDREW C. REVKIN.  "Talks to Start On Climate Amid Split On Warming."  The New York Times, Section 1  (Sun., November 5, 2006):  8. 

 

The Safety Net in Europe and the United States

 

SafetyNetGraph.jpg   Source of graphic:  online version of the NYT article cited below.

 

FROM issues of crime and punishment to the proper domain of the spiritual and temporal powers, Americans and Europeans have long cast a skeptical eye at one another across the Atlantic.

Perhaps nowhere has the gaze been more jaundiced than in the area of work. From the perspective of Western Europe, American employers have a relatively free hand to hire and fire, coupled with meager and short-lived unemployment benefits. America’s deregulated labor markets seem to provide hardly any safety net when it comes to economic dislocations of workers.

Americans, by contrast, have found it hard to resist a touch of schadenfreude at the joblessness stoked by European governments’ intervention in labor markets, with rules on everything from wages to layoffs, on top of generous unemployment benefits.

 

For the full commentary, see: 

EDUARDO PORTER.  "Economic View; A Bridge Over the Atlantic, in Labor Policy."  The New York Times, Section 3  (Sun., April 1, 2007):  5.

 

Morales Slaughters Snow-White Llama to Celebrate Nationalization of Tin Smelter

   A snow-white llama that has not yet been symbolically sacrificed by Bolivian President Evo Morales.  Source of the photo:  http://www.staff.stir.ac.uk/f.r.wheater/images/25%20Llama%205_8_04.JPG

 

Picture it, in President Evo Morales’ Bolivia:  a peaceful, innocent-looking, snow-white llama slaughtered in homage to a barbaric mystical ritual, and in celebration of the slaughter, through nationalization, of private property and economic growth.  And afterwards, one imagines the visitng French brass band played on. 

 

VINTO, Bolivia: The ritual sacrifice of a snow-white llama provided a symbolic completion Friday to President Evo Morales’ nationalization of Bolivia’s lone operating tin smelter.

Swiss mining giant Glencore International AG owned the plant until last week and has threatened to seek compensation through international arbitration. Morales still says his government will not compensate Glencore for the Feb. 9 nationalization of the Vinto plant, located on a high Andean plain 180 kilometers (110 miles) southeast of the capital of La Paz.

. . .

After the ceremony, Morales hosted plant workers, a troupe of Andean pipers and a visiting French brass band to an outdoor supper of fried chicken and chuno, a traditional Bolivian dish of dehydrated potatoes.

While the nationalization retained all but a handful of smelter employees, workers remained divided over the change in management. Some rushed to greet "Companero Evo" as he toured the plant; others hung back and wondered about the future.

"Anywhere in the world they’ll tell you the government can’t be a good administrator," said plant employee Oscar Leyton. "But we’ll just have to wait and see how they do it. If they screw up here, they’ll screw up the whole country."

 

For the full story, see: 

"In Bolivia, llama sacrifice completes Morales’ tin smelter nationalization."  International Herald Tribune  February 16, 2007.

(Note:  ellipsis added.) 

 

Preventing Creative Destruction Slows Economic Growth

 

GrowthRatesUS-Eur-JapanGraphic.jpg   Source of graphic:  online version of the NYT article cited below. 

 

It would be interesting to explore why the gap in growth rates was smaller last year than previously.  Was it a statistical fluke?  Or did the U.S. labor market become somewhat less flexible?  Or maybe the job market in Europe and Japan became somewhat more flexible? 

 

FOR more than a decade, many American economists have pointed to Europe and Japan as prima facie evidence that layoffs in the United States are a good thing. The economies in those countries were not nearly as robust as this country’s. And the reason? Too much job security in Europe and Japan, the economists said.

American employers, in sharp contrast, have operated with much more “flexibility.” Hiring and firing at will, they shift labor from where it is not needed to where it is needed. If Eastman Kodak is struggling to establish itself in digital photography, then Kodak downsizes and labor moves to industries and companies that are thriving — software, for example, or health care, or Wal-Mart Stores or Caterpillar.

This shuffling out of one job and into another shows up in the statistics as nearly full employment. Never mind that the shuffling does not work as efficiently as the description implies or that many of the laid-off workers find themselves earning less in their next jobs, an income roller coaster that is absent in Europe and Japan. A dynamic economy leaves no alternative, or so the reasoning goes among mainstream economists.

“Trying to prevent this creative destruction from happening is a recipe for less economic growth and less productivity,” said Barry Eichengreen, an international economist at the University of California, Berkeley.

 

For the full commentary, see: 

LOUIS UCHITELLE.  "ECONOMIC VIEW; Job Security, Too, May Have a Happy Medium."  The New York Times, Section 3 (Sun., February 25, 2007):  5.

 

Better than Socialism, but Not Free Market Enough: More on Why Africa is Poor

 

     Voters in line to vote for President in Senegal on 2/25/07.   Source of photo:  online version of the NYT article quoted and cited below.

 

My old Wabash professor Ben Rogge used to say that rulers liked to build pyramids to proclaim their glory.  He mentioned the Egyptian pyramids, and he mentioned the whole government-created capital city of "Brasilia" in Brazil. 

When rulers in a poor country invest a lot of tax money in infrastructure, such as roads, how much of that is due to their belief in mistaken economic theories, and how much to their wanting to build their own version of the pyramids? 

In either case, at least it can be said that the people probably benefit more from their taxes being used to build roads, than from their taxes being used to build pyramids.  At least the roads can be complementary to transporting goods, and to the mobility of labor. 

But the people would benefit even more if they could keep the tax money to use for their own purposes.

 

(p. A3) DAKAR, Senegal, Feb. 25 — Moudou Gueye was confident that Senegal’s presidential election on Sunday would turn around his fortunes, at least in the short term.

Seven years ago he voted for Abdoulaye Wade, a rabble-rousing professor who, after decades in opposition to Socialist Party rule, sailed into office buoyed by the votes of frustrated young people like Mr. Gueye, who is now 32. They hoped that Mr. Wade, a free-market liberal, would transform this impoverished nation’s economy, which had been stunted by generations of ineffective central planning.

. . .

. . .   Senegal has had relatively robust economic growth that has hovered at around 5 percent over several years (it was lower last year, owing in part to high fuel prices, according to government officials), compared with the 1 percent achieved during much of the Socialist era, and dozens of huge public works projects.

While in some ways the country is better off, economic growth and a building binge have not produced large numbers of jobs in a country struggling to make the transition from an agrarian society based largely on peanut farming to one that harnesses the wealth of a global economy.

. . .

Countering criticism that Mr. Wade is too old to serve another term — his official age is given as 80, but many people suspect he is older — his daughter, Sindiély, who has worked as a special assistant to the president, said he was as sharp and agile as ever.

“It is not a question of age,” Ms. Wade said as she waited to cast her vote in downtown Dakar. “It is a question of dynamism and ideas and what you have planned for your country.”

Along Dakar’s seaside roadway, young men marveled at the cars whizzing below a brand-new overpass, one of Mr. Wade’s long-anticipated public works projects.

Pap Ndiaye, an 18-year-old street vendor who sells baby clothes to people stalled in traffic, said the newly completed road was a sign that the country was moving in the right direction.

“Wade has done a lot for this country,” Mr. Ndiaye said. “Our hope is that he will stay and finish his work.”

Less than a mile away, the road abruptly ends with a bright yellow sign that says “déviation,” or detour. With a hard turn to the right, drivers pour off the broad new highway, and back into the tangled, chaotic streets of one of Dakar’s oldest and poorest neighborhoods.

 

For the full story, see: 

LYDIA POLGREEN.  "Senegalese Vote Hinges on Views of Economic Growth."  The New York Times  (Mon., February 26, 2007):  A3.

(Note:  ellipses added.)