Indian Infrastructure: “If the Public Sector Cannot Deliver, Let’s Try the Private Sector”

BANGALORE, India, Oct. 2 — About 25 miles south of the Chennai airport, past rows of ramshackle shops and pavements crowded with roadside vendors and assorted cattle, a short turnoff leads to a gated modern oasis.

Inside, at complete variance with the chaos of its surroundings, are the lakes, promenades, lush landscaping and security systems of Mahindra World City.  Its modern office high rises already house 4,000 workers with space for several thousand more.

This is the first of India’s special economic zones, or S.E.Z.’s, which could offer a partial solution to the extreme weaknesses in India’s infrastructure:  narrow, pothole-filled roads; erratic supplies of electricity and other utility services; and inadequate communication links.

The zone strategy borrows from China’s playbook, and in many ways, is a means to compete with China.  In fact, if all goes according to government plan, hundreds of these privately run zones will sprout like miniature foreign islands, offering better infrastructure and jobs, increasing exports and attracting investment from foreigners.

 

For the full story, see: 

SARITHA RAI.  "Oases of Modernity Amid India’ s Desert of Public Services."  The New York Times  (Tues., October 3, 2006):  C5.

In Egypt: The Authorities Versus the Entrepreneur


  Cairo entrepreneur serves good food to willing customers.  Source of image:  online version of the NYT article quoted and cited below.


In The Other Path, Hernando de Soto wrote about how governments in much of the world make it nearly impossible for the poor to legally get a start as entrepreneurs.  Here is a perfect example of de Soto’s point:


CAIRO, Oct. 2 — With his cart tucked beneath a highway overpass, just beside the railroad tracks and behind a parked taxi, Farouk Salem darted his eyes back and forth nervously as he awaited customers.

On most days, except during Ramadan, the sun has barely risen and worshipers are shuffling out of the nearby mosque after morning prayers as the first customers make their way to Mr. Salem.  A few quick flicks of a ladle, the shaking of a bottle or two, and breakfast is ready.

Mr. Salem sells ful, the fava bean stew that is a staple of Egyptian cuisine, as a cheap, hearty breakfast for just 20 cents.  But he is an unlicensed street vendor, one of the many hundreds of thousands of Egyptians who make their living in what economists here describe as Egypt’s informal work force:  selling, delivering, cooking, cleaning, serving, ferrying, shoeshining, anything that will provide income.

Dr. Rashad Abdou, a professor of economics at Cairo University, estimated that the informal sector might account for as much as 60 percent of Egypt’s economy.

“As long as I keep a low profile, they don’t bother me,” Mr. Salem said on a recent day, as his brother worked behind the parked metal cart, dishing out bowls of ful.  The police have forced him to move many times and have even confiscated his cart.  But it is hard to keep a really low profile when the food is good and the prices are cheap.

As the sun began to heat up the morning air, customers showed up in a steady stream, some still in their pajamas.

“It’s good,” said Muhammad Abbadi.  “It’s clean.  And the most important thing is it’s cheap.  We are poor.  You see how poor we are in Egypt.”

. . .

“If the authorities want to chase me away, they will do it,” he says, his face tight and nervous.  “If they want to put me in prison, they can.  If they want to take my cart away, they can.”

He walked over to get some more bread as Muhammad kept ladling.

 

For the full story, see:

MICHAEL SLACKMAN.  "CAIRO JOURNAL; A Hand on the Ladle, and an Eye Out for the Law."  The New York Times (Tues., October 3, 2006):  A4.

(Note: ellipses added.)

 

CairoFulFavaBeanStew.jpg  Ful is a fava bean stew that is popular in Cairo.  Source of image:  online version of the NYT article cited above.

 

The reference to the de Soto book is: 

Soto, Hernando de. The Other Path: The Invisible Revolution in the Third World. 1st ed: HarperCollins, 1989.

 

R&D Stats Better; But Still Omit a Lot of Innovation

GDPgrowthWithR&Dgraph.gif  Source of graphic:  online version of WSJ article cited below.

Note well Romer’s caveat below that, although we may be measuring better, we are still not measuring Schumpeterian innovations (such as the Wal-Mart innovations that are vastly increasing the efficiency of retailing).

 

That research and development makes an important contribution to U.S. economic growth has long been obvious.  But in an important advance, the nation’s economic scorekeepers declared they can now measure that contribution and found that it is increasing.

. . .

Since the 1950s, economists have explained economic output as the result of measurable inputs.  Any increase in output that can’t be explained by capital and labor is called "multifactor productivity" or "the Solow residual," after Robert Solow, the Nobel Prize-winning economist considered the father of modern growth theory.

From 1959 to 2002, this factor accounted for about 20% of U.S. growth.  From 1995 to 2002, when productivity growth accelerated sharply, that grew to about 33%.  Accounting for R&D would explain about one-fifth, by some measures, of the productivity mystery.  It suggests companies have been investing more than the official data had previously shown — a good omen for future economic growth.  "The slump in investment is not as drastic as people thought before they saw these figures," says Dale Jorgenson, professor of economics at Harvard University.

Mr. Jorgenson noted a lot of the multifactor productivity growth remains unexplained.  "The great mystery of growth . . . is not eliminated."

Paul Romer, an economics professor at Stanford Business School, said the better the measurements of R&D become, the more economists and policy makers will realize other factors may be more important.  "If you look at why we had rapid productivity growth in big-box retailing, there were lots of intangibles and ideas that . . . don’t get recorded as R&D."

 

For the full story, see:

GREG IP and MARK WHITEHOUSE.  "Why Economists Track Firms’ R&D; Data on Knowledge Creation Point to an Increasing Role In Domestic Product Growth."  Wall Street Journal  (Fri., September 29, 2006):  A2.

(Note:  The slightly different online version of the title is:  "Why Economists Track Firms’ R&D; Data on Knowledge Creation Point to an Increasing Role In Domestic Product Growth.")

(Note:  ellipses in Jorgenson and Romer quotes, in original; ellipsis between paragraphs, added.)

 

Hernando de Soto Creates Buzz in Clinton Hallways

DeSotoClinton.jpg  Hernando de Soto and Bill Clinton at the second annual Clinton Global Initiative.  Source of photo:  online version of the WSJ article cited below.

 

. . . the buzz in the hallways centered on a topic that until recently most philanthropists all but ignored:  registering poor people’s property so they could borrow against it to build businesses, pay taxes or for other purposes.  Many citizens of developing countries don’t formally have title to their land, and many economists — including Peruvian economist Hernando de Soto, another conference attendee — see this as a key source of urban poverty.  According to Mr. de Soto’s research, the value of unregistered land in developing countries totals over $9 trillion.  Mr. Clinton told the audience that these assets "cannot be converted into collateral for loans — wealth locked-up and locked-down — keeping people in grinding poverty instead of being an asset that can lift them up."  Up to 85% of urban land parcels in the developing world are unregistered, Mr. Clinton said, citing Mr. de Soto’s research.

But standing in the way of widespread land-ownership records are insufficient legal frameworks, confusing procedures and corrupt property registries.  And establishing land ownership is all but impossible in communist and socialist countries, where property usually is owned by the state, said John Bryant, chief executive of Operation Hope, a nonprofit in Los Angeles that provides financial services to the poor.

 

For the full article, see: 

SALLY BEATTY. "GIVING BACK; Helping the Poor Register Land." Wall Street Journal (Fri., September 29, 2006): W2.

(Note:  ellipsis added.)

Reforms Make it Easier to Start and Run a Business in Africa

(p. A12) Authors of the report, ”Doing Business,” by the World Bank and the International Finance Corporation, the bank’s private sector arm, say they hope simplifying and easing the rules of the capitalist game will entice more businesses above ground.

A team of 30 researchers found that African countries had made many incremental changes.

”The most surprising thing for me was to see the pickup of reform in Africa,” said Simeon Djankov, a World Bank economist who four years ago developed the rankings on the ease of doing business.  ”Something has happened this year.  At least two-thirds of Africa’s countries have at least one positive reform.”

Tanzania computerized its business and tax registries and reduced delays in customs inspections and the courts.

Ghana has cut the corporate tax rate to 25 percent, from 32.5 percent, and made it easier to export goods.

Rwanda scrapped a law adopted during Belgian colonial rule that had given one official a monopoly on notarizing documents for the entire country.

Ivory Coast slashed the time to register property to a month from more than a year by eliminating a requirement that the urban minister give his consent.

Wealthy donors like the World Bank, the United States and Britain, which focus on spurring economic growth and job creation, are putting heavier emphasis on such changes in deciding where to provide aid.

The Millennium Challenge Account, President Bush’s aid program, explicitly uses the bank report’s measure of days to start a business as one criterion for deciding who qualifies for large grants.

 

For the full story, see:

CELIA W. DUGGER.  "Africa Moves Up the Ladder of Business-Friendly Regions."   The New York Times (Weds., September 6, 2006):  A12.

(Note:  the online version of the article had this, slightly different, title:  "In Africa, a More Business-Friendly Approach.")   

Sprint to Risk Billions on New Infrastructure

WiMaxSprintGraphic.gif  Source of graphic:  online version of the WSJ article cited below.

 

If Sprint bets on WiFi, they’re betting with their money; if the government bets on WiFi, they’re betting with your money.  If Sprint succeeds, thereby benefiting the consumer, at no risk to the consumer, the consumer should not object to their earning huge profits.

Note also, that this is a plausble candidate for a firm trying to follow Clayton Christensen’s advice to try to disrupt itself.  (And see the comment at the end, for someone who hasn’t read Christensen, or doesn’t believe what he has read.)

 

Analysts say building a nationwide WiMax network could cost Sprint between $1 billion and $4 billion, a hefty sum for a company that is already struggling to meet Wall Street’s expectations.  Sprint said it expects to invest $1 billion on the project in 2007 and between $1.5 billion and $2 billion in 2008.

Sprint’s decision carries considerable risks:  Investors have hammered telecom companies that have made large capital investments in new technologies, banking on future markets to emerge.  For example, among other things, Verizon Communications Inc.’s stock has been under fire as the company is rolling out a costly new fiber optic network that it says will position the company to deliver a bundled TV, Internet, and phone service.  Also, WiMax technology is still untested on a large scale.

Sprint is making a huge bet that consumer demand for wireless Internet access and services such as cellphone downloads of music and video will continue to grow in the coming years.  Consumers already can get access to wireless Internet service at Wi-Fi "hotspots" in airports and coffee shops, and some cities, like Anaheim, Calif., are blanketing their terrain with Wi-Fi connections.

. . .

. . . , some analysts and industry experts question why the company is gearing up for such a major capital investment when it is already even or ahead the other top U.S. carriers, Verizon and Cingular Wireless, when it comes to data services. "Why compete against yourself? It doesn’t make a lot of sense at this point," said Mike Thelander, principal analyst at Signals Research Group who predicted several weeks ago that Sprint would choose WiMax.

 

For the full story, see:

AMOL SHARMA and DON CLARK.  "Sprint Bets on New Wireless ‘WiMax’."  Wall Street Journal  (Tues.,  August 8, 2006):  B1-B2.

(Note:  the above passages are from the online version, which was later, and less tentative about Sprint’s intentions, than the print version.) 

(Note:  ellipses added.)

“Free to Choose” Turns Estonia into “Boomtown”

  Source of book image:  http://search.barnesandnoble.com/booksearch/imageviewer.asp?ean=9780156334600

 

If, like Mr. Laar, you are only going to read one book in economics, Milton Friedman’s Free to Choose, is not too bad a choice:

(p. A23) Philippe Benoit du Rey is not one of those gloomy Frenchmen who frets about the threat to Gallic civilization from McDonald’s and Microsoft.  He thinks international competition is good for his countrymen.  He’s confident France will flourish in a global economy — eventually.

But for now, he has left the Loire Valley for Tallinn, the capital of Estonia and the economic model for New Europe.  It’s a boomtown with a beautifully preserved medieval quarter along with new skyscrapers, gleaming malls and sprawling housing developments:  Prague meets Houston, except that Houston’s economy is cool by comparison.

Economists call Estonia the Baltic tiger, the sequel to the Celtic tiger as Europe’s success story, and its policies are more radical than Ireland’s.  On this year’s State of World Liberty Index, a ranking of countries by their economic and political freedom, Estonia is in first place, just ahead of Ireland and seven places ahead of the U.S. (North Korea comes in last at 159th.)

It transformed itself from an isolated, impoverished part of the Soviet Union thanks to a former prime minister, Mart Laar, a history teacher who took office not long after Estonia was liberated.  He was 32 years old and had read just one book on economics:  ”Free to Choose,” by Milton Friedman, which he liked especially because he knew Friedman was despised by the Soviets.

Laar was politically naïve enough to put the theories into practice.  Instead of worrying about winning trade wars, he unilaterally disarmed by abolishing almost all tariffs.  He welcomed foreign investors and privatized most government functions (with the help of a privatization czar who had formerly been the manager of the Swedish pop group Abba).  He drastically cut taxes on businesses and individuals, instituting a simple flat income tax of 26 percent.

 

For the full commentary, see:

JOHN TIERNEY.  "New Europe’s Boomtown."  The New York Times  (Tues., September 5, 2006):  A23.