Economics – Page 212 – artdiamondblog.com

Government Financing Is Not Best Method to Finance Creativity

(p. B4) Government financing is not the best method to prod companies to be creative, said Edmund S. Phelps Jr., a professor of economics at Columbia University who won the Nobel Prize in 2006. But he said it could work.

He spoke at the forum about dwindling innovation in the United States economy. China, India and Brazil are catching up with innovative output, he said, but not Russia.
A high-technology start-up, he said, inherently runs more risk if it can present its product to only one potential buyer — the government — rather than to a range of customers, some of whom may want the product, he said.
“If Russian politicians see that their own prosperity, and that of their people, lies in a more arms-length relationship between the government and business, that would open a lot of possibilities,” he said.

For the full story, see:
ANDREW E. KRAMER. “Russia Plans to Promote Technology Innovations.” The Wall Street Journal (Mon., February 4, 2010): B4.

Not All Entrepreneurs Believe in Property Rights

“Titan Cement’s Bob Odom in March at the site of a proposed plant near Wilmington, N.C. The company says hundreds of jobs would be created.” Source of book image: online version of the WSJ review quoted and cited below.

Is it just me, or does entrepreneur Lloyd Smith, quoted below, come across as a bit arrogant in believing the government should enforce his view of what Wilmington should be like, even if that means violating the property rights of the owner of the land on which the cement plant will be built? (And even if that means that would-be janitor Ron Givens remains unemployed.)

(p. A3) WILMINGTON, N.C.–The old economy and the new economy are squaring off in this coastal city, which is having second thoughts about revisiting its roots in heavy industry.

Titan Cement Co. of Greece wants to build one of the largest U.S. cement plants on the outskirts of the city and is promising hundreds of jobs. The factory would be on the site of a cement plant that closed in 1982 and today is populated mainly by fire ants, copperhead snakes and the occasional skateboarder.
The proposed $450 million plant by Titan America LLC, Titan’s U.S. unit, is welcome news to Ron Givens Sr., a 44-year-old unemployed Wilmington native. Mr. Givens’s father supported 12 children while working at the former Ideal Cement plant, and Mr. Givens and two brothers have now applied for jobs with Titan. “I will apply for janitor if that’s what is going to get me into that plant,” he said.
But thousands of opponents have petitioned local and state politicians to block the plan. They object to the emissions from the plant and say it will scare off tourists, retirees, entrepreneurs and others who might otherwise want to live here.
An initial state environmental review has dragged on for two years, and critics of the plant have filed a lawsuit seeking to further broaden the review. The governor, amid public pressure, has asked the State Bureau of Investigation to probe the plant’s permitting process.
“That’s their tactic: Delay, delay, and at some point Titan will leave,” said Bob Odom, Titan’s general manager in Wilmington, of opposition efforts.
Among the most vocal opponents is a fast-growing class of high-tech entrepreneurs and telecommuters who moved to Wilmington in recent years, drawn to the temperate climate, sandy beaches and good fishing. They argue the plant, by curbing the community’s appeal, will cost more jobs and tax revenue in the long run than it produces.
“I think we can be discriminating,” said Lloyd Smith, a 43-year-old entrepreneur who moved here from northern Virginia in 2001 and founded Cortech Solutions Inc., a neuroscience company with nine employees and about $5 million in annual sales.
The standoff in Wilmington reflects a broader tug-of-war across the country as communities try to kick-start employment. It is unclear how much manufacturing will power the long-term U.S. economic recovery–even in southern states that have long embraced heavy industry but have begun to feel the new economy’s pull.

For the full story, see:
MIKE ESTERL. “Clash of Old, New Economy; Cement Plant Is Resisted by Some Neighbors Who Would Rather Lure High-Tech Jobs.” The Wall Street Journal (Tues., April 6, 2010): A3.

Source of graph: scanned from print version of the WSJ article quoted and cited above.

Wozniak on the Motives and Rewards of Inventor and Innovator

(p. 147) The whole thing used forty-five chips, and Steve paid me half the seven hundred bucks he said they paid him for it. (They were paying us based on how few chips I could do it. in.) Later I found out he got paid a bit (p. 148) more for it–like a few thousand dollars–than he said at the time, but we were kids, you know. He got paid one amount, and told me he got paid another. He wasn’t honest with me, and I was hurt. But I didn’t make a big deal about it or anything.

Ethics always mattered to me, and I still don’t really understand why he would’ve gotten paid one thing and told me he’d gotten paid another. But, you know, people are different. And in no way do I regret the experience at Atari with Steve Jobs. He was my best friend and I still feel extremely linked with him. I wish him well. And it was a great project that was so fun. Anyway, in the long run of money–Steve and I ended up getting very comfortable money-wise from our work founding Apple just a few years later–it certainly didn’t add up to much.
Steve and I were the best of friends for a very, very long time. We had the same goals for a while. They jelled perfectly at forming Apple. But we were always different people, different people right from the start.
You know, it’s strange, hut right around the time I started working on what later became the Apple I board, this idea popped into my mind about two guys who die on the same day. One guy is really successful, and he’s spending all his time running companies, managing them, making sure they are profitable, and making sales goals all the time. And the other guy, all he does is lounge around, doesn’t have much money, really likes to tell jokes and follow gadgets and technology and other things he finds interesting in the world, and he just spends his life laughing.
In my head, the guy who’d rather laugh than control things is going to be the one who has the happier life. That’s just my opinion. I figure happiness is the most important thing in life, just how much you laugh. The guy whose head kind of floats, he’s so happy. That’s who I am, who I want to be and have always wanted to be.
(p. 149) And that’s why I never let stuff like what happened with Breakout bother me. Though you can disagree–you can even split from a relationship–you don’t have to hold it against the other. You’re just different. That’s the best way to live life and be happy
And I figured this all out even before Steve and I started Apple.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

U.S. Jobs Lost Due to Law Restricting Mexican Truck Drivers

“Carbonless paper comes off a coating machine at Appleton Papers in March. Mexican tariffs have hit sales.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A5) APPLETON, Wis.–Congress’s vote last year to keep Mexican truck drivers south of the border was good news for DuWayne Marshall.

Mr. Marshall, 49 years old, owns a truck and hauls loads all over the U.S. from his home in Wisconsin. “Why should I have to compete against Third World drivers within my own borders?” Mr. Marshall asked during a break on a run to San Diego. “By closing down the borders, we are saving American jobs.”
Elizabeth Villagomez, 38, isn’t so sure. A single mother of two teens, she has worked at a paper plant in this community near Green Bay for 15 years. After the Mexican government retaliated against the trucking ban by slapping $2 billion in tariffs on U.S. paper, produce and other goods, orders plunged and managers began slashing shifts and overtime for the unionized work force.
“The company has done all it can to cut costs,” Ms. Villagomez said. “I’m at the bottom of the list if they have layoffs. It’s kind of scary, not knowing if you’re going to have a job.”
. . .
At Appleton Papers Inc., the fight over who can drive a truck across a border 1,600 miles away has translated into falling wages and rising anxiety.
Rick Bahr, head of the United Steelworkers union local that represents more than 500 employees at the Appleton plant, said six shifts have already been cut, cutting down on overtime.
“The battle ends up union versus union, truckers versus the paper workers,” Mr. Bahr said. The national steelworkers’ union has been supporting the Teamsters on the issue of Mexican trucks in the U.S.
Nearly half the company’s revenue, about $420 million last year, comes from carbonless paper sales. Its largest foreign customer is Mexico. After Mexico put a 10% tariff on carbonless paper, revenue from Mexico fell to $37 million in 2009 from $46 million in 2008.
Now, more Mexican customers say they will look for alternative suppliers to avoid having to bear part of the tariff costs. Just last month a major customer told Appleton it was going to get its carbonless paper from a European producer.
Even before the tariffs were imposed, the company had seen business hit by the economic slowdown and had cut its work force in 2008 and stopped other benefits, such as reimbursing tuition and matching workers’ contributions to their 401K retirement plans. Company officials said it was hard to quantify what part of the business downturn could be blamed directly on the tariffs, but they noted that Appleton sold 18% fewer tons of carbonless paper in the U.S. last year, compared with 2008. The number of tons sold to Mexican customers was down 24%.
Inside the plant, the machine that coats 4,000-pound rolls of paper to make it carbonless was idle one recent afternoon. Once run 24 hours a day, it is now used only half that time.
Kevin Bunnow, 50, a 33-year veteran of the plant, said the reduction in shifts had meant a wage cut of several thousand dollars last year.
“When elephants fight, the grass loses,” he said. “It didn’t take me long to realize, we’re the grass.”

For the full story, see:
GARY FIELDS. “Trade Dispute Divides Workers; It’s ‘Union vs. Union’ as Ban on Mexican Trucks Cheers Drivers, Triggers Cut in Hours at Paper Plant.” The Wall Street Journal (Tues., April 6, 2010): A5.
(Note: ellipsis added.)

The ‘First Mover Advantage’ May Be a Disadvantage

During the dot.com era one of the rationalizations for dot.com firms to be losing money was that they had to be the ‘first mover’ that would grab the demand-side economies of scale arising from network effects.
For a variety of reasons, including the clarity of hindsight, the current consensus if that profitability is always worth worrying about, and being first is far from a guarantee of success.
On the other hand, if the authors quoted below are correct that everyone should be a “fast follower,” then who will ever make the first move?
Maybe the problem lies in the metrics of success. Maybe the main measure of success lies in moving an important project forward, rather than being the one who ends up best positioned to monetize the advance?
So, for example, maybe those who built Netscape should be proud of what they did, even though Internet Explorer ended up dominating the market.
(I use “maybe” a lot above, not out of some rhetorical pose of modesty, but because these are issues that I am really grappling with.)

(p. R4) One of the fiercest rivalries in the information-technology world has long been over platforms–products that link users in networks, like iTunes for online music or Windows for computer operating systems. It’s often a winner-take-all business; platform leaders can earn huge profits as they tend to dominate markets with few serious competitors.

A myth, however, has attached itself to the history of platforms: that each platform’s originator has the best chance of dominating its market for years to come.
The truth is, that is rarely the case.
Instead of there being an advantage to being first, we found the opposite to be true. Most owners of leading IT platforms today did not create the markets they now rule. In almost all of the industries we studied, the current platform leaders introduced their products after a different company had already established the market with a platform of its own.
Out of the 15 platform industries that we studied, 14 of the current leaders began as followers in a market created by a competitor’s platform. In only one market, for integrated business software, was the original platform creator still the leader–SAP AG. Five were fast followers, which we define as the second, third or fourth company to enter a market. The other nine were later followers.

For the full commentary, see:
GEZINUS J. HIDDING, JEFFREY R. WILLIAMS And JOHN J. SVIOKLA. “Technology; The IT Platform Principle: The First Shall Not Be First .” The Wall Street Journal (Mon., January 25, 2010): R4.

Obama Delays Biotech Innovation

Source of graph: scanned from the print version of the WSJ article quoted and cited below.

(p. A8) The crop-biotechnology industry, growing frustrated as it watches the approval time for new seeds almost double under the Obama administration, is pressuring Washington to clear inventions more quickly.

The logjam at the U.S. Department of Agriculture, which must clear genetically modified seeds, is slowing the launch of products that could give farmers more alternatives to seeds from crop biotech giant Monsanto Co.
Also, some biotech-industry executives worry the delays signal that the Obama administration, which has painted itself as pro-biotech, is gearing up for a far tougher analysis of the potential environmental impact of these crops, which could make it harder for inventions to reach the marketplace.
On average, a genetically modified seed takes 1,188 days to pass federal scrutiny, almost twice as long as in 2008, the last year of the Bush administration, according to the Biotechnology Industry Organization, a Washington, D.C., trade group.
“There is concern we might see other countries move ahead of the U.S.,” said Sharon Bomer Lauritsen, executive vice president of food and agriculture at BIO, who added that the delays “might stifle investment in what has been a very dynamic part of the U.S. economy.” BIO’s members include hundreds of companies such as DuPont Co., Syngenta AG and Monsanto, as well as academic institutions.

For the full story, see:
SCOTT KILMAN. “Biotech Firms Seek Speedier Reviews of Seeds; Approval Time for Genetically Modified Crops Doubles under Obama as Some Fear Tougher Stance; Feds Blame Logjam.” The Wall Street Journal (Weds., April 28, 2010): A8.

Electronics Projects Were Wozniak’s “Passion” and “Pastime” and “Reward”

(p. 127) I think most people with day jobs like to do something totally different when they get home. Some people like to come home and watch TV. But my thing was electronics projects. It was my passion and it was my pastime.

Working on projects was something I did on my own time to reward myself, even though I wasn’t getting rewarded on the outside, with money or other visible signs of success.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

Farmers in India Like Wal-Mart

“Mohammad Haneef, [above], a farmer in Haider Nagar, said that Wal-Mart is better than his previous clients. “You have to establish trust,” he said in Hindi. “Wal-Mart has been paying on time. We would just like them to buy more.”” Source of caption and photo: online version of the NYT article quoted and cited below. (Note: bracketed word added.)

(p. B1) HAIDER NAGAR, India — At first glance, the vegetable patches in this north Indian village look no different from the many small, spare farms that dot the country.

But up close, visitors can see some curious experiments: insect traps made with reusable plastic bags; bamboo poles helping bitter gourd grow bigger and straighter; and seedlings germinating from plastic trays under a fine net.
These are low-tech innovations, to be sure. But they are crucial to the goals of the benefactor — Wal-Mart — that supplied them.
Two years after Wal-Mart came to India, it is trying to do to agriculture here what it has done to industries around the world: change business models by using its hyper-efficient practices to improve productivity and speed the flow of goods.
. . .
(p. B3) Here in Haider Nagar, in the bread basket state of Punjab, farmers who supply vegetables to Wal-Mart say they like working with the company. It typically pays them 5 to 7 percent more than they earn from local wholesale markets, they said. And they do not have to pay to transport produce because Wal-Mart picks it up from their fields.
Abdul Majid, who sells cucumbers to Wal-Mart, says his yields have risen about 25 percent since he started following farming advice about when to apply fertilizers and which kinds — more zinc, less potash — from the company and its partner, Bayer CropScience.
Mohammad Haneef, a farmer in a nearby village, said he had sold to two other companies before Wal-Mart, but one shut down and the other cheated him and paid him late. Wal-Mart is much better, he said, but its buyers are picky, taking the best vegetables and leaving him with inferior ones that he still must truck to wholesale markets.
“You have to establish trust,” he said in Hindi. “Wal-Mart has been paying on time. We would just like them to buy more.”

For the full story, see:
VIKAS BAJAJ. “Cultivating a Market in India; Wal-Mart Nurtures Suppliers as It Lays Plans for Expansion.” The New York Times (Tues., April 13, 2010): B1 & B3.
(Note: ellipsis added.)
(Note: the online version of the review is dated April 12, 2010 and has the title “In India, Wal-Mart Goes to the Farm.”)

Economics Is More Like Biology than Physics

(p. A13) If economics is a science, it is more like biology than physics. Biologists try to understand the relationships in a complex system. That’s hard enough. But they can’t tell you what will happen with any precision to the population of a particular species of frog if rainfall goes up this year in a particular rain forest. They might not even be able to count the number of frogs right now with any exactness.

We have the same problems in economics. The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions.
The bottom line is that we should expect less of economists. Economics is a powerful tool, a lens for organizing one’s thinking about the complexity of the world around us. That should be enough. We should be honest about what we know, what we don’t know and what we may never know. Admitting that publicly is the first step toward respectability.

For the full commentary, see:

RUSS ROBERTS. “Is the Dismal Science Really a Science? Some macroeconomists say if we just study the numbers long enough we’ll be able to design better policy. That’s like the sign in the bar: Free Beer Tomorrow.” The Wall Street Journal (Thurs., FEBRUARY 26, 2010): A13.

Mob Museum Financed from Local, State and Federal Tax Dollars

“The $42 million museum has been financed through a series of state, federal and local grants. It is set to open next March.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) The idea for the Las Vegas Museum of Organized Crime and Law Enforcement was seeded when the city bought the 1933 federal courthouse and post office from the federal government for $1 in 2002, with the strict understanding that the building — one of the oldest in Southern Nevada — be used for cultural purposes.

For much of the middle of the last century, organized crime ruled the Strip, developing and managing an array of casinos, skimming their way to success. Federal prosecutors put an end to their reign in the 1980s. The city determined its historical relationship to organized crime — and the role the courthouse played in it — made the site a perfect fit.
. . .
The $42 million project has been financed through a series of state, federal and local grants, and the work has progressed a bit glacially as money has trickled in.
The project, once listed as one that could stimulate this city’s embattled economy, was attacked by Senator Mitch McConnell, the Republican leader, when city officials suggested that it might qualify for federal stimulus money.

For the full story, see:
JENNIFER STEINHAUER. “‘2 Mob Museums in Las Vegas, Ready to Go to the Mattresses.” The New York Times, First Section (Sun., April 25, 2010): 1 & 4.
(Note: ellipsis added.)
(Note: the online version of the article is dated April 24, 2010 and has the title “Vegas Mob Museums, Set to Go to the Mattresses.”)

Companies Make Big Bets to Get Us What We Need

“The Molycorp Minerals rare earth mine in Mountain Pass, Calif.” Source of caption and photo: online version of the NYT article quoted and cited below.

If the government does not interfere with the price system, then the prospect of higher prices will provide private companies and entrepreneurs the incentive to take risks to provide us with what we need. In the article quoted below, the example is rare earth minerals that are used in high technology products.

(p. B1) On a high plateau where burros and jackrabbits wander an hour’s drive southwest of Las Vegas, a 400-foot-deep chasm hewn from volcanic rock sits at the center of an international policy debate.

The chasm, in Mountain Pass, Calif., used to be the world’s main mine for rare earth elements — minerals crucial to military hardware and the latest wind turbines and hybrid gasoline-electric cars. Molycorp Minerals, which owns the mine, announced on Monday that it had registered with the Securities and Exchange Commission for an initial public offering to help raise the nearly $500 million needed to reopen and expand the mine.
Molycorp is making a big bet that its mine — once the world leader in production of rare earth elements, but now a rusting relic — can be made competitive again. Global demand is surging for the minerals. And customers, particularly the American military, are seeking alternatives to China, which now mines 97 percent of the world’s rare earth elements.
As part of reopening the mine, Molycorp plans to increase its capacity to mine and refine neodymium for rare earth magnets, which are extremely lightweight and are used in many high-tech applications. It will also resume bulk production of lower-value rare earth elements like cerium, used in industrial processes like polishing glass and water filtration.

For the full story, see:
KEITH BRADSHER. “A Mine Owner’s Risky Bet on Rare Minerals.” The New York Times (Thur., April 22, 2010): B1 & B4.
(Note: italics in original; ellipses added.)
(Note: the online version of the review is dated April 21, 2010 and has the title “Challenging China in Rare Earth Mining.”)