Category: Economics

“How Am I Going to Live without Google?”

GoogleChinaFlowers2010-01-25.jpg “A woman examined bouquets and messages left by Google users on Wednesday outside the Internet search company’s headquarters in Beijing.” Source of caption and photo: online version of the NYT article cited way below (after the citation to the quoted article, which is a different article).

David Smick in The World as Curved, has suggested that restrictions on the internet in China, limit entrepreneurship, and ultimately economic growth.

(p. 5) BEIJING — At the elite Tsinghua University here, some students were joking Friday that they had better download all the Internet information they wanted now in case Google left the country.

But to many of the young, well-educated Chinese who are Google’s loyal users here, the company’s threat to leave is in fact no laughing matter. Interviews in Beijing’s downtown and university district indicated that many viewed the possible loss of Google’s maps, translation service, sketching software, access to scholarly papers and search function with real distress.
“How am I going to live without Google?” asked Wang Yuanyuan, a 29-year-old businessman, as he left a convenience store in Beijing’s business district.
. . .
Li An, a Tsinghua University senior, said she used to download episodes of “Desperate Housewives” and “Grey’s Anatomy” from sites run by BT China that are now closed. “I love American television series,” she said with frustration during a pause from studying Japanese at a university fast-food restaurant on Friday.
The loss of Google would hit her much harder, she said, because she relies on Google Scholar to download academic papers for her classes in polymer science. “For me, this is terrible,” Ms. Li said.
Some students contend that even after Google pulls out, Internet space will continue to shrink. Until now, Google has shielded Baidu by manning the front line in the censorship battle, said a 20-year-old computer science major at Tsinghua.
“Without Google, Baidu will be very easy to manipulate,” he said. “I don’t want to see this trend.”
A 21-year old civil engineering student predicted a strong reaction against the government. “If Google really leaves, people will feel the government has gone too far,” he insisted over lunch in the university cafe.
But asked whether that reaction would influence the government to soften its policies, he concentrated on his French fries. “I really don’t know,” he said.

For the full story, see:
SHARON LaFRANIERE. “Google Users in China, Mostly Young and Educated, Fear Losing Important Tool.” The New York Times, First Section (Sun., January 17, 2010): 5.
(Note: the online version of the article has the title “China at Odds With Future in Internet Fight” and is dated January 16, 2010.)
(Note: ellipsis added.)

The source of the photo at the top is the online version of:
KEITH BRADSHER and DAVID BARBOZA. “Google Is Not Alone in Discontent, But Its Threat Stands Out.” The New York Times (Thurs., January 13, 2010): B1 & B4.
(Note: the online version of the article has the slightly different title “Google Is Not Alone in Discontent, But Its Threat to Leave Stands Out” and is dated January 14, 2010.)

The reference to the Smick book is:
Smick, David M. The World Is Curved: Hidden Dangers to the Global Economy. New York: Portfolio Hardcover, 2008.

Socialist Chavez’s Thugs Destroy Venezuelans’ Economic Freedom

VenezuelanNationalGuardPriceInspection2010-01-24.jpg “A member of the National Guard stands guard during a inspection of prices at a store in La Guaira outside Caracas Jan. 12.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A8) CARACAS — President Hugo Chávez’s decision to devalue Venezuela’s currency in order to shore up government finances could backfire on the populist leader if the move leads to substantially higher prices and extends an economic downturn.

Just days after Mr. Chávez cut the value of the “strong bolivar” currency, some businesses were marking up prices. Shoppers jammed stores to stock up on goods before the increases took hold.
Amelia Soto, a 52-year-old housewife waited in line at a Caracas drugstore to buy 23 tubes of toothpaste. “Everywhere I hear that prices are going to skyrocket so I want to buy as much as I can now,” she said.
Airlines have doubled fares; government officials said they were looking into reports that large retail chains were also increasing prices.
. . .
The price increases are setting the stage for confrontations with authorities following Mr. Chávez’s orders to shut down retailers that raise prices.
. . .
The higher prices for consumer goods represent a huge liability for a country facing 27% inflation, one of the highest levels in the world.

For the full story, see:
DARCY CROWE and DAN MOLINSKI. “Prices in Venezuela Surge After Devaluation.” The Wall Street Journal (Weds., JANUARY 13, 2010): A8.
(Note: the online version of the article has the title “Venezuelans Rush to Shop as Stores Increase Prices.”)
(Note: ellipses added.)

EU’s Farm Subsidy Program Creates Fraud and High Prices

SugarSubsidyTable2010-01-27.gif Source of the table: online version of the NYT article quoted and cited below.

(p. B1) Call it the mystery of the European sugar triangle.

It began when Belgian customs officials examined shipping records for dozens of giant tanker trucks that outlined an odd, triangular journey across Europe. The trucks, each carrying 22 tons of liquid sugar, swung through eight nations and covered a driving distance of roughly 2,500 miles from a Belgian sugar refinery to Croatia and back — instead of taking the most direct, 900-mile route.
Along the way the trucks made a brief stop in Kaliningrad, a grim and bustling Russian border checkpoint on the Baltic Sea.
Suddenly the sugar triangle made sense to them. Because Russia, and not Croatia, was listed as the intended destination, the shipments qualified for valuable special payments known as export rebates from the European Union’s farm subsidy program.
Some 200 shipments roared along this route over a three-year-period, investigators say, earning 3 million euros in refunds (about $4.5 million) for the Belgian sugar maker Beneo-Orafti. In the spring, dozens of Belgian and European investigators raided the company’s offices, freezing half of its refunds and initiating an investigation that could cost the company the remaining 1.5 million euros, and possibly more.
In the sprawling European subsidy program — which lavishes more than 50 billion euros ($75 billion at current exchange rates) a year in agricultural aid — no commodity is more susceptible to fraud, chicanery and rule-bending, experts say, than simple household sugar.
(p. B4) Across Europe there are some 2.5 million acres of beet fields that will produce 16.7 million metric tons of sugar this year for an industry worth 7 billion euros. Last year the European Union spent 475 million euros in price supports for sugar, including export subsidies. Then it spent another 1.3 billion euros on restructuring aid to reform a subsidy regime so lavish that it even prompted cold-weather Finland to start producing more sugar.
Sugar producers across the Continent cashed in — from Italy, where Italia Zuccheri collected more than 139 million euros, to France, where a handful of sugar producers received 128.5 million.
With this much money at stake, critics and some analysts say, the sugar subsidy system is like a cookie jar waiting to be pilfered.
. . .
“There’s a whole world of commercial fraud, which goes under the radar for most people,” said James Byrne, a law professor at the George Mason University School of Law in Virginia who has studied the global sugar trade. “It is a parallel universe that mimics the real world of commerce and finance.”

For the full story, see:
STEPHEN CASTLE and DOREEN CARVAJAL. “Subsidies Spur Fraud In European Sugar.” The New York Times (Tues., October 27, 2009): B1 & B4.
(Note: the online version of the article has the title “Fraud Plagues Sugar Subsidy System in Europe” and has the date October 26, 2009. The online version reverses the order of the authors’ names, and differs significantly in the first several paragraphs, mainly stylistically, but also somewhat in substance. The version quoted here is the online version.)
(Note: ellipsis added.)

SugarFraudMap2010-01-27.jpg

SugarPriceTable2010-01-27.gif

Source of both the map and the table: online version of the NYT article quoted and cited above.

Venture Capitalists Invested 37% Less in Start-Ups in 2009

(p. B5) Venture capitalists, whose money provides fuel to technology start-ups, last year invested the lowest amount in such companies since 1997, according to a report from PricewaterhouseCoopers and the National Venture Capital Association released on Friday.
. . .
In 2009, venture capitalists invested $17.7 billion in 2,795 start-ups — 37 percent less cash and 30 percent fewer deals than in 2008. Internet companies, which have excited investors for more than a decade, took a big hit as investment declined 39 percent.

For the full story, see:
CLAIRE CAIN MILLER. “Venture Capital Was Tight for Tech Start-Ups in ’09.” The New York Times (Fri., January 22, 2010): B5.
(Note: ellipsis added.)

In Creative Destruction, Firms Survive that Have Technological Expertise Useful for New Product

StudebakerCarriage2010-01-23.jpg“Collection of Studebaker National Museum, South Bend, Ind.” “Those who disparage buggies as a dead end forget Studebaker switched from carriages to cars.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) I spoke recently about buggy whips with Thomas A. Kinney, an assistant professor of history at Bluefield College in Virginia and author of “The Carriage Trade: Making Horse-Drawn Vehicles in America.”

There were 13,000 businesses in the wagon and carriage industry in 1890, Mr. Kinney said. A company survived not by conceiving of itself as being in the “personal transportation” business, but by commanding technological expertise relevant to the automobile, he said. “The people who made the most successful transition were not the carriage makers, but the carriage parts makers,” he said, some of whom are still in business.
One is the giant Timken Company, whose signature products, roller bearings, were first used in wagon wheels in the 1890s. They easily adapted to the automobile because they could be applied “to nearly anything that moved,” Mr. Kinney wrote.
Westfield, Mass., still known as “Whip City,” once had more than 40 businesses that made whips, tools and carriage parts. Today, only Westfield Whip Manufacturing, founded in 1884, remains. Although it produces buggy whips — now called carriage whips — most of its whips and crops, called “bats,” are for equestrian activities like dressage and jumping.
Buggy whips, with their long, rigid handles and flexible end lashes, were created by braiding fiber around a hard core and had no automotive analog.
The carriage makers did, and they tried their best to remake themselves into automakers. But they were expert woodworkers without expertise in precision metalworking, Mr. Kinney said: “Bicycle manufacturers were actually better suited for auto manufacturing than were carriage makers.”
Businesses do die, even big ones. Leslie Hannah, a visiting professor of economic history at the London School of Economics, studied the 100 largest industrial companies in the world between 1912 and 1995. Almost half of them disappeared, “and more than a quarter experienced bankruptcy or a similar close shave with it,” he wrote in “Learning by Doing in Markets, Firms and Countries.”
The standout carriage business that succeeded was the Studebaker Brothers Manufacturing Company, which began as a blacksmith shop in 1852 and had the financial resources to acquire smaller companies that supplied it with the precision metalworking expertise it lacked when it decided to enter the auto business. In 1913, its automobile production was second only to that of Ford Motor.

For the full story, see:
RANDALL STROSS. “Digital Domain; Failing Like a Buggy Whip Maker? Better Check Your Simile.” The New York Times, SundayBusiness Section (Sun., January 10, 2010): 4.
(Note: the online version of the article is dated January 9, 2010.)
(Note: bold added.)

Entrepreneur Kurzweil Brought Sunshine to Stevie Wonder’s Life

(p. 265) On the snowy morning of January 13, 1976, . . . , there was unusual traffic on Rogers Street. Outside the gray one-story buildings with their clouded tilt-out windows, vans from various television channels maneuvered to park. A man from the National Federation of the Blind struggled over a snow bank onto the sidewalk and began tapping earnestly to get his bearings. A dark-haired young man set out on a three-block trek to the nearest vendor of coffee and donuts for the gathering media. In the room at number 68, two engineers poked at a gray box that looked like a mimeograph machine sprouting wires to a Digital Equipment Corporation computer. Several intense young men in their early twenties debated when to begin a demonstration of the device. The short, curly-haired leader of the group, twenty-seven-year-old Raymond Kurzweil, refused to start until the arrival of a reporter from The New York Times.

The event was a press conference announcing the first breakthrough product in the field of artificial intelligence: a reader for the blind. Described as an “omnifont character recognition device” linked to a synthetic voice, the machine could read nearly any kind of book or document laid face down on its glass lens. With a learning faculty that improved the device’s performance as it proceeded through blurred, faded, or otherwise illegible print, the machine solved problems of pattern recognition and synthesis that had long confounded IBM, Xerox, and the Japanese conglomerates, as well as thousands of university researchers.

. . .
(p. 266) Stevie Wonder, the great blind musician, called. He had heard about the device after its appearance on the “Today Show” and it seemed a lifelong dream come true. He headed up to Cambridge to meet with Kurzweil.

. . .
As Kurzweil remembers, “He was very excited about it and wanted (p. 267) one right away, so we actually turned the factory upside down and produced a unit that day. We showed him how to hook it up himself. He left with it practically under his arm. I understand he took it straight to his hotel room, set it up. and read all night.” As Wonder said, the technology has been “a brother and a friend . . . . without question, another sunshine of my life.” Wonder stayed in touch with Kurzweil over the years and would play a key role in conceiving and launching a second major Kurzweil product.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.
(Note: italics in original; all ellipses added except the ellipsis internal to the last paragraph, which was in the original.)

Chinese Economic Crisis Predicted by Investor Who Predicted Enron Collapse

ChanosJamesHedgeFund2010-01-23.jpg “James Chanos made his hedge fund fortune predicting problems at companies and shorting their stock.” Source of caption and photo: online version of the NYT article quoted and cited below.

Chanos’ views discussed below are plausible and worth taking seriously. Earlier and overlapping worries about the sustainability of China’s boom were expressed in a credible and scary book by David Smick called The World is Curved.
In addition to some of the concerns expressed by Chanos, Smick also emphasizes that China’s restrictions on the internet will dampen the ability of its entrepreneurs to succeed. That view seems prescient given China’s growing attempts to censor the internet and to hack Google.

(p. B1) SHANGHAI — James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.
As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.
“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.
. . .
(p. B4) . . . he is tagging along with the bears, who see mounting evidence that China’s stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.
“In China, he seems to see the excesses, to the third and fourth power, that he’s been tilting against all these decades,” said Jim Grant, a longtime friend and the editor of Grant’s Interest Rate Observer, who is also bearish on China. “He homes in on the excesses of the markets and profits from them. That’s been his stock and trade.”
Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.
“The Chinese,” he warned in an interview in November with Politico.com, “are in danger of producing huge quantities of goods and products that they will be unable to sell.”

For the full story, see:
DAVID BARBOZA. “Shorting China: the Man Who Predicted Enron’s Fall Sees a Bigger Collapse Ahead.” The New York Times (Fri., January 8, 2010): B1 & B5.
(Note: the online version of the article has the title “Contrarian Investor Sees Economic Crash in China” and is dated January 7, 2010.)
(Note: ellipses added.)

The reference to the Smick book is:
Smick, David M. The World Is Curved: Hidden Dangers to the Global Economy. New York: Portfolio Hardcover, 2008.

ChanosJamesPoster2010-01-23.jpg

“Now Mr. Chanos is betting against China, and is promoting his view that the China miracle has blinded investors to the risks in that economy.” Source of caption and poster: online version of the NYT article quoted and cited above.

Economic Freedom Declined in United States in 2009

IndexOfEconomicFreedom2010.gif

Source of table: online version of the WSJ article quoted and cited below.

(p. A17) The United States is losing ground to its major competitors in the global marketplace, according to the 2010 Index of Economic Freedom released today by the Heritage Foundation and The Wall Street Journal. This year, of the world’s 20 largest economies, the U.S. suffered the largest drop in overall economic freedom. Its score declined to 78 from 80.7 on the 0 to 100 Index scale.

The U.S. lost ground on many fronts. Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial and monetary freedom and property rights. Driving it all were the federal government’s interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed “too big to fail.” These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.
. . .
The abiding lesson of the last few years is that the battle for liberty requires perpetual vigilance. President Obama professes desire to foster prosperity, environmental protection, poverty reduction and better health care. How ironic, then, that his economic proposals so consistently ignore or even undermine the one system–free enterprise capitalism–that has proven best able to achieve those goals.
Now America’s once high-flying economy is barely crawling forward. Americans deserve better, and they can do better–as soon as they reverse course and start regaining the economic freedom that made America the most prosperous country in the world.

For the full story, see:
TERRY MILLER. “The U.S. Isn’t as Free as It Used to Be; Canada now boasts North America’s freest economy.” The Wall Street Journal (Weds., JANUARY 20, 2010): A17.
(Note: the online version of the article is dated JANUARY 19, 2010.)
(Note: ellipsis added.)

Art Diamond Identified as One of “the Country’s Most Prolific and Influential Economics Bloggers”

KauffmanBloggerSurveyChart2010-02-01.gifSource of graph: http://image.exct.net/lib/fef61175736207/m/1/Q9-Report-Card2.gif

The Kauffman Foundation recently invited me to participate in a quarterly survey on economic policy that they are compiling from among bloggers who they have identified as among “the country’s most prolific and influential economics bloggers.” I agreed to participate.
Apparently tomorrow (2/2/10) they will release the results of the first survey.
Below I have quoted most of a press release that they emailed out today.
(The Kauffman Foundation is one of the leading non-profit organizations supporting research on entrepreneurship.)

Top Economics Bloggers Grade U.S. Institutions that Influence Economy in New Kauffman Survey

Watch for complete results tomorrow of the first
‘Kauffman Economic Outlook:
A Quarterly Survey of Leading Economics Bloggers’

The country’s most prolific and influential economics bloggers grade the institutions and organizations that impact the economy in a new Kauffman Foundation survey. On an A to F grading scale, the nation’s top economics bloggers give the highest marks to the Congressional Budget Office (CBO) and General Accountability Office (GAO), as well as to the “U.S. business community.” Central banks such as the Federal Reserve and European Central Bank got passing grades by most, with few A’s and many F’s. Similarly, the World Bank had mixed marks. The worst marks went to Wall Street firms (31 percent F’s) and the U.S. Congress (51 percent F’s).
Learn more about what these insightful analysts think about U.S. economic performance, policy, institutions, and the deficit in the first “Kauffman Economic Outlook: A Quarterly Survey of Economics Bloggers,” which will debut tomorrow, Feb. 2, 2010, at www.kauffman.org.
The survey was conducted in mid-January 2010 by soliciting input from bloggers ranked among the top 200 economics bloggers according to Palgrave’s Econolog.net. Ten core questions and seven topical questions were designed in coordination with a distinguished board of advisors.

Web version of press release:
http://view.exacttarget.com/?j=fe5916727d650c747316&m=fef61175736207&ls=fded1c77726707797712717c&l=fe5815757461007a7c13&s=fe27157476630575771d75&jb=ffcf14&ju=fe2f16767565027b701575

Another Boeing BHAG Takes Flight

BoeingDreamlinerFirstFlight2010-01-23.jpg “Members of the public watched the first test flight of the Boeing 787 on Tuesday in Everett, Wash.” Source of caption and photo: online version of the NYT article quoted and cited below.

In their stimulating business best-seller Built to Last Collins and Porrus have a chapter in which they argue that one way to attract and retain the best employees is to give them a difficult but important project to work on. They call such projects “BHAGs,” which stands for Big Hairy Audacious Goals. Among their main examples (e.g., p. 104) of BHAGs were Boeing’s development of the 707 and 747.
Boeing’s latest BHAG is the 787 Dreamliner.

(p. A25) EVERETT, Wash. — The new Boeing 787 Dreamliner lifted into the gray skies here for the first time on Tuesday morning, more than two years behind schedule and burdened with restoring Boeing’s pre-eminence in global commercial aviation.

“Engines, engines, engines, engines!” shouted April Seixeiro, 37, when the glossy twin-engine plane began warming up across from where spectators had informally gathered at Paine Field. Ms. Seixeiro was among scores of local residents and self-described “aviation geeks” who came to watch the first flight.
Moments after the plane took off at 10:27 a.m., Mrs. Seixeiro was wiping tears from her eyes. A friend, Katie Bailey, 34, cried, too.
“That was so beautiful,” Ms. Bailey said.

For the full story, see:
WILLIAM YARDLEY. “As 787 Takes Flight, Seattle Wonders About Boeing’s Future.” The New York Times (Weds., December 16, 2009): A25.
(Note: the online version of the article has the title “A Takeoff, and Hope, for Boeing Dreamliner” and is dated December 15, 2009.)

The reference for the Collins and Porras book is:
Collins, James C., and Jerry I. Porras. Built to Last: Successful Habits of Visionary Companies. New York: HarperBusiness, 1994.

Like Cesar Chavez, Union Intimidates Its Own Members

FrankVitaleAmeliaUnionOrganizer2010-01-16.jpg “Amelia Frank-Vitale, a former union organizer, said the practice of pink sheeting sent her into therapy.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) After six years working in the laundry of a Miami hotel, Julia Rivera was thrilled when her union tapped her to become a full-time union organizer.

But her excitement soon turned to outrage.
Ms. Rivera said her supervisors at Unite Here, the hotel and restaurant workers’ union, repeatedly pressed her to reveal highly personal information, getting her to divulge that her father had sexually abused her.
Later, she said, her supervisors ordered her to recount her tale of abuse again and again to workers they were trying to unionize at Tampa International Airport, convinced that Ms. Rivera’s story would move them, making them more likely to join the union.
“I was scared not to do what they said,” said Ms. Rivera, adding that she resented being pressured to disclose intimate information and then speak about it in public. “To me, it was sick. It was horrible.”
Ms. Rivera and other current and former Unite Here organizers are speaking out against what they say is a longstanding practice in which Unite Here officials pressured subordinates to disclose sensitive personal information — for example, that their mother was an alcoholic or that they were fighting with their spouse.
More than a dozen organizers said in interviews that they had often been pressured to detail such personal anguish — sometimes under the threat of dismissal from their union positions — and that their supervisors later used the information to press them to comply with their orders.
“It’s extremely cultlike and extremely manipulative,” said Amelia Frank-Vitale, a Yale graduate and former hotel union organizer who said these practices drove her to see a therapist.
Several organizers grew incensed when they discovered that details of their history had been put into the union’s database so that supervisors could use that information to manipulate them.
“This information is extremely personal,” said Matthew Edwards, an organizer who had disclosed that he was from a broken home and was overweight when young. “It is catalogued and shared throughout the whole organizing department.”
. . .
(p. B5) Several organizers likened pink sheeting to a practice that Cesar Chavez, former president of the United Farm Workers, used when he embraced a mind-control practice developed by Synanon, a drug rehabilitation center founded in Santa Monica, Calif. Union staff members were systematically subjected to intense, prolonged verbal abuse in an effort to break them down and assure loyalty.
. . .
Ms. Frank-Vitale, now a graduate student at American University, says she is still haunted by memories of pink sheeting.
“One night my supervisor pushed me and pushed me, and I started talking about being an overweight woman in America, what that was like in high school, that it was very difficult for me,” she said. “I felt kind of violated.”

For the full story, see:
STEVEN GREENHOUSE. “Some Organizers Protest Their Union’s Tactics.” The New York Times (Thurs., November 19, 2009): B1 & B5.
(Note: the online version of the article is dated November 18, 2009.)
(Note: ellipses added.)