Category: Economics

“The More Sweatshops the Better”

JACQUELINE NOVOGRATZ, a veteran of the Rockefeller Foundation and a former consultant to the World Bank, talks enthusiastically about the development of a company in Africa where some 2,000 women earn, on average, $1.80 a day producing antimalarial bed netting.  With the assistance of a $350,000 loan from an American investor, the business started making the nets nearly three years ago and is likely to add 1,000 more jobs within the next year.

”They’re in the process of building a real company town there,” Ms. Novogratz said.

 

Ms. Novogratz is not an outsourcing executive at a multinational company.  Rather, she is the chief executive of the Acumen Fund, a philanthropic start-up based in New York that uses donations to make equity investments and loans in both for-profit and nonprofit companies in impoverished countries.  One of the stars of her small portfolio is the bed-netting maker, A to Z Manufacturing, a family-owned company in Tanzania — a country where 80 percent of the population makes less than $2 a day.

. . .

”To put it in the baldest possible terms, the more sweatshops the better,” said William Easterly, professor of economics at New York University and author of ”The White Man’s Burden:  Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good.”  Professor Easterly is not advocating the deliberate creation of workplaces with miserable conditions.  ”As you increase the number of factories demanding labor, wages will be driven up,” he said, and eventually such factories will not be sweatshops.

Ms. Novogratz says it can be difficult to tell well-off, philanthropy-minded Westerners that what Africa really needs is more $2-a-day jobs.  But when they understand the alternatives, she said, such concerns tend to melt away.  Before they found work at the netting factory in Tanzania, for example, many of the women were street vendors or domestic workers and earned less than $1 a day.  A to Z’s wages place the women in Tanzania’s top quartile of earners, Ms. Novogratz said.

 

For the full commentary, see: 

DANIEL GROSS.  "ECONOMIC VIEW; Fighting Poverty With $2-a-Day Jobs."  The New York Times    Section 3, (Sunday, July 16, 2006):  4.

Life Has Improved; And Can Continue to Improve

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

 

(p. 1)  New research from around the world has begun to reveal a picture of humans today that is so different from what it was in the past that scientists say they are startled.  Over the past 100 years, says one researcher, Robert W. Fogel of the University of Chicago, humans in the industrialized world have undergone “a form of evolution that is unique not only to humankind, but unique among the 7,000 or so generations of humans who have ever inhabited the earth.”

. . .

(p. 19)  . . .  stressful occupations added to the burden on the body.

People would work until they died or were so disabled that they could not continue, Dr. Fogel said. “In 1890, nearly everyone died on the job, and if they lived long enough not to die on the job, the average age of retirement was 85,” he said. Now the average age is 62.

A century ago, most people were farmers, laborers or artisans who were exposed constantly to dust and fumes, Dr. Costa said. “I think there is just this long-term scarring.”

 

For the full story, see:

Kolata, Gina.  "The New Age; Older and Better; So Big and Healthy Grandpa Wouldn’t Even Know You."  The New York Times, Section 1  (Sunday, July 30, 2006):  1 & 18-19.

Health1860s1994.gif Source of graphic:  online version of the NYT article cited above. 

HealthCivilWarAndNow.gif EscapeFromHungerAndPrematureDeath1700-2100BK.jpg  Source of graphic:  online version of the NYT article cited above.  Source of book image:  http://www.cambridge.org/us/catalogue/catalogue.asp?isbn=0521808782

 

Fogel’s book is a primary academic source for much of what is interesting in the New York Times article.  Fogel predicts that if we don’t screw things up, half of today’s college students will live to be 100.  He shows that academics in the past have consistently and significantly underestimated the maximum lifespans that would be attainable in the future.

The full reference for the Fogel book is:

Fogel, Robert William. The Escape from Hunger and Premature Death, 1700-2100, Cambridge Studies in Population, Economy and Society in Past Time. Cambridge, UK: Cambridge University Press, 2004.

 

Environmentalists Hurt Poor Quatemalans

Residents of El Estor, a small Q’eqchi community of 40,000 people located in northeast Guatemala, cheered when they heard that Vancouver-based Skye Resources was interested in reopening a local abandoned nickel mine.  According to local press, the town’s mayor and several community leaders led a rally last September in favor of the mine with a banner that read, "El Estor says yes to responsible mining."

It’s easy to see why there was such excitement. Skye Resources estimates that it will employ 1,000 people and create four indirect jobs in the community for every new mining job.  That plus an overall investment of at least $539 million is not irrelevant for an impoverished town with one of the highest illiteracy rates in the country — over 40% for indigenous men and 35% for indigenous women.

The festive mood didn’t last long.  Within months, opposition to the project began to swell.  Well-organized protesters were soon demanding that the Guatemalan government withdraw the mining license it had issued, alleging environmental risks and inadequate consultation with the community.

. . .

In a country with such dire needs for capital and technology to lessen the want of the poor, it is worth exploring whether such anti-mine activism truly expresses the will of the people.  Looking behind the scenes, the funding and instigation of the activism appears heavily driven by international nongovernmental organizations that end up discouraging development while trying to fulfill their own mission.

Boston-based Oxfam America and Toronto’s Rights Action are two anti-development NGOs active in Guatemala.  Oxfam has partnered with MadreSelva (Mother Jungle), a Guatemala City environmental group headed by affluent urbanites, to block mining projects.

 

For the full commentary, see: 

ANDREA TUNAROSA.  "AMERICAS; What Do NGOs Have Against Poor Guatemalans?"   The Wall Street Journal (Fri., July 21, 2006):  A15.

“Capitalism has Not Corrupted Our Souls; It has Improved Them”


Source of book image:  http://www.amazon.com/gp/product/0226556638/sr=8-1/qid=1153708722/ref=pd_bbs_1/104-2835260-2878345?ie=UTF8

 

Deirdre McCloskey’s unfashionable,  contrarian and compelling manifesto in favor of what she calls the bourgeois virtues starts with an uncompromising "apology" for how private property, free labor, free trade and prudent calculation are the fount of most ethical good in modern society, not a moral threat to it.

The intelligentsia — in thrall for centuries to religion and now to socialism — has for a long time snobbishly despised the bourgeoisie that practices capitalism.  Ms. McCloskey calls such people the "clerisy."  Their values and virtues, like those of the proletariat and the aristocracy, are widely admired.  But almost nobody admires the bourgeoisie.  Yet it was for anti-bourgeois ideologies, she notes, that "the twentieth century paid the butcher’s bill."

As Ms. McCloskey explains:  "Anyone who after the twentieth century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing nineteenth-century proposals for government action are still neat, harmless ideas for improving our lives is not paying attention."  By contrast, she argues, "capitalism has not corrupted our souls.  It has improved them."

 

For the full review, see:

MATT RIDLEY.  "Capitalism Without Tears; Fashionable thinkers sneer at the free market and its practitioners, but economic liberty may actually be a force for personal goodness."   The Wall Street Journal  (Sat., July 22, 2006):  P10.

(Note:  in the passage above, I took the liberty of correcting a misspelling of "Deirdre.") 

 

The full citation to the McCloskey book is: 

McCloskey, Deirdre N.  The Bourgeois Virtues:  Ethics for an Age of Commerce. Chicago:  University of Chicago Press, 2006.  (616 pages, $32.50)


Beware of a Snapshot of a Moment in Time

  Source of photo:  http://www.nytimes.com/2006/07/27/world/middleeast/27mideast.html?pagewanted=2

 

The photo of Condi Rice touching her forehead ran on the top of the front page of the New York Times on Thurs., July 27, 2006.  It ran big:  filling over a third of the length of the paper, and over half of the width.  It ran right next to the main headline of the front page:  "CEASE-FIRE TALKS STALL AS FIGHTING RAGES ON 2 FRONTS."

It appears that Condi Rice is discouraged, or has a headache, or is overcome. 

But a great CNN report by Jeanne Moos run on Sat., July 29, shows a dynamic version of the minute during which this snapshot was taken.  It shows that this photo is a split-second moment of Condi Rice brushing hair off of her forehead.

Our usual view of competition is to look at how many competitors there are at a moment in time.  We look at a snapshot.  But to really judge competition we must take Schumpeter seriously and look dynamically at whether there is the possibility of leapfrog competition over time.

In an earlier blog entry, I noted that Ronald Reagan resisted sitting for still photos because he thought that still photos could easily be manipulated to mislead.  Ronald Reagan was right.

 

(Jeanne Moos’s report was entitled "Hairy Talks or Hair in Eyes?" on the CNN web site.  I believe it first ran on 7/28/06, though I saw it replayed in the afternoon of 7/29/06.)

 

Current Workplace Revolution Benefits Labor

(p. 8)  Would you change places with your grandfather?  Would you want to work 11 brutal hours a day… in yesterday’s Bethlehem Steel mill, a Ford Motor Company factory circa 1935?  Not me.  Nor would I change places with my father … who labored in a whilte-collar sweatshop, at the same company, in the same building, for 41 l-o-n-g years.

A workplace revolution is under way.  No sensible person expects to spend a lifetime in a single corporation anymore.  Some call this shift the "end of corporate responsibility."  I call it … the Beginning of Renewed Individual Responsibility.  An extraordinary opportunity to take charge of our own lives.

 

Source of passage:

Peters, Tom.  Re-imagine!  London: DK, 2003.

(Note:  all of the ellipses in the above passage, appear in the original.)

Global Warming Turns Greenland Green

 

GreenlandPotatoFarm.jpg  A potato farm in Greenland has been able to expand as more land is arable due to higher temperatures.  Source of image:  the online version of the WSJ article quoted and cited below.

 

(p. A1)  QAQORTOQ, Greenland — Stefan Magnusson lives at the foot of a giant, melting glacier.  Some think he’s living on the brink of a cataclysm.  He believes he’s on the cusp of creation.

The 49-year-old reindeer rancher says a warming trend in Greenland over the past decade has caused the glacier on his farm to retreat 300 feet, revealing land that hasn’t seen the light of day for hundreds of years, if not more.  Where ice once gripped the earth, he says, his reindeer now graze on wild thyme amid the purple blooms of Niviarsiaq flowers.

The melting glacier near Mr. Magnusson’s home is pouring more water into the river, which he hopes soon to harness for hydroelectricity.

"We are seeing genesis by the edge of the glacier," he says.

Average temperatures in Greenland have risen by 2.7 degrees Fahrenheit over the past 30 years — more than double the global average, according to the Danish Meteorological Institute.  By the end of the century, the institute projects, temperatures could rise another 14 degrees.

The milder weather is promoting new life on the fringes of this barren, arctic land.  Swans have been spotted recently for the first time, ducks aren’t flying south for the winter anymore and poplar trees have suddenly begun flowering.

. . .

(p. A12)  For Greenlanders, adapting to the effects of climate change is nothing new.  Oxygen isotope samples taken from Greenland’s ice core reveal that temperatures around 1100, during the height of the Norse farming colonies, were similar to those prevailing today.  The higher temperatures were part of a warming trend that lasted until the 14th century.

Near the end of the 14th century, the Norse vanished from Greenland.  While researchers don’t know for sure, many believe an increasingly cold climate made eking out a living here all but impossible as grasses and trees declined.  Farming faded away from the 17th century to the 19th century, a period known as the Little Ice Age.  Farming didn’t return to Greenland in force until the early 1900s, when Inuit farmers began re-learning Norse techniques and applying them to modern conditions.  A sharp cooling trend from around 1950 to 1975 stalled the agricultural expansion.

Since then, temperatures have mainly been on the upswing.  Ole Egede is taking advantage of the warmer climate.  He and his brother live on Greenland’s southwest coast on an isolated farm at the head of an inlet that can be reached only by helicopter or by a boat that can navigate around the icebergs that often choke the blue fiord.  Mr. Egede started Greenland’s first commercial potato farm in 1999 and it remains the largest potato farm in Greenland.

Improved farming technology and methods, such as new cold-resistant seed varieties and cultivation techniques — are responsible for some of Greenland’s expanding agriculture.  But experts credit the more-favorable climate with much of the new growth.  "There’s no doubt he’s now growing potatoes because of better conditions," Mr. Hoegh, the farming consultant, says of Mr. Egede.

 

For the full story, see: 

LAUREN ETTER.  "Feeling the Heat For Icy Greenland, Global Warming Has a Bright Side As Temperatures Inch Up, Melting Glaciers Bring New Life to a Frozen Land But Could Polar Bears Vanish?"   The Wall Street Journal  (Tues., July 18, 2006):  A1 & A12.

 

 GreenlandMap.gifSource of map:  the online version of the WSJ article quoted and cited above.

 

Intense Competition in Chip Duopoly

IntelAMDWar.gif

Phil Hester, apparently a chip hotshot, joined A.M.D. ten months ago as its technology chief, to "help lead its battle against Intel."  (Hector Ruis, mentioned below, is the C.E.O. of A.M.D.)

Mr. Hester and other A.M.D. executives say that the technology in its laboratories gives them plenty of reason for optimism, and that in some product categories Intel is just catching up to advances A.M.D. pioneered.  Just next month, for example, A.M.D. is expected to introduce improvements to Opteron, and both companies are designing chips to run cooler and consume less energy.

Much like Intel, A.M.D. is working to increase the number of processors on each chip from two to four, and the company says it will introduce new designs for servers and desktop systems that will be released in mid-2007, followed later in the year by a new design for notebooks.  Many analysts are also expecting the company to counter Intel’s pricing moves with price cuts of its own.  At A.M.D.’s annual conference for analysts last month, Mr. Hester also disclosed an unusual plan to let other manufacturers build chips that work closely with its own chips, indicating an openness and flexibility that has not been seen before in the company’s strategy.

With that effort, referred to as Torrenza, A.M.D. is licensing some of its chip specifications to other technology developers so they can add specialized functions, like advanced graphics and math processing.

“We want to open up our technology and unleash a completely new wave of innovation,” Mr. Ruiz told analysts at the conference.

Advanced Micro has picked up about five percentage points of market share over the past year, nearly all of that from Intel, according to Mercury Research.  Today, A.M.D.’s overall share is about 21 percent, to Intel’s 74 percent, and at the analyst meeting Mr. Ruiz said the goal was to have a 30 percent share by 2008.

Mr. Hester said A.M.D.’s road map for new products had not changed much since his arrival.  Mostly he has focused on improving the way employees manage projects and pushing them to develop multiple designs at one time.  He said he also emphasized cooperation inside development teams, rather than having teams compete for attention.

The competitive situation has helped with this.  “Being the underdog creates a culture of cooperation,” Mr. Hester said.

 

For the full story, see: 

LAURIE J. FLYNN.  "Jumping at the Chance to Fire Away in the Chip War."  The New York Times (Weds., July 19, 2006):  C7. 

 

(Note:  the online version of the article has a different title, viz., "A.M.D. Seeks to Gain in Its Rivalry With Intel.")

Tom Peters: Over-the-Top Schumpeterian


Source of book image:  http://www.amazon.com/gp/product/customer-reviews/078949647X/ref=cm_cr_dp_2_1/104-2835260-2878345?ie=UTF8&customer-reviews.sort%5Fby=-SubmissionDate&n=283155

 

Tom Peters became famous as the co-author of the business classic In Search of Excellence (1982).  His Re-imagine! is exuberant, optimistic, exaggerated, and stylistically over-the-top.  I find it fun, bracing, entertaining, and sometimes edifying.  If you like the prose of The Cluetrain Manifesto and Gilder’s Telecosm, then you may also like Re-imagine!

Here is an early, very brief passage: 


(p. 9)  My overall vision, in brief:  Business is cool. It’s about Creativity and Invention and Growth and Service.  It’s about Adam Smith’s "hidden hand."  And Nobel laureate Frederick Hayek’s "spontaneous discovery process."  And economist Joseph Schumpeter’s "gales of creative destruction."  At its best, it’s about building things that make life less burdensome than it was in medieval times.  About getting us beyond—far, far, far beyond—the quasi-slavery of the Middle Ages, the indentured servitude of the first 150 years of the Industrial Revolution, and the cubicle slavery of the last three-quarters of a century. 

Yes, business is cool.

(Or at least it can be.)

 

The citation to the book is:

Peters, Tom. Re-Imagine! London: DK, 2003.

(Note:  the italics in the above passage appears that way in the original.)


Environmental Bureaucrats Ignore Local Knowledge


  Source of book image:  http://yalepress.yale.edu/yupbooks/book.asp?isbn=0300106211

 

From a useful review of a book on environmental policy:


(p. D8) The striking aspect of his new book is the story he tells of his own journey from supporter to critic of the Spaceship Earth theory of environmental law.  His first step toward disenchantment was seeing, as an NRDC lawyer, the EPA’s personnel up close.  "The EPA had not come from Starfleet Academy," he notes, "but rather was an amalgam of the federal government’s preexisting environmental programs," then part of the Department of Health, Education and Welfare.  In short, the bureaucrats were real people with real incentives, just like politicians and voters—but unanswerable to the public.


The next educational step, for him, was the decision to buy a farm in upstate New York.  Mr. Schoenbrod was surprised by the wisdom of his rural neighbors.  He movingly describes how a local logger changed his mind about forestry practices by showing him, among much else, that sometimes cutting down particular trees can benefit the forest.  (It sounds like a simple observation, but it is the kind of thing that bureaucrats, with their sweeping mandates, often don’t allow for.)  Mr. Schoenbrod also looks at the local reaction to a number of environmental decisions, such as the EPA’s ordered dredging of the Hudson River because of the small risk of PCBs.  The intent was to protect the health of local communities, but upstate landowners opposed the dredging by a ratio of more than 2 to 1.

For the full review, see: 

John Berlau.  "Bookshelf; A Law Unto Themselves."  The Wall Street Journal  (Thurs.,  August 18, 2005):  D8.

 

The full reference to the Schoenbrod book:

Schoenbrod, David.  Saving Our Environment from Washington:  How Congress Grabs Power, Shirks Responsibility, and Shortchanges the People. Yale University Press, 2005.


Job Hopping May Aid Technological Experimentation

When employees jump from company to company, they take their knowledge with them.  ”The innovation from one firm will tend to bleed over into other firms,” Professor Rebitzer explained.  For a given company, ”it’s hard to capture the returns on your innovation,” he went on.  ”From an economics perspective, that should hamper innovation.”

He found a possible answer to the puzzle in the work of two management scholars, Carliss Y. Baldwin and Kim B. Clark.  In their book ”Design Rules:  The Power of Modularity” (MIT Press, 2000), they argued that when there is a lot of technological uncertainty, the fastest way to find the best solution is to permit lots of independent experiments.  That requires modular designs rather than tightly integrated systems.

”By having a lot of modular experimenters, you can take the best, which will be a lot better than the average,” Professor Rebitzer said.  Employee mobility may encourage productive innovation, as people quickly move to whichever company comes up with the best new technology.

. . .

To Professor Rebitzer’s surprise (though not his co-authors’), it turns out that Silicon Valley employees really do move around more often than other people.  The researchers looked at job changes by male college graduates from 1994 to 2001.  During that period, an average of 2.41 percent of respondents changed jobs in any given month.

But, they write, ”living in Silicon Valley increases the rate of employer-to-employer job change by 0.8 percentage point.”

”This effect is both statistically and behaviorally significant — suggesting employer-to-employer mobility rates are 40 percent higher than the sample average.”

 

For the full commentary, see: 

VIRGINIA POSTREL.  "ECONOMIC SCENE; In Silicon Valley, Job Hopping Contributes to Innovation."  The New York Times  (Thursday, December 1, 2005):  C4.

 

A PDF of the paper by Rebitzer and colleagues is downloadable at:    http://www.federalreserve.gov/Pubs/feds/2005/200511/200511abs.html

 

The book Postrel praises, is:

Source of book image:  http://www.amazon.com/gp/product/customer-reviews/0262024667/104-2835260-2878345?redirect=true