Economics – Page 257 – artdiamondblog.com

Foreign Aid Is Harmful to African Countries: More on Why Africa is Poor

Source of book image: online version of WSJ article cited below.

As Robert Calderisi makes clear in "The Trouble With Africa," foreign aid is usually mismanaged, wasted or simply diverted to various precincts of the continent’s busy kleptocracies, subverting the evolution of normal markets.

Africa is by no means the only region in the world where corruption seems endemic. Paul Wolfowitz, the head of the World Bank, addressed the problem of corruption on a trip to Indonesia earlier this year. Even building a new baseball stadium in the Bronx can involve community-outreach efforts that might better be called payoffs. But Africa seems to find it especially difficult to set up a legal system that can enforce contracts and compel transparency.

Mr. Calderisi says more explicitly than anyone — except perhaps George B.N. Ayittey and the late British economist P.T. Bauer — that foreign aid is almost always harmful to the African counties that receive it. The fault, he notes, is not in the stars but in the behavior of Africans themselves, especially the leaders who have pocketed so much of the money intended for their citizens.

For the full review, see:

Roger Kaplan. "Bookmarks." Wall Street Journal (Fri., June 2, 2006): W7.

The full reference to the Calderisi book is:

Calderisi, Robert. The Trouble with Africa. Palgrave Macmillan, 2006. (249 pages, $24.95)

Government Paid 34 Cents to Collect a 15 Cent Toll

The 157-mile Indiana Toll Road had lost money five of the last seven years. A principal reason was its antique pricing; tolls had not changed since 1985 and were far below what comparable American toll ways charged.

As a private citizen, I had always been intrigued to stop at a concrete booth and fish out a dime and a nickel to pay the 15-cent toll at Gary. As governor, I asked, ”What does it cost us to collect a toll?” This being government, no one knew, but after a few days of calculation, the answer came: ”About 34 cents, we think.” I said, only half in jest, that we should just go to the honor system and we’d come out way ahead.

Why would a losing enterprise with an underpriced product drift on in that way? Because it was run by politicians, who are rarely businesslike and deathly afraid to annoy anyone. So the state lost money on the road, postponed repairs and expansions and failed to install the electronic technology that makes toll ways elsewhere faster, more convenient and more efficient.

Just as many business units are more valuable if separated from their conglomerate parent, an asset like a highway can be worth vastly more under different management. When we offered our road for long-term lease, we received a high bid of $3.8 billion, cash, from Macquarie-Cintra, an Australian-Spanish consortium. The highest estimate of the road’s net present value in state hands was less than half that amount, and even that estimate assumed regular toll increases of the kind past governors steadfastly refused to impose. Noting the road’s record of losses, one finance professor remarked, ”If they’d gotten a dollar for it, it would have been a good deal.” Instead, Indiana will soon cash a check that closes a gap most had believed insoluble. Future toll increases will be capped at the level of inflation.

For the full commentary, see:

MITCH DANIELS. "For Whom the Road Tolls." The New York Times (Sat., May 27, 2006): A13.

Government Corn Subsidies Are Inefficient

(p. 19) That the United States is using corn, among the more expensive crops to grow and harvest, to help meet the country’s fuel needs is a testament to the politics underlying ethanol’s 30-year rise to prominence. Brazilian farmers produce ethanol from sugar at a cost roughly 30 percent less.

But in America’s farm belt, politicians have backed the ethanol movement as a way to promote the use of corn, the nation’s most plentiful and heavily subsidized crop. Those generous government subsidies have kept corn prices artificially low — at about $2 a bushel — and encouraged flat-out production by farmers, leading to large surpluses symbolized by golden corn piles towering next to grain silos in Iowa and Illinois.

For the full story, see:

ALEXEI BARRIONUEVO. "THE ENERGY CHALLENGE: A Modern Gold Rush; For Good or Ill, Boom in Ethanol Reshapes Economy of Heartland." The New York Times, Section 1 (Sunday, June 25, 2006): 1 & 19.

Chinese Central Planning Turns Lake Into Desert

Tall grass grows where Qingtu Lake used to be; and the desert encroaches on the grass. Source of image: online version of the NYT article cited below.

(p. A1) An ever-rising tide of sand has claimed grasslands, ponds, lakes and forests, swallowed whole villages and forced tens of thousands of people to flee as it surges south and threatens to leave this ancient Silk Road greenbelt uninhabitable.

Han Chinese women here cover their heads and faces like Muslims to protect against violent sandstorms. Farmers dig wells down hundreds of feet. If they find water, it is often brackish, even poisonous.

Chinese leaders have vowed to protect Minqin and surrounding towns in Gansu Province. The area divides two deserts, the Badain Jaran and the Tengger, and its precarious state threatens to accelerate the spread of barren wasteland to the heart of China.

The national 937 Project, set up to fight the encroaching desert, estimated in April that 1,500 square miles of land, roughly the size of (p. A14) Rhode Island, is buried each year. Nearly all of north central China, including Beijing, is at risk.

Expanding deserts and a severe drought are also making this a near-record year for dust storms carried east in the jet stream. Sand squalls have blanketed Beijing and other northern cities, leaving a stubborn yellow haze in the air and coating roads, buildings, cars and lungs.

. . .

Government-led cultivation, deforestation, irrigation and reclamation almost certainly contributed to the desert’s advance, which began in the 1950’s and the 1960’s, and has accelerated. Critics warn that some lessons of past engineering fiascoes remained unlearned.

During the ill-fated Great Leap Forward in the late 1950’s, Mao ordered construction of the giant Hongyashan reservoir near Minqin, which diverted the flow of the Shiyang River and runoff from the Qilian Mountains into an irrigation system. It briefly made Minqin’s farmland fertile enough to grow grain.

But Minqin is a desert oasis that gets almost no rainfall. The Shiyang and its offshoots had been its ecological lifeline. With the available water resources monopolized for farming, nearly all other land became a target for the desert.

Today, patches of farmland that cling to irrigation channels are emerald islands in a sea of beige, an agricultural Palm Springs.

Even the irrigated plots risk extinction. Competing reservoirs on upper reaches of the Shiyang reduced its flow so severely by 2004 that the Hongyashan went dry for the first time since its construction in 1959. It was refilled after Beijing ordered an emergency diversion of water from the Yellow River, which now runs dry through much of the year here in its northern reaches.

Local officials, whose promotions in the government and Communist Party hierarchy depend more on increasing economic output than on improving the environment, have tried desperately to preserve Minqin’s farming.

. . .

"This is not a natural disaster — it is man-made," Mr. Chai said. "And unless people study the lesson of Minqin, it will repeat itself clear across China."

For the full story, see:

JOSEPH KAHN. "A Sea of Sand Is Threatening China’s Heart." The New York Times (Thurs., June 8, 2006): A1 & A14.

Women wear headresses and face masks, not out of modesty, but to protect against the sand. Source of photo: online versio of the NYT article cited above.

Close, and distant, maps of the areas effected. Source of maps: online version of the NYT article cited above.

Russians Try to Steal Rocker’s Vacuum Tube Factory

Mike Matthews holding one of the vacuum tubes produced in the Russian factory he owns. Source of photo: online version of the NYT article cited below.

(p. C1) SARATOV, Russia — Mike Matthews, a sound-effects designer and one-time promoter of Jimi Hendrix, bought an unusual Russian factory making vacuum tubes for guitar amplifiers. Now he has encountered a problem increasingly common here: someone is trying to steal his company.

Sharp-elbowed personalities in Russia’s business world are threatening this factory in a case that features accusations of bribery and dark hints of involvement by the agency that used to be the K.G.B.

Though similar to hundreds of such disputes across Russia, this one is resonating around the world, particularly in circles of musicians and fans of high-end audio equipment.

Russia is one of only three countries still making vacuum tubes for use in reproducing music, an aging technology that nonetheless "warms up" the sound of electronic music in audio equipment.

"It’s rock ‘n’ roll versus the mob," Mr. Matthews, 64, said in a telephone interview from New York, where he manages his business distributing the Russian vacuum tubes. "I will not give in to racketeers."

Yet the hostile takeover under way here is not strictly mob-related. It is a dispute peculiar to a country where property rights — whether for large oil companies, car dealerships or this midsize factory — seem always open to renegotiation. It provides a view of the wobbly understanding of ownership that still prevails.

. . .

(p. C4) If the tube factory dies, so will the future of a rock ‘n’ roll sound dating back half a century, the rich grumble of a guitar tube amplifier — think of Jimi Hendrix’s version of "The Star-Spangled Banner" — that musicians say cannot be replicated with modern technology.

"It’s nice and sweet and just pleasing sounding," Peter Stroud, the guitarist for Sheryl Crow, said in a telephone interview from Atlanta. "It’s a smooth, crunchy distortion that just sounds good. It just feels good to play on a tube amp."

He added: "It would be a catastrophe for the music industry if something happened to that plant."

For the full story, see:

ANDREW E. KRAMER. "From Russia, With Dread; American Faces a Truly Hostile Takeover Attempt at His Factory." The New York Times (Tuesday, May 16, 2006): C1 & C4.

The transistor disrupted the vacuum tube, a case that would usually be described as an episode of creative destruction. One secondary lesson from the story above is that there may be a previously unremarked symmetry to the process of disruption. A disruptive technology typically appeals only to a niche in the market, while the incumbent technology dominates the mainstream. But after the disruptive technology improves sufficiently to capture much of the mainstream market, maybe there often will remain a niche market that still prefers the older disruptive technology?

To use Danny DeVito’s example in "Other People’s Money," the car may have disrupted horse-and-buggies. But for some nostalgic "jobs" the horse-and-buggy may still be the better product, so there will likely remain some demand for buggy whips.

To the extent that this phenomenon is significant, it might serve to ease the labor market transition when one technology leapfrogs another.

A vacuum tube used in guitar amplifiers, that was produced in the factory that Mike Matthews owned. Source of photo: online version of the NYT article cited above.

Entrepreneur Risks His Money; Government Risks Yours

George B. Kaiser. Source of photo: http://www.forbes.com/finance/lists/10/2003/LIR.jhtml?passListId=10&passYear=2003&passListType=Person&uniqueId=OXNB&datatype=Person

(p. A1) In 2002, Kathleen Eisbrenner, then an executive at El Paso Corp., spent months trying in vain to find a buyer for the company’s novel technology for importing natural gas.

In February 2003, she left for a vacation in Cancun, convinced that El Paso would be forced to abandon the project. As she sat on the beach one afternoon, she got a call on her cellphone. A colleague had a message from an intermediary, who said he had an "interested buyer," identified only as a "Midwest billionaire."

"It’s Warren Buffett calling," she recalls telling her husband as they clinked pina colada glasses together in celebration. "I was absolutely sure."

But it wasn’t Mr. Buffett. It was another billionaire named George B. Kaiser.

. . .

(p. A6) . . . , Ms. Eisbrenner called Nicolas Saverys, the chief executive of Belgium-based Exmar NV. Exmar was building two of the new-style LNG vessels. Ms. Eisbrenner gushed that there was a wealthy buyer. Mr. Saverys was initially skeptical. He changed his mind in late February 2003 after meeting Mr. Kaiser in New York. "At last, I was talking to someone who was putting his own money at stake," he says.

Mr. Saverys sealed the relationship by presenting Mr. Kaiser with a box of pralines from Belgian chocolatier Pierre Marcolini at their second meeting. Mr. Kaiser, an avowed chocoholic, returned the favor a couple of weeks later in Tulsa, giving Mr. Saverys a box of candy made by Christine Joseph, a Tulsa chocolatier who also was born in Belgium.

Convinced that Energy Bridge could work, Mr. Kaiser agreed to take over the business, closing the deal last December. El Paso paid him $75 million; in return, he assumed a $120 million obligation to Exmar. El Paso also agreed to pay to install the underwater pipeline connection that carries the gas from the ship to existing pipelines in the Gulf of Mexico.

The bulk of the $660 million Mr. Kaiser invested went to modify three specially equipped tankers and to charter them for 20 years. If Energy Bridge opens on time in January, it will be at least two and a half years ahead of any new terminals being developed by other energy companies. In addition, civic leaders in Massachusetts and Rhode Island, eager to keep LNG terminals and tankers far from the mainland, are encouraging Mr. Kaiser to build an offshore tanker-based project along the Atlantic coast of the U.S.

Mr. Kaiser, who declined requests for an interview but answered some questions by e-mail, concedes he doesn’t like "taking a risk on an undemonstrated technology." But he says that the chance to import natural gas quickly was "such an obvious and alluring business opportunity" that he felt compelled to get Energy Bridge into operation. He’s betting that new LNG-export facilities expected to come online next year in Egypt, Trinidad and Nigeria will create enough extra supply to provide him with ample LNG.

. . .

He says he acquired Energy Bridge as a challenge. "I don’t gain much pleasure from personal expenditure or recognition," he wrote in an e-mail. "And any gains I make from the enterprise will accrue to charity. But I enjoy problem solving and I want to keep my brain active to forestall (or at least diminish) atrophy."

For the full story, see:

Russell Gold. "Liquid Assets: A Billionaire Takes a Gamble To Fix Natural-Gas Shortage; Mr. Kaiser Plans to Shift Processing Onto Tankers, Avoiding Terrorism Fears; A Deal Sealed With Sweets." The Wall Street Journal (Fri., July 23, 2004): A1 & A6.

(Note: ellipses added.)

Raising Minimum Wage Destroys Job Opportunities

. . . , Ted Kennedy, argues that the minimum wage should be increased because it’s difficult to raise a family with the only breadwinner making the current minimum. It’s a popular claim, but it is flawed, for three reasons.

First, a study by economist David A. Macpherson of Florida State University and Craig Garthwaite of the Employment Policies Institute suggests that only 20% of the workers who would have been directly affected by an earlier $1 increase in California’s minimum wage were supporting a family on a single minimum-wage income. The other 80% were teenagers or adult children living with their parents, adults living alone or dual earners in a married couple.
Second, as economists David Neumark of the Public Policy Institute of California and William Wascher of the Federal Reserve Board show, increases in minimum wages actually redistribute income among poor families by giving wage increases to some and putting others out of work. They estimate that the federal minimum-wage increase of 1996 and 1997 increased the proportion of poor families by one half to one percentage point.
Third, consider the long run. Mr. Neumark and Olena Nizalova have found that even people in their late 20s worked less and earned less the longer they were exposed to a high minimum wage, presumably because the minimum wage destroyed job opportunities early in their work life.

For the full commentary, see:

David R. Henderson. "Rule of Law; Minimum Wage, Minimum Sense." Wall Street Journal (Sat., Feb 25, 2006): A11.

Toffler Fear of Future Changes to “worry that the future will arrive too late”

Source of book image: http://www.randomhouse.com/catalog/display.pperl?isbn=9780307265555

The titular wealth they speak of comes from substituting "ever-more-refined knowledge for the traditional factors of industrial production — land, labor and capital." The United States is producing more stuff than ever with fewer workers. The Tofflers write that only 20 percent of the work force is now in the manufacturing sector, while some 56 percent (and growing) is engaged in what they call "knowledge work" — managerial, financial, sales-related, clerical and professional tasks. Even activities like agriculture have gone high-tech, through biotechnology and increasingly sophisticated use of global-positioning satellites to customize irrigation and fertilization down to the individual acre. Knowledge-based wealth, they argue, is revolutionary not just because it gets more output from fewer inputs. Unlike such physical resources as oil, knowledge can be shared by an infinite number of people, and its value and benefits are generally increased by wider circulation. (A network, after all, is only as powerful as the number of participants.) Just as important, the Third Wave wealth system "demassifies production, markets and society," creating space for unending experimentation, innovation and individuation.

. . .

Despite visionary passages about nanotechnology (the manipulation of objects at the atomic level) and potential moon-based helium energy, "Revolutionary Wealth" is less interesting for its specifics (most of which will be familiar to readers of publications like Wired, The Economist and Red Herring) than for its evidence of how far we’ve come since the 70’s, when politics, economics and culture all seemed as played out as Richard Nixon’s denials of criminality. In "Future Shock," the Tofflers warned that many people "will find it increasingly painful to keep up with the incessant demand for change that characterizes our time. For them, the future will have arrived too soon." These days, from Baghdad to Bangalore to Boston, it seems more likely that people worry that the future will arrive too late. That’s no small change, and it’s one on which the Tofflers have been shining a light for years.

For the full review, see:

NICK GILLESPIE. "The Future Is Now." The New York Times Book Review, Section 7 (Sun., May 14, 2006): 9.

The full reference to the Toffler book is:

Toffler, Alvin, and Heidi Toffler. Revolutionary Wealth. Alfred A. Knopf, 2006.

Middle Class Living Standards Have Risen

(p. C1) ONE of the most influential political books of the last few years has been ”What’s the Matter With Kansas?” by Thomas Frank. Published during the 2004 campaign, it neatly captured the Republicans’ success in using social issues to attract blue-collar Kansans who don’t really benefit from Republican economic policies.

”All they have to show for their Republican loyalty,” Mr. Frank writes, ”are lower wages, more dangerous jobs, dirtier air, a new overlord class that comports itself like King Farouk,” and a culture in ”moral free fall.”

The book was a New York Times best seller for 35 weeks.

But close inspection uncovers a big problem with Mr. Frank’s economic analysis. Wages haven’t been falling in Kansas. Up and down the economic spectrum, they have been higher in the last few years than they were at any point in the 1980’s or 90’s, according to inflation-adjusted numbers from the Economic Policy Institute. The median Kansas worker made $13.43 an hour in 2004, 11 percent more than in 1979, which might help explain why many people don’t vote on bread-and-butter issues anymore.

Now, an 11 percent raise over the course of a generation — which is similar to the national increase — is (p. C10) not especially impressive. It’s certainly smaller than the increase workers received in the 25 years leading up to 1979, and for the last few years, wages have not risen at all. But they did rise during the 1990’s boom, and pretending otherwise does not jibe with most people’s experiences.

More to the point, some other improvements have accelerated recently. In just the last 15 years, the murder rate has been cut almost in half. Many big cities are far more vibrant places than they used to be. About 33 percent of young adults get a bachelor’s degree these days, up from 25 percent in the early 1990’s. The gap between men’s and women’s pay reached its lowest ever last year. The divorce rate has stopped rising.

Many luxuries of earlier generations — owning a three-bedroom house, flying across the country, calling relatives who live overseas — are staples of middle-class life. If all this doesn’t add up to a rise in living standards, I’m not sure what the phrase means.

For the full commentary, see:

DAVID LEONHARDT. "This Glass Is Half Full, Probably More." The New York Times (Wednesday, May 24, 2006): C1 & C10.

An Unintended Use of Shipping Containers

Source of top image: online version of NYT article cited below. Source of bottom image: http://www.2odessa.com/wiki/index.php?title=Seventh-Kilometer_Bazaar

SEVENTH-KILOMETER MARKET, Ukraine, May 16 – Most of the shops here on the airport road outside Odessa are neither buildings nor stalls. They are shipping containers, stacked two high in rows long enough to be called streets, though these are little more than overcrowded alleys.

From their steel gates spills a consumer abundance of inexpensive clothes, shoes and toys, kitchenware, hardware and software, cosmetics, sporting goods and various sundries — virtually everything, in short, in a part of the world that not long ago was used to getting by with virtually nothing.

. . .

”They were growing wheat here when I came,” said Aleksandr Sedov, who once programmed computers for the Soviet space program and now sells, mostly, suspenders and women’s blouses. ”Now this place is called the field of wonders.”

It was also a dump and a garbage incinerator — paved over and torn down, respectively — when the last Soviet city fathers of Odessa expelled the pioneers in a previously unknown free market from the city, banishing them to a 10-acre spot seven kilometers, or about four miles, from the city’s limits, hence the name. That was in 1989, as the Soviet Union itself was unraveling, and what has since emerged is Europe’s most extraordinary and, some say, largest market.

For the full story, see:

Steven Lee Myers. "Seventh-Kilometer Market Journal: From Soviet-Era Flea Market to a Giant Makeshift Mall." The New York Times (Fri., May 19, 2006): A4.

Co-Founder of Home Depot, Funds Ambitious Georgia Aquarium

Scenes from the Georgia Aquarium. Source of photos: online version of the NYT article cited below.

(p. B1) One of its sensations, . . ., is simply its ambition — look what we have gathered and constructed! The Georgia Aquarium is billed as the world’s largest, and one can’t escape statistics of size and number: over 100,000 fish are displayed in five galleries and 60 habitats in the more than 500,000 square foot building; there is a 6.2 million gallon pool in which 1.8 million pounds of salt and minerals have been dissolved since last October and in which two whale sharks — the world’s largest fish — swim, displaying themselves to visitors through acrylic walls that are two feet thick. A stainless steel "commissary" behind the scenes holds 20,000 pounds of frozen food at minus 20 degrees Fahrenheit.

This aquarium is also somewhat unusual in its origins: it is not created by a municipality, or a society of subscribers like those that founded the earliest public zoos. It is almost completely the creation of a single man, Bernard Marcus, co-founder of the Home Depot, as a "gift" to the people of the city in which his company began. He and his wife, Billi, donated $250 million of the $290 million cost.

. . .

(p. B7) The aquarium has been an overwhelming popular success. Even with admission prices of $22.75 for adults ($17 for children), demand has been so great that the building is often sold out. Tickets come with timed entrances, and 290,000 annual passes, costing almost $60 for adults, were purchased before their sale was stopped in January. A million visitors have come since the opening.

For the full story, see:

EDWARD ROTHSTEIN. "Aquarium Review | The Georgia Aquarium A Hundred Thousand Fish, Behind a Pane 2 Feet Thick." The New York Times (Thurs., March 23, 2006): B1 & B7.

(Note: ellipses added.)