Category: Free Markets

“Market Wu” Annoys Maoists and Corrupt Bureaucrats

WuJinnglian2009-10-24.jpg “Wu Jinglian helped to create China’s market economy, and now he is defending it against conservative hardliners in the Communist Party.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) AT 79, Wu Jinglian is considered China’s most famous economist.

In the 1980s and ’90s, he was an adviser to China’s leaders, including Deng Xiaoping. He helped push through some of this country’s earliest market reforms, paving the way for China’s spectacular rise and earning him the nickname “Market Wu.”
Last year, China’s state-controlled media slapped him with a new moniker: spy.
Mr. Wu has not been interrogated, charged or imprisoned. But the fact that a state newspaper, The People’s Daily, among others, was allowed to publish Internet rumors alleging that he had been detained on suspicions of being a spy for the United States hints that he is annoying some very important people in the government.
He denied the allegations, and soon after they were published, China’s cabinet denied that an investigation was under way.
But in a country that often jails critics, Mr. Wu seems to be testing the limits of what Beijing deems permissible. While many economists argue that China’s growth model is flawed, rarely does a prominent Chinese figure, in the government or out, speak with such candor about flaws he sees in China’s leadership.
Mr. Wu — who still holds a research post at an institute affiliated with the State Council, China’s cabinet — has white hair and an amiable face, and he appears frail. But his assessments are often harsh. In books, speeches, interviews and television appearances, he warns that conservative hardliners in the Communist Party have gained influence in the government and are trying to dismantle the market reforms he helped formulate.
He complains that business tycoons and corrupt officials have hijacked the economy and manipulated it for their own ends, a system he calls crony capitalism. He has even called on Beijing to establish a British-style democracy, arguing that political reform is inevitable.
Provocative statements have made him a kind of dissident economist here, and revealed the sharp debates behind the scenes, at the highest levels of the Communist Party, about the direction of China’s half-market, half-socialist economy.
In many ways, it is a continuation of the debate that has been raging for three decades: What role should the government play in China’s hybrid economy?
Mr. Wu says the spy rumors were “dirty tricks” employed by his critics to discredit him.
“I have two enemies,” he said in a recent interview. “The crony capitalists and the Maoists. They will use any means to attack me.”
. . .
(p. 7) In interviews, Mr. Wu says he feels compelled to speak out because conservatives and “old-style Maoists” have been gaining influence in the government since 2004. These groups, he said, are pressing for a return to central planning and placing blame for corruption and social inequality on the very market reforms he championed.
At the same time, Mr. Wu says, corrupt bureaucrats are pushing for the state to take a larger economic role so they can cash in on their positions through payoffs and bribes, as well as by steering business to allies.
“I’m not optimistic about the future,” Mr. Wu said. “The Maoists want to go back to central planning and the cronies want to get richer.”

For the full story, see:
DAVID BARBOZA. “China’s Mr. Wu Keeps Talking.” The New York Times, SundayBusiness Section (Sun., September 26, 2009): 1 & 7.
(Note: ellipsis added.)

WuChinaTimeline2009-10-24.jpgSource of timeline graphic: online version of the NYT article quoted and cited above.

Obama Tire Tariff Hurts Poor

TiresChinese2009-10-29.jpg “A man walks past a tire store in Beijing on Sunday. A new U.S. tariff on Chinese tires could lead to shortages in the lower-cost-tire market segment as retailers scramble to find alternative sources in other countries.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A3) Consumers who buy low-price Chinese tires — the bulk of the tires China exports to the U.S. — will be hit hardest by the new tariff, as shortages in this market segment cause retailers to scramble to find alternative sources in other countries.

The tariffs, which apply to all Chinese tires, will cut off much of the flow of the more than 46 million Chinese tires that came to the U.S. last year, nearly 17% of all tires sold in the country.
The low end of the market will feel the impact of the tariff most, as U.S. manufacturers, who joined the Chinese in opposing the tariffs, have said it isn’t profitable to produce inexpensive tires in domestic plants.
“I think within the next 60 days you’ll see some pretty significant price increases,” said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer and distributor of Chinese tires. He estimates prices for “entry-level” tires could increase 20% to 30%.

For the full story, see:
TIMOTHY AEPPEL. “Tariff on Tires to Cost Consumers; Higher Prices Expected at Market’s Low End, Where China Focuses Its Exports.” The Wall Street Journal (Mon., SEPTEMBER 14, 2009): A3.
(Note: the online version of the article has the date Tues., Sept. 15.)

World Trade Barriers Are Increasing

ProtectionistMeasuresBarGraph2009-10-28.gifThe small dark blue squares indicate the “number of nations that have imposed protectionist measures on each country” and the light blue squares indicate the “number of measures imposed on each category of goods.” Source of quotations in caption and of graph: online version of the WSJ article quoted and cited below.

(p. A5) BRUSSELS — This weekend’s U.S.-China trade skirmish is just the tip of a coming protectionist iceberg, according to a report released Monday by Global Trade Alert, a team of trade analysts backed by independent think tanks, the World Bank and the U.K. government.
A report by the World Trade Organization, backed by its 153 members and also released Monday, found “slippage” in promises to abstain from protectionism, but drew less dramatic conclusions.
Governments have planned 130 protectionist measures that have yet to be implemented, according to the GTA’s research. These include state aid funds, higher tariffs, immigration restrictions and export subsidies.
. . .
According to the GTA report, the number of discriminatory trade laws outnumbers liberalizing trade laws by six to one. Governments are applying protectionist measures at the rate of 60 per quarter. More than 90% of goods traded in the world have been affected by some sort of protectionist measure.

For the full story, see:
JOHN W. MILLER. “Protectionist Measures Expected to Rise, Report Warns.” The Wall Street Journal (Tues., SEPTEMBER 15, 2009): A5.
(Note: ellipsis added.)

Samuel Johnson Saw Benefits of Free Markets

(p. A19) In “A Journey to the Western Islands of Scotland,” an account of his travels with James Boswell through the Hebrides in 1773, Johnson vividly described the desolation of a feudal land, untouched by commercial exuberance. He was struck by the utter hopelessness in a country where money was largely unknown, and the lack of basic material improvements–the windows, he noticed, did not operate on hinges, but had to be held up by hand, making the houses unbearably stuffy.

He was even more struck by the contrast between places where markets thrived and those where they didn’t. In Old Aberdeen, where “commerce was yet unstudied,” Johnson found nothing but decay, whereas New Aberdeen, which “has all the bustle of prosperous trade,” was beautiful, opulent, and promised to be “very lasting.”
Johnson also understood that what Smith would later call the division of labor was instrumental for human happiness and progress. “The Adventurer 67,” which he wrote in 1753 at the height of a commercial boom (and 23 years before Smith published “The Wealth of Nations”), delights in the sheer number of occupations available in a commercial capital like London.

For the full commentary, see:
ELIZA GRAY. “Samuel Johnson and the Virtue of Capitalism; The great 18th century writer on commerce and human happiness.” The Wall Street Journal (Fri., Sept. 11, 2009): A19.

Dutch Were Too Busy Trading to Build a Church

NewAmsterdamPrint2009-09-26.jpg “Print of New Amsterdam by Joost Hartgers, 1626.” Source of caption and image: online version of the WSJ article quoted and cited below.

(p. A15) The financial collapse of 2008 and the Great Recession have had, not surprisingly, a major adverse impact on the economy of the country’s financial center, New York City. There have been over 40,000 job losses in the financial community alone and both city and state budgets are deeply dependent on tax revenues from this one industry. There has been much talk that New York might take years to recover–if, indeed, it ever can.

But if one looks at the history of New York there is reason for much optimism. The city’s whole raison d’être since its earliest days explains why.
The Puritans in New England, the Quakers in Pennsylvania, and the Catholics in Maryland first and foremost came to what would be the United States to find the freedom to worship God as they saw fit. The Dutch–who invented many aspects of modern capitalism and became immensely rich in the process–came to Manhattan to make money. And they didn’t much care who else came to do the same. Indeed, they were so busy trading beaver pelts they didn’t even get around to building a church for 17 years.
Twenty years after the Dutch arrived, the settlement at the end of Manhattan had only about a thousand inhabitants. But it was already so cosmopolitan that a French priest heard no fewer than 18 languages being spoken on its streets.
. . .
Deep within the heart of this vast metropolis–like the child within the adult–there is still to be found that little hustly-bustly, live-and-let-live, let’s-make-a-deal Dutch village. And the creation of wealth is still the city’s dearest love.

For the full commentary, see:
JOHN STEELE GORDON. “Opinion; Don’t Bet Against New York; The financial crisis has been devastating, but the city has reinvented itself many times before..” The Wall Street Journal (Sat., Sept. 19, 2009): A15.
(Note: ellipsis added.)

Doctors Seek to Regulate Retail Health Clinic Competitors

NursePractitioner2009-09-26.jpg“A nurse practitioner with a patient at a retail clinic in Wilmington, Del.” Source of caption and photo: online version of the WSJ article quoted and cited below.

Clayton Christensen, in a chapter of Seeing What’s Next, and at greater length in The Innovator’s Prescription, has persuasively advocated the evolution of nurse practitioners and retail health clinics as disruptive innovations that have the potential to improve the quality and reduce the costs of health care.
An obstacle to the realization of Christensen’s vision would be government regulation demanded by health care incumbents who would rather not have to compete with nurse practitioners and retail health clinics. See below for more:

(p. B1) Retail health clinics are adding treatments for chronic diseases such as asthma to their repertoire, hoping to find steadier revenue, but putting the clinics into greater competition with doctors’ groups and hospitals.

Walgreen Co.’s Take Care retail clinic recently started a pilot program in Tampa and Orlando offering injected and infused drugs for asthma and osteoporosis to Medicare patients. At some MinuteClinics run by CVS Caremark Corp., nurse practitioners now counsel teenagers about acne, recommend over-the-counter products and sometimes prescribe antibiotics.
. . .
As part of their efforts to halt losses at the clinics, the chains are lobbying for more insurance coverage, and angling for a place in pending health-care reform legislation, while trying to temper calls for regulations.
. . .
(p. B2) But such moves are raising the ire of physicians’ groups that see the in-store clinics as inappropriate venues for treating complex illnesses. In May, the Massachusetts Medical Society urged its members to press insurance companies on co-payments to eliminate any financial incentive to use retail clinics.
. . .
The clinics are helping alter the practice of medicine. Doctors are expanding office hours to evenings and weekends. Hospitals are opening more urgent-care centers to treat relatively minor health problems.

For the full story, see:
AMY MERRICK. “Retail Health Clinics Move to Treat Complex Illnesses, Rankling Doctors.” The Wall Street Journal (Thurs., SEPTEMBER 10, 2009): B1-B2.
(Note: ellipses added.)

A brief commentary by Christensen (and Hwang) on these issues, can be found at:

CLAYTON CHRISTENSEN and JASON HWANG. “How CEOs Can Help Fix Health Care.” The Wall Street Journal (Tues., July 28, 2009).

For the full account, see:
Christensen, Clayton M., Jerome H. Grossman, and Jason Hwang. The Innovator’s Prescription: A Disruptive Solution for Health Care. New York: NY: McGraw-Hill, 2008.

RetailHealthClinicGraph2009-09-26.gif

Source of graph: online version of the WSJ article quoted and cited above.

Obama Should Remember that a Tariff War Helped Create the Great Depression

As an economics graduate student at Harvard, David Rockefeller was a student of Joseph Schumpeter.
After Schumpeter died, his wife spent the last few years of her life working to pull together the disorganized, but nearly completed, manuscript of Schumpeter’s magnificent History of Economic Analysis. In her preface, Mrs. Schumpeter writes: “It seems appropriate at this point to acknowledge gratefully a gift from David Rockefeller and a grant from the Rockefeller Foundation which made possible much of the secretarial and editorial assistance outlined above.” (p. x)
Below I quote a few passages from David Rockefeller’s reaction to Obama’s imposition of tariffs on Chinese automobile tires:

(p. A21) AS if he needed another policy concern to distract him from the health care debate, President Obama now finds himself embroiled in a quarrel with China over his imposition of a steep tariff on automobile tires from that country that is to take effect this week. The Chinese have responded by threatening to impose higher tariffs on American chicken. This may seem like a petty dispute, but the controversy could endanger the global economic recovery if the underlying issue — the rise in protectionism –is not resolved quickly and forcefully. Perhaps Washington has justification for increasing tariffs in this particular case, but in general it sets a bad precedent.

President Obama should resist the desire to accommodate the forces of protectionism from unions, environmentalists and cable television pundits alike. Giving in to their demands may be politically astute, but it would send the wrong message to our trading partners and, more important, inflict damage on the already weakened American economy. Despite the recent rally in the stock market, the next two or three years could still be very painful.
I lived through the stock market crash of 1929 and the Great Depression that followed it, and I saw that there was no direct cause and effect relationship. Rather, there were specific governmental actions and equally important failures to act, often driven by political expediency, that brought on the Depression and determined its severity and longevity.
One critical mistake was America’s retreat from international trade. This not only helped to turn the 1929 stock market decline into a depression, it also chipped away at trust between nations, paving the way for World War II.

For the full commentary, see:
DAVID ROCKEFELLER. “Present at the Trade Wars.” The New York Times (Mon., September 21, 2009): A21.
(Note: the online version of the commentary is dated Sun., Sept. 20.)

Free-Market German Aristocrat Receives Ovation for Opposing Bailout

(p. A7) BERLIN — Could the heir apparent to Chancellor Angela Merkel be a wealthy, handsome 37-year-old baron who loves rock ‘n’ roll?

The baron, Karl-Theodor zu Guttenberg, vaulted to prominence this year when he took over the often dull job of economics minister in the midst of the financial crisis. His independent stand on a thorny economic matter earned him the respect of voters.
. . .

It was his independent streak that earned him the respect of voters, rather than just their curiosity. Mr. Guttenberg broke ranks with Mrs. Merkel over how to handle the troubled German automaker Opel. Mrs. Merkel supported a consortium led by Magna International, a Canadian auto parts maker, and Sberbank, a Russian bank. Mr. Guttenberg favored bankruptcy, and even offered to resign just months into his tenure.
He lost the battle, but gained credibility with voters — an important commodity with a disenchanted electorate that has largely ignored the coming vote. At the big kickoff campaign rally in Düsseldorf for Mrs. Merkel’s conservative Christian Democratic Union, Mr. Guttenberg was the only politician to receive a spontaneous ovation from the crowd of 9,000.

For the full story, see:
NICHOLAS KULISH and JUDY DEMPSEY. “Aristocrat’s Rise Shakes German Doldrums.” The New York Times (Weds., September 22, 2009): A7.
(Note: ellipsis added.)

Increase Health Insurance Competition by Ending Cross-State Ban

(p. A13) How do we get to a competitive market? The tax deduction for employer-provided group insurance, which has nearly destroyed the individual insurance market, is a central culprit. If we don’t have the will to remove it, the deduction could be structured to enhance competition and the right to future insurance. We could restrict the tax deduction to individual, portable, long-term insurance and to the high-deductible plans that people choose with their own money.

More importantly, health care and insurance are overly protected and regulated businesses. We need to allow the same innovation, entry, and competition that has slashed costs elsewhere in our economy. For example, we need to remove regulations such as the ban on cross-state insurance. Think about it. What else aren’t we allowed to purchase in another state?

For the full commentary, see:
JOHN H. COCHRANE . “What to Do About Pre-existing Conditions; Most Americans worry about health coverage if they lose their job and get sick. There is a market solution.” The Wall Street Journal (Fri., AUGUST 14, 2009): A13.

Feds Force Farmers to Let Tons of Cherries Rot

LigonLeonardCherryFarmer2009-09-07.jpg “Leonard Ligon, a farmer near Traverse City, Mich., stands in mounds of tart cherries that he had to dump because of a price-stabilization program. Mr. Ligon says he discarded 72,000 pounds of the crop.” Source of photo and caption: online version of the WSJ article quoted and cited below.

(p. A5) Farmers in Michigan and six other states are harvesting a bumper crop of tart cherries. But the bounty is turning out to be the pits for farmers whose fruit is rotting in orchards instead of bubbling in cherry pies.

Under a Depression-era federal program designed to keep prices from plummeting, tart-cherry farmers are being told by fruit processors to leave up to 40% of their crop unharvested.
“It’s kind of heartbreaking,” said Rob Manigold, a tart-cherry farmer near Traverse City, Mich. Michigan grows about 75% of all the tart cherries in the U.S.
. . .
The tart-cherry industry operates under a government-sanctioned plan called a federal marketing order that dates to 1933. It allows farmers and processors to legally regulate supply to keep prices stable. Other commodities that operate under similar programs include some types of dates, olives and kiwifruit.
. . .
This year, the industry board, a 18-member panel of growers and processors, determined that there were more than enough cherries in the fields to satisfy demand and to replenish the reserves. So the board limited how much processors can put on the market in the U.S. That leaves farmers with cherries they can’t sell and are left to rot.
Bern Kroupa, a 61-year-old fruit farmer outside Traverse City in Michigan’s northern lower peninsula, said this year he is going to let about a quarter of his crop — about 500,000 pounds — rot.
. . .
Leonard Ligon, another tart-cherry grower near Traverse City, Mich., generated a lot of local press last week when he dumped 72,000 pounds of cherries alongside a country road on his farm. “I wanted to make the public aware of the plight of the tart-cherry farmer,” he said. “I could call it a mulch pile.”

For the full story, see:
LAUREN ETTER. “Bumper Cherry Crop Turns Sour; Tons of Unharvested Fruit Rots Under Government Program to Keep Prices Stable.” The Wall Street Journal (Sat., AUGUST 22, 2009): A5.
(Note: ellipses added.)