Free Markets – Page 29 – artdiamondblog.com

New Farm Bill Is Sweet for Sugar Industry, but Sour for Sugar Consumers

"Sugar being processed at the Louisiana Sugar Cooperative mill in St. Martinville, La." Source of caption and photo: online version of NYT article quoted and cited below.

(p. C1) A little-noticed provision in the new farm bill working its way through Congress would oblige the Agriculture Department to buy surplus domestic sugar caused by the expected influx of Mexican sugar next year. Then the government would sell it, most likely at a steep discount, to ethanol producers to add to their fermentation tanks. The Bush administration is fighting the measure.

Sugar producers say the cost would be relatively low and the plan would help keep prices at a level they consider fair. As a side benefit, the deal would allow the nation to produce more ethanol to mix with gasoline, displacing some foreign oil, they say.

But ethanol producers are unenthused. And the plan is drawing fire from opponents of agricultural subsidies and from longtime critics of the sugar in- (p. C4) dustry, who complain that producers already have one of the best deals in American agriculture.

“It’s a tax burden without a benefit that distorts both the ethanol market and the food-ingredient market,” said Richard E. Pasco, counsel for the Sweetener Users Association, a lobby group for food companies that use sugar. “And guess who will pay the price? Taxpayers and consumers.”

. . .

The measure would be grafted onto an existing sugar policy so complex that even many farmers have trouble understanding it. The government limits the supply of sugar through production quotas and import restrictions, and it uses financial mechanisms to set an effective price floor.

The system does not cost taxpayers money directly, a point of pride for the industry. But it costs consumers money in the form of higher sugar prices. The system has been subjected to withering criticism for decades, but the sugar lobby has clout on Capitol Hill. Sugar producers donated $2.7 million in campaign contributions to House and Senate incumbents in 2006, more than any other group of food growers, according to the Center for Responsive Politics, a Washington group.

The new farm bill would retain much of the existing system, which sugar producers defend on the ground that virtually every country with a domestic sugar industry has strong protections. But it would add more guarantees, including one that would assure American producers 85 percent of the market no matter how much sugar comes in from abroad.

For the full story, see:

CLIFFORD KRAUSS. "Seeing Sugar’s Future in Fuel." The New York Times (Thurs., October 18, 2007): C1 & C4.

(Note: ellipsis added.)

Source of graphic: online version of NYT article cited above.

Hong Kong Dim Sum Lovers Rebuke Government

"Wong Yuen enjoying breakfast at a Hong Kong restaurant. The government, he says, "shouldn’t be telling anyone how dim sum should be served."" Source of caption and photo: online version of the NYT article quoted and cited below.

Longtime dim sum lovers are indignant.

"The government is putting its thumb on every part of citizens’ lives, and it shouldn’t be telling anyone how dim sum should be served," said Wong Yuen, a retired mechanic and truck driver who says he has eaten dim sum every morning for the last two decades. "People can make their own decisions. If it’s unhealthy, they can eat less. They don’t need the government to tell them."

For the full story, see:

KEITH BRADSHER. "HONG KONG JOURNAL; Dim Sum Under Assault, and Devotees Say ‘Hands Off’." The New York Times (Thurs., April 28, 2005): A4.

Incentives for Organ Donations Would Save Lives

Sally Satel is a medical doctor and a resident scholar at the Amerrican Enterprise Institute. Source of photo: http://www.aei.org/publications/filter.all,pubID.25785/pub_detail.asp

(p. A12) At the annual meeting of The American Society of Transplant Surgeons this winter a straw poll revealed that 80 to 85% were in favor of studying incentives for living donors, according to society president Arthur Matas. In 2003, the American Medical Association testified on behalf of legislation that would have permitted pilot studies of incentives for deceased organs.

The public seems receptive as well, according to a new Gallup poll on attitudes toward donation of organs after death. The most striking results were among 18 to 34 year olds wherein an impressive 34% said that incentives would make them "more likely" to donate while 6% said less likely. . . .

. . .

The idea of combining organ donation with material gain can make people queasy. Yet the mix of financial and humanitarian motives is commonplace. No one objects, for example, to a tax credit for charitable contributions–a financial incentive to complement the "pure" motive of giving to others. The great teachers who enlighten us and the doctors who heal us inspire no less gratitude because they are paid. An increase in the supply of kidneys will ameliorate suffering and prevent needless death. This is more important than whether an organ has been given freely or for material gain. . . .

For the full commentary, see:

Satel, Sally. "Doing Well By Doing Good." The Wall Street Journal (Fri, March 16 2007): A12.

(Note: ellipses added.)

“India is Outsourcing Outsourcing”

"Infosys employs workers in Brno, Czech Republic." Source of caption and photo: online version of the NYT article quoted, and cited, below.

(p. A1) MYSORE, India — Thousands of Indians report to Infosys Technologies’ campus here to learn the finer points of programming. Lately, though, packs of foreigners have been roaming the manicured lawns, too.

Many of them are recent American college graduates, and some have even turned down job offers from coveted employers like Google. Instead, they accepted a novel assignment from Infosys, the Indian technology giant: fly here for six months of training, then return home to work in the company’s American back offices.

India is outsourcing outsourcing.

One of the constants of the global economy has been companies moving their tasks — and jobs — to India. But rising wages and a stronger currency here, demands for workers who speak languages other than English, and competition from countries looking to emulate India’s success as a back office — including China, Morocco and Mexico — are challenging that model.

Many executives here acknowledge that outsourcing, having rained most heavily on India, will increasingly sprinkle tasks around the globe. Or, as Ashok Vemuri, an Infosys senior vice president, put it, the future of outsourcing is “to take the work from any part of the world and do it in any part of the world.”

. . .

(p. A14) Such is the new outsourcing: A company in the United States pays an Indian vendor 7,000 miles away to supply it with Mexican engineers working 150 miles south of the United States border.

In Europe, too, companies now hire Infosys to manage back offices in their own backyards. When an American manufacturer, for instance, needed a system to handle bills from multiple vendors supplying its factories in different European countries, it turned to the Indian company. The manufacturer’s different locations scan the invoices and send them to an office of Infosys, where each bill is passed to the right language team. The teams verify the orders and send the payment to the suppliers while logged in to the client’s computer system.

More than a dozen languages are spoken at the Infosys office, which is in Brno, Czech Republic.

For the full story, see:

ANAND GIRIDHARADAS. "Outsourcing Comes Full Circle As India Starts to Export Jobs." The New York Times (Tues., September 25, 2007): A1 & A14.

(Note: the somewhat different title of the online version was: "Outsourcing Works So Well, India Is Sending Jobs Abroad.")

Strong Global Support for Free Markets

Source of table: "World Publics Welcome Global Trade — But Not Immigration." Pew Global Attitudes Project, a project of the PewResearchCenter. Released: 10.04.07 dowloaded from: http://pewglobal.org/reports/display.php?ReportID=258

(p. A10) WASHINGTON, Oct. 4 — Buoyed and battered by globalization, people around the world strongly view international trade as a good thing but harbor growing concerns about its side effects: threats to their cultures, damage to the environment and the challenges posed by immigration, a new survey indicates.

In the Pew Global Attitudes Project survey of people in 46 countries and the Palestinian territories, large majorities everywhere said that trade was a good thing. In countries like Argentina, which recently experienced trade-based growth, the attitude toward trade has become more positive.

But support for trade has decreased in recent years in advanced Western countries, including Germany, Britain, France and Italy — and most sharply in the United States. The number of Americans saying trade is good for the country has dropped by 19 percentage points since 2002, to 59 percent.

“G.D.P. growth hasn’t been as dramatic in these places as in Latin America or Eastern Europe,” said Andrew Kohut, president of the Pew Research Center, referring to gross domestic product, the total value of the goods and services produced in a country. “But worldwide, even though some people are rich and some are poor, support for the basic tenet of capitalism is pretty strong.”

For the full story, see:

BRIAN KNOWLTON. "Globalization, According to the World, Is a Good Thing. Sort Of." The New York Times (Fri., October 5, 2007): A10.

“Merchant Generator” Leads Nuclear Renaissance

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

(p. B1) In a move that could mark the beginning of a nuclear-power revival, a New Jersey-based energy company today plans to submit an application to build and operate two new reactors. The request, the first submitted to the Nuclear Regulatory Commission in 31 years, comes from an unlikely source: NRG Energy Inc., a company that has never before built a nuclear plant.

The application — for a two-reactor addition to the company’s existing South Texas nuclear station — could offer the first full test of the nuclear agency’s new licensing process, which has been under development since the 1980s. The new process allows companies to submit a single application for a construction permit and conditional operating license, eliminating the risk that a firm could build a plant but not be allowed to run it.

. . .

(p. B2) . . . , the industry has regained momentum, partly because other forms of power generation have continued to show significant flaws. Coal-fired plants undermine efforts to combat global warming. Many natural-gas-fired plants rely on a fuel with volatile prices. And renewable energy mostly comes from intermittent forces like wind, rain and sunlight.

This first application comes from a somewhat unlikely source; NRG is a so-called "merchant generator," a company that makes electricity and sells it on the open market. NRG has never built a nuclear plant, and because it doesn’t own a utility, has no ratepayers to whom it could bill the estimated $5.5 billion to $6 billion expense.

"We’re like the uncola," says David Crane, NRG chief executive in Princeton, N.J.

. . .

So far, it appears merchant generators think Texas provides the most promising market. Deregulation in that state has resulted in a sharp run up in wholesale power prices since 2004. A recent decision by Dallas-based TXU to abandon efforts to build eight coal-fired plants could result in shrinking electricity reserves in the coming years, creating an environment receptive to operators looking to bring large units online and sell such units’ full output.

For the full story, see:

REBECCA SMITH. "Nuclear Energy’s Second Act? Bid to Build Two New Reactors In Texas May Mark Resurgence; NRC Gears Up for Many More." The Wall Street Journal (Tues., September 25, 2007): B1 & B2.

(Note: ellipses added.)

Pulling Teeth Slowly

Source of book image: http://mitpress.mit.edu/images/products/books/0262113023-f30.jpg

Many years ago, I read János Kornai’s The Road to the Free Market, which gave Kornai’s advice on how Eastern Europe could best make the transition from communism to the free market. What I remember most from the book, is his discussion of whether it is more humane for the transition to be quick or gradual. He answers the question by asking another: if you need to have a tooth pulled, is it more humane for it to be pulled quickly or gradually?

(p. B15) . . ., Mr. Kornai’s books and lectures in Europe, North America and Asia established him as one of the leading scholars of socialist economics and an expert on the difficult transitions that many countries face when they move from socialism to a more democratic and capitalist system. . . .

At one point in 1974, under the more relaxed rule of János Kádár, when Hungary was the "most cheerful barrack in the camp," Mr. Kornai and his wife decided to build their own home. Over the course of several months, they personally confronted the corruption, endemic shortages and shoddy construction materials that were so common in Eastern Europe. A year later, on a trip to India, Mr. Kornai was faced by idealistic young Maoists whose concern for the desperately poor reinforced their support for socialism. Mr. Kornai responded to them by arguing, as he puts it here, that "rationing systems that spread misery equally may assuage feelings of injustice for a while, but they will not solve anything."

For the full review, see:

JOSHUA RUBENSTEIN. "BOOKS; Critic Behind the Curtain." The Wall Street Journal (Tues., January 30, 2007): B15.

(Note: ellipses added.)

The book reviewed, is:

János Kornai. By Force of Thought. (MIT Press, 461 pages, $40)

The earlier book by Kornai, that I read and liked, is:

Kornai, Janos. The Road to a Free Economy: Shifting from a Socialist System, the Example of Hungary. New York: W.W. Norton, 1990.

United States Cotton Subsidies Hurt Poor African Farmers

Dan Sumner did his dissertation many years ago under T.W. Schultz, a great economist, and a great human being. (Dan was a friend of mine in grad school–we were members of a club that gathered once a month to discuss the works of Bertrand Russell.)

Eliminating billions of dollars in federal subsidies to American cotton growers each year would reduce American cotton production and exports, raise world prices by about 10 percent and modestly improve the incomes of millions of poor cotton farmers in Africa, according to a new study by Oxfam, the aid group.

Agricultural economists at the University of California, Davis, who conducted the study for Oxfam, found that a typical farm family of 10 in Chad, Benin, Burkina Faso or Mali — Africa’s major cotton producers — that now earns $2,000 a year would have an extra $46 to $114 a year to spend if American subsidies were removed.

“Fifty to a hundred bucks is a lot of money to these people,” said Daniel Sumner, chairman of the Department of Agricultural and Resource Economics at the university. “It’s not right to think that changing U.S. subsidies will turn very poor people into middle-class households by our standards. That’s a generational process. But it’s money in their pocket.”

. . .

Dani Rodrik, an economist at Harvard who is skeptical of the importance of reduced agricultural subsidies, said he found Oxfam’s new estimates credible, but said the gains forecast were relatively small. . . .

. . .

But the authors of the report said that removing American subsidies would permanently shift the price of cotton upward, with prices subsequently fluctuating around a higher average.

For the full story, see:

CELIA W. DUGGER. "Oxfam Suggests Benefit in Africa if U.S. Cuts Cotton Subsidies." The New York Times (Thurs., June 21, 2007): A12.

(Note: ellipses added.)

Creative Entrepreneurship Helps U.S. Thrive in Globalization’s “Invisible Competition”

The passage below is an excerpt of a WSJ summary of an article in the Autumn 2007 issue of The Wilson Quarterly.

Tyler Cowen, an economist at George Mason University, says many U.S. accomplishments stem from Americans’ ability to thrive in competitive environments. . . .

Mr. Cowen believes that the U.S. is particularly well-suited to the type of competition fostered by globalization, which he calls "invisible competition." Rivals in business, romance and life now compete anonymously and from a distance. Programmers compete with computer professionals across the ocean. Dating Web sites pit anonymous strangers against one other. Many American qualities suit the distinct challenges posed by invisible competition, says Mr. Cowen. A tradition of creative entrepreneurship is especially useful, since invisible competitors don’t have the same motivating power as rivals in the next cubicle or on the next block.

For the full summary, see:

"Informed Reader; ECONOMICS Divergent Views on Competition in the U.S." The Wall Street Journal (Tues., October 9, 2007): B14.

(Note: ellipsis added.)

Business Should Stop Apologizing for Creating Wealth

Source of book image: http://hoeiboei.web-log.nl/photos/uncategorized/atlasshrugged.jpg

David Kelley’s op-ed piece, excerpted below, was published in the WSJ on October 10, 2007, the 50th anniversary of the publication of Ayn Rand’s greatest novel.

Fifty years ago today Ayn Rand published her magnum opus, "Atlas Shrugged." It’s an enduringly popular novel — all 1,168 pages of it — with some 150,000 new copies still sold each year in bookstores alone. And it’s always had a special appeal for people in business. The reasons, at least on the surface, are obvious enough.

Businessmen are favorite villains in popular media, routinely featured as polluters, crooks and murderers in network TV dramas and first-run movies, not to mention novels. Oil company CEOs are hauled before congressional committees whenever fuel prices rise, to be harangued and publicly shamed for the sin of high profits. Genuine cases of wrongdoing like Enron set off witch hunts that drag in prominent achievers like Frank Quattrone and Martha Stewart.

By contrast, the heroes in "Atlas Shrugged" are businessmen — and women. Rand imbues them with heroic, larger-than-life stature in the Romantic mold, for their courage, integrity and ability to create wealth. They are not the exploiters but the exploited: victims of parasites and predators who want to wrap the producers in regulatory chains and expropriate their wealth.

. . .

. . . At a crucial point in the novel, the industrialist Hank Rearden is on trial for violating an arbitrary economic regulation. Instead of apologizing for his pursuit of profit or seeking mercy on the basis of philanthropy, he says, "I work for nothing but my own profit — which I make by selling a product they need to men who are willing and able to buy it. I do not produce it for their benefit at the expense of mine, and they do not buy it for my benefit at the expense of theirs; I do not sacrifice my interests to them nor do they sacrifice theirs to me; we deal as equals by mutual consent to mutual advantage — and I am proud of every penny that I have earned in this manner…"

We will know the lesson of "Atlas Shrugged" has been learned when business people, facing accusers in Congress or the media, stand up like Rearden for their right to produce and trade freely, when they take pride in their profits and stop apologizing for creating wealth.

For the full commentary/review, see:

DAVID KELLEY. "Capitalist Heroes." The Wall Street Journal (Weds., October 10, 2007): A21.

(Note: ellipsis in Rearden quote was in original; the other two ellipses were added.)

Good Democracies and Bad Democracies

A street demonstration in Ukraine’s December 2004 democratic revolution. Source of photo: online version of the NYT article cited below.

Democracy is neither a necessary, nor a sufficient, condition for having free markets. At best, we can argue that in the long run, liberal democracies may be more likely to sustain free market economies.

. . . , as the free market and autocrats gained power in the Caucasus, Central Asia, Latin America and Russia, the initial optimism about democracy’s sure-footed march faltered. Some scholars pointed out that the American experience, where democracy and capitalism arose at the same time, was not so much a model for the rest of the world as an anomaly. “Capitalism came before democracy essentially everywhere, except in this country, where they started at the same time,” said Bruce R. Scott, an economist at Harvard Business School who is finishing a book titled “Capitalism, Democracy and Development.”

“In the rest of the world, it took 100, 200, 300 years before they got to where they could manage a democracy,” Mr. Scott said. A big mistake, he said, was assuming that “all you had to have was a constitution and an election and you had a democracy; that was really stupid.”

Joseph E. Stiglitz, a Nobel laureate now at Columbia University, agrees that one of the biggest changes since the early 1990s is an appreciation of the complexity and limits of democracy.

As more fledgling democracies fail, various theories have surfaced to explain the appearance of democracy and elections without real freedom.

For the full commentary, see:

PATRICIA COHEN. "POLITICAL MEMO; An Unexpected Odd Couple: Free Markets and Freedom." The New York Times (Thurs., June 14, 2007): A4.

(Note: ellipsis added.)