Category: Free Markets

Communist China Pays World Bank for Higher Ranking in “Doing Business” Report

(p. A1) The World Bank canceled a prominent report rating the business environment of the world’s countries after an investigation concluded that senior bank management pressured staff to alter data affecting the ranking of China and other nations.

The leaders implicated include then World Bank Chief Executive Kristalina Georgieva, now managing director of the International Monetary Fund, and then World Bank President Jim Yong Kim.

The episode is a reputational hit for Ms. Georgieva, who disagreed with the investigators’ conclusions. As leader of the IMF, the lender of last resort to struggling countries around the world, she is in part responsible for managing political pressure from nations seeking to advance their own interests. It was also the latest example of the Chinese government seeking myriad ways to burnish its global standing.

(p. A10) The Doing Business report has been the subject of an external probe into the integrity of the report’s data.

. . .

The World Bank was in the middle of difficult international negotiations to receive a $13 billion capital increase. Despite being the world’s second largest economy, China is the No. 3 shareholder at the World Bank, following the U.S. and Japan, and Beijing was eager to see its power increased as part of a deal for more funding.

In October 2017, Ms. Georgieva convened a meeting of the World Bank’s country director for China, as well as the staff economists that compile Doing Business. She criticized “mismanaging the Bank’s relationship with China and failing to appreciate the importance of the Doing Business report to the country,” according to the investigative report’s summary of the meeting.

. . .

Ultimately, the team identified three data points that could be altered to raise China’s score, the investigative report said. For example, China had passed a law related to secured transactions, such as when someone makes a loan with collateral. The World Bank staff determined it could give China a significant improvement to its score for legal rights, citing the law as the reason.

World Bank employees knew the changes were inappropriate but “a majority of the Doing Business employees with whom we spoke expressed a fear of retaliation,” the investigative report said.

Although the data-gathering process for the 2018 report was finished, the World Bank’s economists reopened the data tables and altered China’s data, the investigative report said. Instead of ranking 85th among the world’s countries, China climbed to 78th due to the alterations.

For the full story, see:

Josh Zumbrun. “World Bank Cancels Report After Investigation.” The Wall Street Journal (Friday, Sept. 17, 2021): A1 & A10.

(Note: the online version of the story has the date September 16, 2021, and has the title “World Bank Cancels Flagship Report After Investigation.”)

Milton Friedman Will Be Vindicated on China

I was lucky to be able to take Milton Friedman’s Price Theory graduate course the last time he taught a full version of it. (I think he taught an abbreviated version a year or two later.) He was, and remains, one of my heroes. He predicted that China’s move to the market would also lead it to more political freedom. I suspect that he will still turn out to be correct, but with a longer delay than he or I thought likely. A dynamic economy depends on innovative entrepreneurship and innovative entrepreneurship depends on freedom of thought and speech. Xi is systematically destroying freedom of thought and speech in China; the house of cards will fall and Milton will be vindicated in the end.

(p. A15) “I predict that China will move increasingly toward political freedom if it continues its successful move to economic freedom.”

So spoke Milton Friedman in 2003. It seemed a good idea at the time, especially after the transformations of the dictatorships in Taiwan and South Korea into messy but functioning democracies.

. . .

Under Mr. Xi, Beijing has carried out genocide against China’s Uyghur minority, threatened Taiwan with invasion, shut down a pro-democracy newspaper in Hong Kong, covered up the origins of Covid-19, and so on. Even so, China’s economy continues to boom—it grew more than 18% in the first quarter from a year earlier—and Friedman now looks to have gotten it colossally wrong about capitalism and freedom.

For the full commentary, see:

William McGurn. “Milton Friedman Wrong About China?” The Wall Street Journal (Tuesday, June 29, 2021): A15.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date June 28, 2021, and has the title “Was Milton Friedman Wrong About China?”)

Rebates to Formulary Middlemen Are a Growing Part of Drug Costs

(p. B14) To actually sell medication, a drugmaker needs to persuade public and private health plans to place their product on the plan’s formulary, which is a list of drugs the plan is willing to purchase. That means paying middlemen rebates and discounts to choose their drug over any other rival treatments. Failure to secure favorable formulary access could mean low sales even for a highly-effective and safe medication..

. . .

“To secure that formulary position costs us more and more every year,” said Adam Gluck, Sanofi’s head of U.S. corporate affairs, in an interview. The company says that the average list price for its insulin products is up 141% since 2012 but that the net price is down 53% over that same period.

It isn’t just Sanofi facing this dynamic. Merck & Co. said last month that its average U.S. sticker price rose 3.1% in 2020 even as its average net price fell slightly. That is a sea change from recent years: In both 2015 and 2016 Merck’s average list price rose by about 10% while the net price realized by the drug giant rose by 5.5%. Nearly half of Merck’s gross sales went out the door to third parties as discounts last year. A decade ago, that tally was around 27%. Other drugmakers like Bristol-Myers Squibb report similarly high spreads between gross and net sales.

For the full commentary, see:

Charley Grant. “Pharma Giants Are Getting Their Pennies Pinched.” The Wall Street Journal (Saturday, March 13, 2021): B14.

(Note: ellipsis added.)

(Note: the online version of the commentary was updated March 12, 2021, and has the title “Pharma Giants Get Their Pennies Pinched on Drug Pricing.”)

Gerardo Guillén García del Barco Wants to Build in Cuba “Without Being Hindered by Bureaucracy”

(p. A10) HAVANA — Car dealerships, book publishing and hedge funds are still prohibited. Bed-and-breakfasts are not. Zoos, scuba diving centers and weapons production remain banned. Veterinary services aren’t.

As Cuba’s Communist government continues its piecemeal expansion of the fledgling private sector, Cubans are carefully parsing a list of the economic activities that the government proposes to keep under its control.

. . .

The new list seems to open major new space for manufacturing. Cubans will now be able to apply for licenses to open cheese, paint and toy factories, for example, though the government has not yet defined the permitted size of such ventures.

While some Cubans hailed the list as an important step forward in the country’s economic liberalization, it left others complaining that the government had not gone far enough.

“It’s messed up,” said Gerardo Guillén García del Barco, 26, an architect in Havana whose profession the government plans to maintain under its sole control. “Every time something appears that looks like a panacea, it ends in nothing.”

“My dream is to do exactly what I’m doing today but within a legal framework,” he said, explaining that he left a government firm and now works freelance without a license. “I want to do my own architecture without being hindered by bureaucracy.”

. . .

Last Saturday [Feb. 6, 2021], in announcing the planned expansion of private economic activity, Marta Elena Feitó, Cuba’s labor and social security minister, said that the changes would “unleash the productive forces” of the population.

For the full story, see:

Ed Augustin and Kirk Semple. “Cubans Study a Shrinking List of Prohibited Private Enterprises.” The New York Times (Friday, February 12, 2021): A10.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story has the date Feb. 11, 2021, and has the title “Cubans Study a Shrinking List of Banned Private Enterprises.”)

Even Alibaba Entrepreneur Jack Ma Cannot Speak His Mind in Communist China

(p. A1) Chinese President Xi Jinping personally made the decision to halt the initial public offering of Ant Group, which would have been the world’s biggest, after controlling shareholder Jack Ma infuriated government leaders, according to Chinese officials with knowledge of the matter.

. . .

In a speech on Oct. 24 [2020], days before the financial-technology giant was set to go public, Mr. Ma cited Mr. Xi’s words in what top government officials saw as an effort to burnish his own image and tarnish that of regulators, these people said.

At the event in Shanghai, Mr. Ma, the country’s richest man, quoted Mr. Xi saying, “Success does not have to come from me.” As a result, the tech executive said, he wanted to help solve China’s financial problems through innovation. Mr. Ma bluntly criticized the government’s increasingly tight financial regulation for holding back technology development, part of a long-running battle between Ant and its overseers.

. . .

During his 21-minute speech, he criticized Beijing’s campaign to control financial risks. “There is no systemic risk in China’s financial system,” he said. “Chinese finance has no system.”

He also took aim at the regulators, saying they “have only focused on risks and overlooked development.” He accused big Chinese banks of harboring a “pawnshop mentality.” That, Mr. Ma said, has “hurt a lot of entrepreneurs.”

His remarks went viral on Chinese social media, where some users applauded Mr. Ma for daring to speak out. In Beijing, though, senior officials were angry, and officials long calling for tighter financial regulation spoke up.

After Mr. Xi decided that Ant’s IPO needed to be halted, financial regulators led by Mr. Liu, the leader’s economic czar, convened on Oct. 31 and mapped out an action plan to take Mr. Ma to task, according to the government officials familiar with the decision-making.

For the full story, see:

Jing Yang and Lingling Wei. “China’s President Personally Scuttled Record Ant IPO.” The Wall Street Journal (Friday, Nov 13, 2020): A1 & A9.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date November 12, 2020, and has the title “China’s President Xi Jinping Personally Scuttled Jack Ma’s Ant IPO.”)

Tariffs Create Incentive to Drink Higher Alcohol Wine

(p. A1) Washington put 25% tariffs on wine from France, Spain, Germany and the U.K. in October 2019 in retaliation for subsidies they made to European aircraft man-(p. A9)ufacturer Airbus SE, arguing they hurt Boeing Co. But it applied only to wine with alcohol content of 14% or less.

What followed was a textbook lesson in tariff economics. Before, America imported about $150 million a year in European wine that exceeded 14% alcohol, Commerce Department data show. In the 12 months since the tariff took effect, that rose to $434 million.

For the full story, see:

Josh Zumbrun. “America Taxed Your Favorite Bordeaux? Try One With More Alcohol.” The Wall Street Journal (Friday, Nov 20, 2020): A1 & A9.

(Note: the online version of the story has the date November 19, 2020, and has the title “The Tale Behind StubHub’s Sale: How Eric Baker Bought Back the Ticket Seller.”)

Federal Sugar Quotas Increase Demand for Corn Syrup, Increasing Suffering from Gout

Corn syrup is a substitute for sugar. Federal sugar import quotas increase the price of sugar. As a result, the demand for corn syrup increases. The result, as affirmed in the article quoted below, is an increase in Americans suffering from gout.

(p. 32) As the British and American historians Roy Porter and George Sebastian Rousseau write in “Gout: The Patrician Malady” (1998), the disease, cast by some as “a quasi-deity born of the union of Bacchus and Venus,” appeared to reach epidemic proportions in 18th-century England as more people attained affluence.

. . .

The disease has not been banished to the past, nor is it any longer the exclusive insignia of rich white men (if it ever really was). From the 1960s to the 1990s, the number of sufferers more than doubled in the United States, and that’s continued to rise.

. . .

According to data collected by the National Health and Nutrition Examination Survey (NHANES), as of 2016, around 9.2 million American adults, 5.9 million men and 3.3 million women, were living with the disease, making up 3.9 percent of the adult population, and another 32.5 million (14.6 percent) exhibited hyperuricemia, elevated levels of uric acid, putting them at risk.

. . .

Some scientists point (p. 34) to the dramatic rise in rates of obesity — from 13.4 percent of adults in 1980 to 42.4 percent in 2017-18, again per the NHANES — since excess weight depresses kidney efficiency, and to the likely not unrelated introduction, in 1967, of high-fructose corn syrup, which can cause the body to produce higher levels of uric acid, and its wholesale embrace in the early 1980s by the American food industry and then the world.

. . .

(p. 35) The disease remains mysterious in its onset. Beyond genetic factors, high-fructose corn syrup poses a greater danger than a lobe of foie gras, cutting across class lines.

For the full story, see:

Ligaya Mishan. “The Disease of Kings.” The New York Times Style Magazine (Sunday, November 15, 2020): 32 & 34-35.

(Note: ellipses added.)

(Note: the online version of the story was updated Nov. 14, 2020, and has the title “Once the Disease of Gluttonous Aristocrats, Gout Is Now Tormenting the Masses.”)

“When I Knew More Thank Hayek” AIER YouTube Video

The American Institute for Economic Research (AIER) premiered on Mon., Jan. 4, 2020, a neat YouTube video they created based on a shortened version of my article “When I Knew More Than Hayek.” [Hayek, Covid & The Use of Knowledge in Society | Kate Wand via @youtube] #Hayek #localknowledge

Water Entrepreneurs in Kathmandu: “The City Depends on Us”

(p. 1) KATHMANDU, Nepal — It had been 11 days since a ruptured valve reduced Kupondole district’s pipeline flow to a dribble, and the phones at Pradeep Tamanz’s tanker business wouldn’t stop ringing.

A Malaysian embassy residence had run perilously low on water, and the diplomats wanted to shower. They’d pay extra for a swift delivery. A coffee processing plant was on the verge of shutting down production after emptying its storage tank. It, too, would shell out whatever amount of money it would take. Across the neighborhood and other parts of the city, the calls were coming in so feverishly that Sanjay, a tanker driver, jokily wondered if he might get carjacked. “This is like liquid gold,” he said, jabbing at his precious cargo, large amounts of which seeped from every hatch. “Maybe more than gold.”

Dashing from filling stations to houses and factories and back, Mr. Tamanz tried to meet demand. His (p. 6) three tanker crews slept in one or two-hour spurts, often in the cramped, refrigerator-sized truck cabins, and kept the tankers on the road for up to 19 hours a day. He fobbed off business to competitors, an unusual practice in the cutthroat world of Kathmandu tanker men, and even sounded out a mechanic about converting a flatbed truck into a new tanker. With fat profits pouring in, the young businessman figured it might soon repay its cost.

But no matter how hard the crews worked or how furiously they pushed their lumbering vehicles over the potholed roads, there was no satisfying the city’s needs. The going was too slow. The water shortage too severe. By the time the pipeline was fully restored, some households had subsisted on nothing but small jerrycans for almost an entire month. “You know it’s not even peak season, but this is what happens here,” Mr. Tamanz said. “Just imagine what things would be like if we didn’t exist?” He trailed off as his phone rang once more.

In Kathmandu, as in much of South Asia and parts of the Middle East, South America and sub-Saharan Africa, these men and their tanker trucks sometimes prevent entire cities from running dry. Without them, millions of households wouldn’t have sufficient water to cook, clean or wash. Or perhaps any at all. And without them, an already deteriorating infrastructure might break down completely, as the tanker men know well. “The city depends on us,” said Maheswar Dahal, a businessman who owns six trucks in Kathmandu’s Jorpati district. “There would be disaster if we didn’t do our work.”

For the full story, see:

Peter Schwartzstein. “Merchants of Thirst.” The New York Times, SundayBusiness Section (Sunday, January 12, 2020): 1 & 6-7.

(Note: the online version of the story was updated on January 13, 2020, and has the title “The Merchants of Thirst.”)

“Publicly Held Companies Will Play the Political Game”

(p. A11) Mr. Chitester was probably the only PBS or NPR station manager who didn’t believe public radio and television should receive subsidies from American taxpayers. But he had a skill in short supply among the pro-capitalist intellectual class: He knew how to popularize free-market ideas, which many thought couldn’t be done on television.

He confesses that he isn’t sure he’d even heard of Friedman when Wallis put the two in touch. But Mr. Chitester says he devoured Friedman’s 1962 book, “Capitalism and Freedom,” and went to meet Milton and his wife, fellow economist and collaborator, Rose, at their San Francisco apartment.

An hour into the conversation, Mr. Chitester brought up a section in the book where Friedman talks about the responsibility of business—also the theme of Friedman’s famous 1970 New York Times essay, “The Social Responsibility of Business Is to Increase Its Profits.” Mr. Chitester described his dilemma: “I said to Milton, based on your philosophy, I shouldn’t be asking companies for money, and if they take your advice, they’re not going to give me any.”

“Bob, don’t worry about it,” Friedman reassured him. “Businessmen don’t like me anyway.” The economist elaborated. “He said private owners—those who own their own companies—they will be sympathetic. But corporations and publicly held companies will play the political game.” In other word, they’d be shy about supporting such a project lest it hurt them when seeking government funding.

. . .

. . . [Chitester] offers two suggestions for those dreaming about doing what he did.

“First,” he says, “you have to be a storyteller. Think of the people that have had meteoric rises to celebrity. They’ve been excellent storytellers. Free-market preachers if you will.”

. . .

. . . [second] to hopefully get people to think at least initially that I’m a nice person,” he says. “Because if they don’t think I’m a nice person, there’s nothing on the face of the earth I can do that will likely persuade them to listen to what I have to say.”

For the full interview, see:

William McGurn, interviewer. “THE WEEKEND INTERVIEW; The Man Who Made Milton Friedman a Star.” The Wall Street Journal (Saturday, Oct 31, 2020): A11.

(Note: ellipses, and bracketed words, added.)

(Note: the online version of the interview has the date Oct. 30, 2020, and has the same title as the print version.)

The Friedman book mentioned in the passage quoted above is:

Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.