Category: Free Markets

Taiwan: “Barren Rock in a Typhoon-Laden Sea”

(p. 262) The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig deep inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people–men and women–rather than drill (p. 263) an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural resources–nothing but the energy, ambition, and talent of its own people–and today it has the third-largest financial reserves in the world.

Source:
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.
(Note: italics in original.)

Secret of Wal-Mart’s Success

In a recent book, written for business managers, MIT business school professor David Simchi-Levi and his co-authors, discuss the secret of Wal-Mart’s success. In the following discussion a "cross-docking" system is one in which ". . ., warehouses function as inventory coordination points rather than as inventory storage points." (p. 63)

 

The tremendous market growth of Wal-Mart over the past 15 to 20 years highlights the importance of an effective strategy that coordinates inventory replenishment and transportation policies. Over this time period, Wal-Mart developed into the largest and highest-profit retailer in the world. A number of major components in Wal-Mart’s competitive strategy were critical to its success, but perhaps the most important has been its enthusiastic use of cross-docking. Wal-Mart delivers about 85 percent of its goods using cross-docking, as opposed to about 50 percent for Kmart. To facilitate cross-docking, Wal-Mart operates a private sattelite communications system that sends point-of-sale (POS) data to all its vendors, allowing them to have a clear picture of sales at all its stores. In addition, Wall-Mart has a dedicated fleet of 2000 trucks, and on-average, stores are replenished twice a week. Cross-docking enables Wal-Mart to achieve economies of scale by purchasing full truckloads. It reduces the need for safety stocks and has cut the cost of sales by 3 percent compared with the industry average, a major factor explaining Wal-Mart’s large profit margins. (p. 64)

 

Source:

David Simchi-Levi, Philip Kaminsky, Edith Simchi-Levi. Managing the Supply Chain: The Definitive Guide for the Business Professional. McGraw-Hill, 2003.

 

Looting New Orleans


“In downtown New Orleans, where looters are floating garbage cans filled with clothing and jewelry down the street.” From an online slideshow of looting at Wal-Mart and Walgreens in New Orleans. Caption for photo, and photo itself, from: http://www.nbc10.com/slideshow/news/4917518/detail.html?qs=;s=4;p=news;dm=ss;w=400 (POSTED: 9:45 pm EDT August 30, 2005; UPDATED: 10:53 am EDT August 31, 2005; Downloaded Sept. 5, 2005)
Harold Andersen reports on the observations of his wife’s cousin, Michael Ross, a member of the faculty of the history department of Loyola University in New Orleans:

When the levees broke and put the major share of New Orleans under water, a substantial portion of the city was still dry because it was on higher ground, above sea level. Included were the French Quarter, some attractive residential neighborhoods and the land on which Loyola University is located.
There was some wind damage in the higher-ground areas of the city, but those areas were basically preserved and could have served as a base from which the city could be rebuilt.
“But they’re gone now, as a result of looting,” Ross told us.
The looting wasn’t random. Organized street gangs, armed with weapons stolen from looted stores, went about looting quickly and systematically, Ross said. In residential areas, they went down streets kicking in the doors of house after house after house, leaving the residences in shambles.
One unforgettable scene, Ross said, was the telecast showing five pickup trucks of gang members leaving a looted Wal-Mart store with dozens of weapons they had stolen.
Ross is pessimistic about the chances that Loyola and Tulane Universities will reopen this fall, even if their campuses are intact. Students, particularly new students, are most likely to be discouraged from attending school in a nearly destroyed city.
On a personal note, Ross expects that the house in which he has been living will be a victim of looting and his computer files are likely to have been destroyed.

Andersen, Harold W. “If New Orleans is Dead Forever, Looters Delivered the Fatal Blow.” Omaha World-Herald (Sunday, September 4, 2005): 13B. Also online at: http://www.omaha.com/index.php?u_pg=609&u_sid=2006986

New Orleans is the opposite of America, and we must hold onto places that are the opposite of us. New Orleans is not fast or energetic or efficient, not a go-get-’em Calvinist well-ordered city. It’s slow, lazy, sleepy, sweaty, hot, wet, lazy and exotic. (p. 9)

Childress, Mark. “Tribute: What It Means to Miss New Orleans.” New York Times, Section 9 (September 4, 2005): 9 & 11.
OK, so then why is it that all us fast, energetic, efficient, go-get-’em Calvinists are responsible for coughing up billions to save a lifestyle we don’t much get to enjoy?

The Abuse of Power

FateOfAfricaBK.jpg
From a review of a promising book:

Most African countries have been atrociously governed in the past half-century. A lack of institutional checks has allowed an array of incompetent strongmen to rule as they pleased until the money ran out, at which point northern donors often tossed them an extra bundle of cash.
. . .
Kwame Nkrumah, for example, is widely revered. The founding father of independent Ghana, he was also an eloquent advocate of a united Africa. Africans tend to recall him as a man of great personal integrity who strove mightily to drag his country into the industrial age. Mr. Meredith lays out the facts. Nkrumah paid for his grand (and uniformly loss-making) industrial projects by squeezing money out of Ghana’s poorest citizens, the peasants, and by borrowing recklessly. He was utterly clueless about money. When his finance minister told him in 1963 that the national reserves were less than $1.4 million, he “sat in silence for fifteen minutes, then broke down and wept.”
He not only wrecked the Ghanaian economy; he also snuffed out such political freedoms as the country had enjoyed at independence. He had a law passed in 1958 allowing him to jail anyone suspected of subversive intentions. Twelve parliamentarians objected, on the ground that such a power was sure to be abused. Eleven of them were jailed, which rather proved their point.

ROBERT GUEST. “So Badly Misled.” The Wall Street Journal (Weds., August 31, 2005): D10. (A review of: Meredith, Martin. The Fate of Africa. PublicAffairs, 2005.)

Editorial Wisdom on High Gas Prices

The market rules
. . . higher prices have a beneficial side. They encourage an increase in supply. They also encourage alternatives. And they encourage convervation, teaching users to operate more efficiently.
. . . However unpleasant the workings of the market may be in the short term, no system has been devised that constitutes an improvement.

From the unsigned, lead editorial in: Omaha World-Herald (Mon., Aug. 29, 2005): 6B.
See also, the KETV report posted March 4, 2005: ConsumerWatch: High Gas Prices Can Be Good; Economist Says Prices Aren’t As High As ’80s When Adjusted For Inflation

Incentives Matter: Piracy Will End Big-Event Films


KingKongPiracy.gif Source of image: the online version of the The New York Times article quoted and cited below.
Peter Jackson was the director of the financially risky “Lord of the Rings” film trilogy, and is currently directing a remake of “King Kong.” Property rights protection is primarily a moral issue. But it also has economic consequences. Property rights permit those who take risks to make money, which provides an incentive for them and others to take risks in the future. It also makes it more likely that large amounts of capital will be in the hands of those who have shown they know how to use it.

(p. 1) “Piracy has the very real potential of tipping movies into becoming an unprofitable industry, especially big-event films. If that happens, they will stop being made,” said Mr. Jackson in an e-mail message from New Zealand, where he is putting the final touches on his version of “King Kong.” “No studio is going to finance a film if the point is reached where their possible profit margin goes straight into criminals’ pockets.”

For the full story, see:
O’Brien, Timothy L. “King Kong vs. the Pirates of the Multiplex.” The New York Times, Section 3 (Sunday, Aug. 28, 2005): p. 1 & 7.

Infinite Jobs to Be Done

Marc Andreesen was the cofounder of Netscape.

“If you believe human wants and needs are infinite,” said Andreeseen (sic), “then there are infinite industries to be created, infinite businesses to be started, and infinite jobs to be done, and the only limiting factor is human imagination. The world is flattening and rising at the same time. And I think the evidence is overwhelmingly clear: If you look over the sweep of history, every time we had more trade, more communications, we had a big upswing in economic activity and standard of living.” (p. 231)

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.

The Sheer Openness of American Society

While these are the core secrets of America’s sauce, there are others that need to be preserved and nurtured. Sometimes you have to talk to outsiders to appreciate them, such as Indian-born Vivek Paul of Wipro. “I would add three to your list,” he said to me. “One is the sheer openness of American society.” We Americans often forget what an incredibly open, say-anything-do-anything-start-anything-go-bankrupt-and-start-anything-again society the United States is. There is no place like it in the world, and our openness is a huge asset and attraction to foreigners, many of whom come from countries where the sky is not the limit.
Another, said Paul, is the “quality of American intellectual property protection,” which further enhances and encourages people to come up with new ideas.
. . .
The United States also has among the most flexible labor laws in the world. The easier it is to fire someone in a dying industry, the easier it is to hire someone in a rising industry that no one knew would exist five years earlier.

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005, p. 246.

No Known Upper Bound for Economic Growth

Given the limited state of our knowledge of the process of technological change, we have no way to estimate what the upper bound on the feasible rate of growth for an economy might be. If economists had tried to make a judgment at the end of the 19th century, they would have been correct to argue that there was no historical precedent that could justify the possibility of an increase in the trend rate of growth of income per capita to 1.8% per year. Yet this increase is what we achieved in the 20th century. (p. 226)

Romer, Paul M. “Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?” In Innovation Policy and the Economy, vol. 1, Cambridge, MA: MIT Press, 2001, pp. 221-252.

Private vs Public City Planning

Both private and public developers make judgments about the future market for their projects. When private developers’ judgments turn out to be wrong, they lose their money. When public developers’ judgments turn out to be wrong, they lose your money.

The Omaha By Design plan adopted by the City of Omaha envisions 72nd and Dodge framed with eight 10-story buildings and other taller structures stretching to a large residential complex at 76th Street. The drawings don’t resemble Bourn’s strip malls.
Wilke said he has seen the plan.
“That kind of visionary thinking is fun to engage in, but I don’t think it’s market-based,” he said. Another developer might see that as possible, he said, and Bourn Partners likes to do that kind of high-density, mixed-use development, but the company doesn’t see this part of the Omaha market as ready for that yet.
“We think the suburban scale is still what the market wants in that area,” Wilke said. (p. 2D)

DEBORAH SHANAHAN. Market drives projects around 72nd and Dodge.” Omaha World-Herald (Tuesday, August 9, 2005): 1D-2D.

Business at the city-owned Hilton Omaha is expected next year to fall $2 million short of generating the cash needed to cover its costs.
…
When the city built the hotel, predictions assumed that hotel revenues – not tax dollars – would be sufficient to pay it off.

C. DAVID KOTOK. City expects its Hilton to come up shy. Omaha World-Herald (Tuesday, August 9, 2005) online edition.

Stealing Indian Land

These lands once belonged to the Kiowas and the Crows, but we whipped these nations out of them, and in this we did what the white men do when they want the lands of the Indians. We met the Kiowas and the Crows and whipped them at the Kiowa Creek, just below where we now are. We met them and whipped them again, and the last time at Crow Creek.

Oglala Lakota Leader Black Hawk, 1851; as quoted in a display at the Western Historic Trails Center in Council Bluffs, Iowa, designed and built by the National Park Service, and observed on 8/13/05.