Free Markets – Page 51 – artdiamondblog.com

Nazi Economy Was Not Efficient

A common view of National Socialism is that it was evil, but efficient. A recent book by Richard J. Evans challenges the “efficient” part of the common view. Here is a relevant paragraph from a useful review of Evans’ book:

(p. B5) The Nazi machine, as Mr. Evans describes it, moved forward with a good deal of creaking and squeaking. The economy was no exception. On many fronts, the Nazis managed nothing more than to bring the economy back to the status quo that existed before the Depression. As late as January 1935, one estimate put the number of unemployed at more than four million, and food shortages were still a problem in 1939. Workers put in longer hours simply to stay even.

For the full review, see:
WILLIAM GRIMES. “The Radical Restructuring of a Germany Headed to War.” The New York Times (Weds., October 26, 2005): B8.

The reference to the book is:
Richard J. Evans. The Third Reich in Power: 1933-1939. The Penguin Press, 2005.

Courage and Cunning in the Defense of Freedom

(Li Ao on 9/19/05. Source: NYT online, see below)

BEIJING, Sept. 22 – China’s leaders may have felt they had no better friend in Taiwan than Li Ao, a defiant and outspoken politician and author who says that Taiwan should unify with Communist China.
But when China invited Mr. Li to tour the mainland this week, the Communist Party got a taste of its rival’s pungent democracy.
During an address at Beijing University on Wednesday evening, broadcast live on a cable television network, Mr. Li chided China’s leaders for suppressing free speech, ridiculed the university administration’s fear of academic debate and advised students how to fight for freedom against official repression.
“All over the world leaders have machine guns and tanks,” Mr. Li told the students and professors in the packed auditorium. “So I’m telling you that in the pursuit of freedom, you have to be smart. You have to use your cunning.”
. . .
Though Mr. Li did not criticize President Hu directly, he made pointed references to the lack of freedoms in China and suggested that the “poker-faced” bureaucrats of the Communist Party did not have enough faith in their legitimacy to allow normal intellectual discussion.
With several top university officials sitting by his side, he called the administrators “cowardly” for ferreting out professors at the school who were suspected of opposing Communism.

JOSEPH KAHN. “China’s Best Friend in Taiwan Lectures in Beijing About Freedom.” New York Times (Fri., September 23, 2005): A7.

Management in Private Sector, Public Sector, and Academe

Paul Wolfowitz, new World Bank President, remembering a joke told by his former boss, George Shultz:

“I remember George Shultz,” whom he once worked for, “was once asked how he would compare management in the private sector, public sector, and academics,” Mr. Wolfowitz says. “In the private sector you better be careful what you ask for because people are going to go out and do it. . . . The government, you don’t have to worry about that. You tell people (to) do something and you check back two months later and nothing’s happened. But in the academic world, you tell people to do something and they look at you strangely and they say, ‘Who the heck do you think you are giving us orders?'” (p. A10; “to” added; “. . . ” in original)

PAUL A. GIGOT. “Dr. Wolfowitz, I Presume.” Wall Street Journal (September 24, 2005): A10.

World Bank’s Favorite New Book

Speaking of Paul Wolfowitz, the new World Bank President:

His favorite new source book is the World Bank’s “Doing Business” report, an annual guide to the obstacles that countries impose on their own entrepreneurs. The 2006 version is just out, and for the first time Mr. Wolfowitz had it rank countries, from 1 to 155, on the “ease of doing business.” New Zealand ranked first, and the U.S. third (after Singapore), but African nations held down 25 of the last 30 places.
Take Burkina Faso, a landlocked West African country that came in at . . . 154. “If you were in a food supply business,” Mr. Wolfowitz says, “registering a business would require minimum capital equal to nearly five times annual income. Fees alone cost 1½ times income per capita . . . to register your land, you have to pay fees, 16% of the value of the land. So the result is in a country of 12 million people, only 50,000 are in the formal” economy.
So why is he optimistic? Burkina has grown for the last decade, he says, and the country has political cohesion. “I had a great meeting with the president of Burkina” on a recent trip, and “I shouldn’t say this, but I want to find a way to communicate these results to him and say, do something about it, your country will grow even more.”

PAUL A. GIGOT. “Dr. Wolfowitz, I Presume.” Wall Street Journal (September 24, 2005): A10.
The “Doing Business” report is in its second or third annual version, and is described enthusiastically in Thomas Friedman’s new book The World is Flat. John Devereux suggested to me that one interpretation of the criteria used for the ranking, is that they are a step in the direction of measuring openness to creative destruction.

Flexibility of Labor Laws: American Asset

<284> As Harvard University economist Robert Lawrence notes, the greatest single asset <285> that the American economy has always had is the flexibility and mobility of its labor force and labor laws. That asset will become even more of an advantage in the flat world, as job creation and destruction both get speeded up. (pp. 284-285)

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

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

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

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.