Category: Free Markets

Cheering Entrepreneurs “Because They’ve Lived the American Dream”

(p. B1) Wall Street’s disdain for the bottom-up populist campaigns of Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont has gotten a lot of attention. The candidates’ full-throated attacks on corporate greed, extreme wealth and banking excesses are backed up by ambitious plans to upend the industry’s everyday operations.

Wariness extends far beyond an elite financial fellowship, though, to many small and medium-size businesses whose executives are not reflexively Republican but worry that the ascendancy of a left-wing Democrat would create an anti-business climate.

. . .

Michael Brady, the owner of two employment franchises in Jacksonville, Fla., is one of the independent business executives interviewed who feel unappreciated. “I get up before 6 o’clock every morning and work hard,” he said. “I put 200 people to work every week.”

Mr. Brady, 53, said he voted for Barack Obama in 2012 and Mr. Trump in 2016. Since then, he said, some of the president’s actions and “some of his tweets” have made him cringe.

He said he could vote for a Democrat this year. But he finds several of the economic proposals from the party’s left wing off-putting, mentioning free college tuition and a nationwide $15-an-hour minimum wage.

What particularly irks Mr. Brady, though, are some of Ms. Warren’s statements about successful entrepreneurs’ not having built their businesses entirely on their own. Attacks on the country’s wealthy elite have also grated.

“When did the word millionaire or billionaire become a bad word?” he asked. “I cheer those people on because they’ve lived the American dream.”

For the full story, see:

Patricia Cohen. “Employers Are Leery Of Warren And Sanders.” The New York Times (Saturday, January 18, 2020): B1 & B5.

(Note: ellipsis added.)

(Note: the online version of the story has the date Jan. 17, 2020, and has the title “Trump Fans or Not, Business Owners Are Wary of Warren and Sanders.”)

Princeton Economist Blinder Wrongly Forecast Huge Offshoring of Jobs

(p. A1) A widely covered 2007 study by Alan S. Blinder, a Princeton economist and former Clinton administration official, estimated that a quarter or more of jobs were vulnerable within the next decade. But many companies discovered that labor savings were offset by other factors: time differences, language barriers, legal hurdles and the simple challenge of coordinating work half a world (p. A14) away. In some cases, companies decided they were better off moving jobs to less expensive parts of the United States rather than out of the country.

“Where in retrospect I missed the boat is in thinking that the gigantic gap in labor costs between here and India would push it to India rather than to South Dakota,” Mr. Blinder said in a recent interview. “There were other aspects of the costs to moving the activities that we weren’t thinking about very much back then when people were worrying about offshoring.”

. . .

In a follow-up paper released Friday [Sept. 27, 2019], another economist, Adam Ozimek, revisited Mr. Blinder’s analysis to see what had happened over the past decade. Some job categories that Mr. Blinder identified as vulnerable, like data-entry workers, have seen a decline in United States employment. But the ranks of others, like actuaries, have continued to grow.

Over all, of the 26 occupations that Mr. Blinder identified as “highly offshorable” and for which Mr. Ozimek had data, 15 have added jobs over the past decade and 11 have cut them. Altogether, those occupations have eliminated fewer than 200,000 jobs over 10 years, hardly the millions that many feared. A second tier of jobs — which Mr. Blinder labeled “offshorable” — has actually added more than 1.5 million jobs.

For the full story, see:

Ben Casselman. “White-Collar Jobs Were Supposed to Go Overseas. They Didn’t.” The New York Times (Monday, September 30, 2019): A1 & A14.

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

(Note: the online version of the story has the same date as the print version, and has the title “The White-Collar Job Apocalypse That Didn’t Happen.”)

The Alan Blinder paper mentioned above, is:

Blinder, Alan. “How Many U.S. Jobs Might Be Offshorable?” Princeton University, Department of Economics, Center for Economic Policy Studies, Working Paper # 142, March 2007.

The “follow-up paper” mentioned above, is:

Ozimek, Adam. “Overboard on Offshore Fears.” 2019. https://www.upwork.com/press/economics/report-overboard-on-offshore-fears/

Sand from Greenland’s Global Warming Can Help World Make Concrete

(p. A8) A few miles up the Sermilik Fjord in southwestern Greenland, the water has abruptly turned milky, a sign that it is loaded with suspended silt, sand and other sediment.

It is this material — carried here in a constant plume of meltwater from the Sermeq glacier at the head of the fjord — that Mette Bendixen, a Danish scientist at the University of Colorado, has come to see. As their research boat moves farther into the murky water, she and several colleagues climb into a rubber dinghy to take samples.

Dr. Bendixen, a geomorphologist, is here to investigate an idea, one that she initially ran by colleagues to make sure it wasn’t crazy: Could this island, population 57,000, become a provider of sand to billions of people?

Sand for eroded beaches, potentially from the Rockaways to the Riviera. Sand to be used as bedding for pipes, cables and other underground infrastructure. Mostly, though, sand for concrete, to build the houses, highways and harbors of a growing world.

The world makes a lot of concrete, more than 10 billion tons a year, and is poised to make much more for a population that is forecast to grow by more than 25 percent by 2050. That makes sand, which is about 40 percent of concrete by weight, one of the most-used commodities in the world, and one that is becoming harder to come by in some regions.

But because of the erosive power of ice, there is a lot of sand in Greenland. And with climate change accelerating the melting of Greenland’s mile-thick ice sheet — a recent study found that melting has increased sixfold since the 1980s — there is going to be a lot more.

“It’s not rocket science,” Dr. Bendixen said. “One part of the world has something that other parts of the world are lacking.”

For the full story, see:

Henry Fountain. “Melting Greenland Is Awash in Sand.” The New York Times (Thursday, July 4, 2019): A8.

(Note: the online version of the story has the date July 1, 2019, and has the same title as the print version.)

With Tariffs, What Goes Around Comes Around

(p. A1) CLYDE, Ohio—After the Trump administration announced new tariffs on imported washing machines in January, Marc Bitzer, the chief executive of Whirlpool Corp., celebrated his win over South Korean competitors LG Electronics Inc. and Samsung Electronics Co.

“This is, without any doubt, a positive catalyst for Whirlpool,” he said on an investor conference call.

Nearly six months later, the company’s share price is down 15%. One factor is a separate set of tariffs on steel and aluminum, imposed by the U.S. in March and later expanded, that helped drive up Whirlpool’s raw-materials costs. Net income, even with the added benefit of a lower tax bill, was down $64 million in the first quarter compared with a year earlier.

. . .

(p. A10) Whirlpool had campaigned for protection from what it called unfair foreign competition. Things became more complicated as the trade conflict spread beyond its industry.

“Raw-material costs have risen substantially,” Mr. Bitzer said on the April investor call, primarily blaming steel and aluminum tariffs. Most of the 200-pound weight of a washing machine is in its steel and aluminum parts.

For the full story, see:

Andrew Tangel and Josh Zumbrun. “From Washer Tariffs to Trade Showdown.” The New York Times (Tuesday, July 17, 2018): A1 & A10.

(Note: ellipsis added.)

(Note: the online version of the story has the date July 16, 2018, and has the title “Whirlpool Wanted Washer Tariffs. It Wasn’t Ready for a Trade Showdown.”)

Roger Koppl Offers Advance Praise for Openness to Creative Destruction

Diamond shows us that entrepreneurial innovation is not just the best way to make a better world. It is the only way. If we care about our fellow humans, then we had better do what we can to enable entrepreneurial innovation. Diamond shows with an unusual depth and breadth of scholarship that the most important thing we can do to promote innovation is to let entrepreneurs test their impossible ideas in the free market. Diamond’s book is a gem. Grab it, read it, learn from it.

Roger Koppl, Professor of Finance, Syracuse University. Author of Expert Failure and other works.

Koppl’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

“Protectionist Trade Policies Can Backfire” on Those They Are Intended to Protect

(p. B1) You may not have appreciated it at the time — golden eras have a habit of coming and going like that — but a five-year stretch that started in 2013 was a pretty great time to buy a washing machine.
Inflation for home laundry equipment, as measured by the Labor Department, fell steadily during that time, which meant you could buy the same washer your neighbor bought last year for less money. Or you could buy a better one at the same price. Great news for your clothes, though maybe bad news for your friendship, if your neighbor was the covetous type.
That stretch of laundry deflation ended last year, shortly after President Trump imposed tariffs, starting at 20 percent, on imported washers. The move was a response to a complaint filed by Whirlpool, a Michigan-based manufacturer.
. . .
A year after Mr. Trump announced the tariffs, washing machine prices were up, as many analysts had expected. But that has not been a boon to the makers of washers because fewer Ameri-(p. B4)cans are investing in new laundry equipment, exposing how protectionist trade policies can backfire on the very companies they are meant to safeguard.
Tariffs of two varieties have pushed prices up
The washer-specific tariffs raised costs for importers like LG and Samsung. But another tariff issued by Mr. Trump, on imported steel, raised costs for some domestic manufacturers like Whirlpool, which took those companies by surprise.
Many manufacturers passed those higher costs on to consumers. Once stores worked their way through models that had been imported before tariffs hit, deflation gave way to sharp price increases.
After years of steady growth, sales reversed in 2018
A basic rule of economics is that when the price of something goes up, people buy less of it. That’s just what happened to washing machines.

For the full story, see:
Jim Tankersley. “Tariffs Tossed a Market Right Into a Spin Cycle.” The New York Times (Saturday, Jan. 26, 2019): B1 & B4.
(Note: ellipsis added; bold and larger font in original.)
(Note: the online version of the story has the date Jan. 25, 2019, and has the title “‘How Tariffs Stained the Washing Machine Market.”)

Tariffs Evaded by Misclassification and Transshipment

(p. A1) One day in June [2018] , seven months after the U.S. imposed stiff tariffs on plywood from China, a wood importer in Oregon got a call from a supplier asking if he would like to get some Chinese plywood tariff-free.
How would that work, asked importer David Visse. The products carry an identification code that is checked by U.S. Customs agents.
“Don’t worry about it,” Mr. Visse says the supplier told him. The plywood would be stripped of its Chinese markings, and “we’ll ship it under some other code.”
Every product imported into the U.S. carries a 10-digit designation called an HTS code, of which there are 18,927 in all. Like a taxonomic version of Noah’s Ark, the code provides a common language to bridge disparate markets and identify products in all their variety.
In a world of increasing tariffs, the code has another function: evading those levies. The business of code-fudging is expanding in step with tariff increases, undermining U.S. efforts to shield American business from foreign competition, according to importers, customs officials, trade attorneys and shipping brokers.
As trade conflict grows between the two largest economies, these professionals say, code misclassification is starting to compete (p. A10) with transshipment–the rerouting of goods through third countries–as a way to duck tariffs.

For the full story, see:
Chuin-Wei Yap. “Trade Fight Spurs Tariff Dodges, With 18,927 Options.” The Wall Street Journal (Tuesday, Oct. 9, 2018): A1 & A10.
(Note: bracketed year added.)
(Note: the online version of the story has the date Oct. 8, 2018, and has the title “The U.S.-China Trade Battle Spawns a New Era of Tariff Dodges.”)

Benjamin Powell Offers Advance Praise for Openness to Creative Destruction

Productive entrepreneurship is not automatic. Art Diamond’s new book brilliantly illustrates how free markets allow entrepreneurs to innovate in ways that disrupt economy activity and, crucially and contrary to popular fears, ultimately reorganize production in ways that allow us to live longer, richer, and more flourishing lives.

Benjamin Powell, Professor of Business Economics, Texas Tech University. Author of Out of Poverty, and other works.

Powell’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

James Dyson Pursued a Slow Hunch by Trial and Error

(p. 6) Mr. Dyson discovered his passion for design at an early age, and eventually began work on his signature product, the bagless vacuum cleaner. It took several years, but he brought the product to market, founding Dyson Ltd. in 1991. Soon, Dyson was expanding internationally and developing new products, including washing machines, fans, heaters, air purifiers, hand dryers and hair dryers. It is now at work on an electric car.
. . .
And what was so different about your vacuums?
I saw the problem, and I saw a possible solution, which was the huge cyclones outside cement plants and timber yards that collect dust all day long. So I started building various versions of that technology. As it happens, it didn’t work. I had to spend four or five years coming up with different types of cyclonic separation devices in order to make it work.
It took a lot of empirical work. I had to build the prototypes, one or two a day, which sounds tedious, but actually it was fascinating. I’m still doing it today. It always is a wonderful adventure of excitement and disappointment. Almost everything you do is a failure, until you get the one success that works..
How did you pay for all that research and development before you had a product to sell?
I was borrowing it all from the bank. Going deeper and deeper into debt. By the time I launched the vacuum cleaner, I was two million pounds in debt. I think the bank got in a bit deeper than they intended to, but I had an interesting bank manager. I asked him why he lent me the money, and he said, “I went home to my wife and said, ‘What do you think about vacuum bags and vacuum cleaners?’ And she said, ‘Dreadful, dreadful.'”
. . .
Why are you in favor of Brexit?
I think we should be independent. Europe has become more and more of a unified society where all the laws are made in Brussels. I don’t believe it’s ever been right for Britain.
Britain has always been a globally facing country, with our empire, if I dare mention that, covering half the globe. We have a pioneering and global outlook. There’s no room for us in Europe.
What about the prospect of economic disruption to England
All cars coming into England from America have a 10 percent duty on them, and most of that goes to Brussels. Europe is a protectionist setup designed to keep competitors out. It’s not a good thing to be in. We believe in free trade. And if any bankers are leaving London, it’s got nothing to do with Brexit. It was the right decision for Britain.

For the full interview, see:
David Gelles, interviewer. “‘Follow the Design, Not the Market.” The New York Times, SundayBusiness Section (Sunday, Dec. 6, 2018): 6.
(Note: ellipses added; bold in original.)
(Note: the online version of the interview has the date Dec. 5, 2018, and has the title “CORNER OFFICE; James Dyson: ‘The Public Wants to Buy Strange Things’.” The first quoted paragraph, and the bold questions, are by David Gelles. The answers are by James Dyson.)

Young Back Choi Offers Advance Praise for Openness to Creative Destruction

In this excellent book, Arthur Diamond offers a spirited defense of open and free market system, saying that much of the complaints against capitalism is based on (1) mistakenly conflating free market competition with cronyism, and (2) grossly under-appreciating the innovative entrepreneur’s ability to solve problems in all sorts of areas–in the past and in the future. One of the central claims of the author, based on his understanding of the epistemology of innovation, namely, the necessity of self-funding of all breakthrough entrepreneurs, underlines the need for open and competitive markets if we are to enjoy in the future benefits of innovative dynamism, as we have in the past.

Young Back Choi, Professor of Economics and Finance, St. John’s University. Author of Paradigms and Conventions: Uncertainty, Decision Making, and Entrepreneurship.

Choi’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

Chinese Entrepreneurs Anxious Over Growing Government Control of Private Enterprise

(p. A15) HONG KONG — The comments were couched in careful language, but the warning about China’s direction was clear.
China grew to prosperity in part by embracing market forces, said Wu Jinglian, the 88-year-old dean of pro-market Chinese economists, at a forum last month. Then he turned to the top politician in the room, Liu He, China’s economic czar, and said “unharmonious voices” were now condemning private enterprise.
“The phenomenon,” Mr. Wu said, “is worth noting.”
Mr. Wu gave rare official voice to a growing worry among Chinese entrepreneurs, economists and even some government officials: China may be stepping back from the free-market, pro-business policies that transformed it into the world’s No. 2 economy. For 40 years, China has swung between authoritarian Communist control and a freewheeling capitalism where almost anything could happen — and some see the pendulum swinging back toward the government.
. . .
China’s leadership turned to entrepreneurs in the late 1970s, after the government had led the economy to the brink of collapse. Officials gave them special economic zones where they could open factories with fewer government rules and attract foreign investors. The experiment was an unparalleled success. When extended to the rest of the country, it created a growth machine that helped make China second only to the United States in terms of economic heft.
Today, the private sector contributes nearly two-thirds of the country’s growth and nine-tenths of new jobs, according to the All-China Federation of Industry and Commerce, an official business group. So pressures on private businesses could create serious ripples.
“The private sector is experiencing great difficulties right now,” wrote Mr. Hu, the retired minister, who as the son of a former top Communist Party leader is often a voice for reform in China, in an essay posted online last Thursday. “We should try our best not to replicate the nationalization of private enterprise in the 1950s and the state capitalism.”
. . .
Private entrepreneurs are loath to speak out for fear of attracting official condemnation. But signs of distress aren’t hard to find.
Last month, Chen Shouhong, the founder of an investment research firm, asked a group of executive M.B.A. students — many of whom already owned publicly listed companies — to choose between panic and anxiety to describe how they feel about the economy. An overwhelming majority chose panic, according to a transcript. Mr. Chen declined to be interviewed.
. . .
Xiao Han, an associate law professor in Beijing, cited one of Aesop’s fables, of a man trying and failing to stop a donkey from going over a cliff.
“Before long,” Mr. Xiao said, “we’ll probably find a body of a China donkey under the cliff.”

For the full story, see:
Li Yuan. “China Muscles In on Its Free-Market Prosperity.”The New York Times (Thursday, Oct. 4, 2018): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the story has the date Oct. 3, 2018, and has the title “Private Businesses Built Modern China. Now the Government Is Pushing Back.”)