Category: Schumpeter

Doctors Erect Barriers to Keep Out Competition

RadiologistBangalore.jpg A Bangalore radiologist.  One of three radiologists in India known to be reading U.S. scans.  Each of the three has a U.S. degree, as required by U.S. law.  Source of image:  http://www.nytimes.com/2006/04/19/business/19leonhardt.html?_r=1&oref=slogin

 

(p. C1) Radiologists seem like just the sort of workers who should be scared.  Computer networks can now send an electronic image to India faster than a messenger can take it from one hospital floor to another.  Often, those images are taken during emergencies at night, when radiologists here are sleeping and radiologists in India are not.

There also happens to be a shortage of radiologists in the United States.  Sophisticated new M.R.I. and CT machines can detect tiny tumors that once would have gone unnoticed, and doctors are ordering a lot more scans as a result.

When I talked this week to E. Stephen Amis Jr., the head of the radiology department at Montefiore Medical Center in the Bronx, he had just finished looking at some of the 700 images that had been produced by a single abdominal CT exam.  "We were just taking pictures of big, thick slabs of the body 20 years ago," Dr. Amis said.  "Now we’re taking thinner and thinner slices."

Economically, in other words, ra-(p. C6)diology has a lot in common with industries that are outsourcing jobs.  It has high labor costs, it’s growing rapidly and it’s portable.

Politically, though, radiology could not be more different.  Unlike software engineers, textile workers or credit card customer service employees, doctors have enough political power to erect trade barriers, and they have built some very effective ones.

To practice medicine in this country, doctors are generally required to have done their training here.  Otherwise, it is extremely difficult to be certified by a board of other doctors or be licensed by a state government.  The three radiologists Mr. Levy found in Bangalore did their residencies at Baylor, Yale and the University of Massachusetts before returning home to India.

"No profession I know of has as much power to self-regulate as doctors do," Mr. Levy said.

So even if the world’s most talented radiologist happened to have trained in India, there would be no test he could take to prove his mettle here.  It’s as if the law required cars sold here to have been made by the graduates of an American high school.

Much as the United Automobile Workers might love such a law, Americans would never tolerate it, because it would drive up the price of cars and keep us from enjoying innovations that happened to come from overseas.  But isn’t that precisely what health care protectionism does?  It keeps out competition.

 

For the full story, see:

Leonhardt, David.   "Political Clout in the Age of Outsourcing."  The New York Times  (Weds., April 19, 2006):  C1 & C4.

Seeing How Life Has Improved Since the Days of the Cowboys

cowboyPBS.jpg A cowboy on "Texas Ranch House."   Source of image:  the WSJ article cited below.

 

"Texas Ranch House" — circa 1867 — is the latest PBS experiment in transporting a group of people back to another era so we can watch them live and struggle the way our ancestors did.  (Part one of eight begins Monday, 8-9 p.m. ET, but check local listings.)  As with past series such as "Colonial House," everything — clothing, tools, food, housing and all-around deprivation — is authentic.  Once again, though, stuffing 21st-century mentalities into period costumes and situations is a tough fit. And once again, it’s the folks wearing the bodices that chafe the most.

The Western setting is fascinating for two reasons:  What seems familiar from movies and TV takes on fresh significance when there are real people — not pampered actors — trying to scratch out an existence on the frontier 24/7, with no plot to guide them.  There is also the fact, as one of the participants points out early on, that many of us exist today only because a forebear actually did make the real journey West and manage to survive there long enough to bear children.  What luck, we are reminded more than once during this series, that those ancestors were so different from contemporary Americans.

. . .

The trouble that threatens to sabotage the entire experiment develops in the widening gap between the cowboys and the Cooke family.  The first time one of the employees disses boss man Mr. Cooke, yelling "Don’t let your wife run your life," we react with disgust at the insult.  As one of the women in the household explains to the camera, all the cowboys "are sexist bastards."  Besides, instead of rising early to ride the range in search of mavericks for 10 hours, the cowboys — mostly young Americans plus one frisky British boarding-school boy playing the part of 19th-century remittance man — indulge in long naps during the 100-degree days and often wake up in the morning with hangovers after nights of hard drinking.

At some point, though, certain facts begin to sink in:  Mr. Cooke does have management shortcomings and Mrs. Cooke is far more involved in running the business side of the ranch than a frontier wife would have been.  The ladies, in general, don’t enjoy the roles or status that historical reality would dictate, and some act out in defiant, liberated ways.  A fatal flaw, if not the only one, for the success of the ranch enterprise.  In 1867, spending days making cornhusk dolls while the house filled with flies and vegetables rotted in the garden wasn’t an option for folks who wanted to stay alive.  And, like it or not, keeping the ranch hands happy, as obnoxious as they might be, was more important than maintaining marital bliss.

This being a made-for-television environment, no one perishes, but there are no happy endings here, either.  When one of the Cooke daughters says to the camera, "I feel lost and dazed and hurt," you feel genuinely sorry for her.  At the same time, it’s clearer than ever that emotional pampering, navel-gazing and gender warfare are modern luxuries.  Like it or not, if these had been features of daily life in the West 100 years ago, many of the people reading this would never have been born.

 

For the full review, see:

Nancy deWolf  Smith.  "TV REVIEW; The West That Never Was."  The Wall Street Journal  (Fri., April 28, 2006):   W10.

Labor Market Flexibility Increases Employment and Prosperity

“France is definitely behind,” says William Keylor, professor of International Relations and history at Boston University. “If France were to create a more-flexible labor market it would eventually increase productivity and prosperity, but the short-term transition would be difficult and people just aren’t thinking long term.”
There have been labor changes across continental Europe recently. Denmark’s measures to liberalize hiring and firing have helped the country cut its unemployment rate in half from about 10% in the early 1990s to under 5%. Spain, too, has introduced short-term employment contracts which have helped cut its unemployment rate by more than half from 20% a decade ago.
But elsewhere, attempts at change have met with staunch opposition, often resulting in watered-down measures. Italy passed changes to its labor laws in 2004, introducing an extension of temporary-work contracts that were introduced in 1997 and were credited with helping cut Italy’s overall unemployment rate to 7.1% from 12% when the contracts began. Yet many economists say Italy, which recorded zero growth last year, hasn’t gone far enough.
In Germany, where unemployment stands at 11%, a coalition government headed by conservative leader Angela Merkel has promised to reduce unemployment by introducing similar measures to those hotly debated in France. The government had to settle on compromise measures that can extend a current probation period for workers to 24 months, from the current six. But companies don’t have the right to terminate contracts within those two years without giving just cause. Other, more difficult, provisions, are still on hold.
The new measures that will be introduced in Parliament as early as today are targeted at “disadvantaged” youths, which refer to people between 18 and 25 who have left school without any qualifications and who are unemployed. The provisions include increasing financial incentives to employers to hire people under 26 who face the most difficulties.
It would apply to some 160,000 young people currently hired under government-subsidized job contracts, according to an interview with Employment Minister Jean-Louis Borloo in an interview with Le Monde newspaper. The cost to the government would be around €150 million ($180 million) in the second half of 2006, Mr. Borloo was quoted as saying.
But economists said the change of tack was a bad signal. “The real problem is that the results obtained by opponents of the new law…show that it is very difficult to introduce reforms in France,” Dominique Barbet, economist at BNP Paribas, wrote in a research note. “This will give opponents of reform confidence for future actions.”

For the full story, see:
ALESSANDRA GALLONI. “Bowing to Protesters, Chirac Abandons Youth-Labor Law; Reversal Highlights Europe’s Difficulties With Painful Reforms.” The Wall Street Journal (Tues., April 11, 2006): A3 & A10.
(Note: the title and version of the article quoted here are from the online version. The title and content of the version in the printed paper was a little different in a couple of places.)

Wage Security Inversely Related to GDP Per Capita



Source of graph: Siems, Thomas F. “Beyond the Outsourcing Angst: Making America More Productive.” Economic Letter 1, no. 2 (2006): 1-8.
Schumpeter’s theory of creative destruction implies that more flexible labor markets will result in greater productivity per worker. The above recently published evidence, supports the implication.

Studies Show Economic Freedom Boosts Economic Growth

A trio of European economists have just published a meta-analysis on the effects of economic freedom (EF) on economic growth. After many pages, here is their bottom-line conclusion:

(p. 182) Most studies reviewed in this paper have serious drawbacks, including lacking senstitivity analysis and poor specifications of the growth model used. However, studies that have applied some kind of sensitivity analysis and sensible specfications generally find support for a positive relationship between changes in EF and growth. This suggests that liberalization will indeed boost economic growth.

For the full article, see:
De Haan, Jakob, Susanna Lundström, and Jan-Egbert Sturm. “Market-Oriented Institutions and Policies and Economic Growth: A Critical Survey.” Journal of Economic Surveys 20, no. 2 (2006): 157-91.

Wildcatters Find 80% of Oil in U.S.

FindleyRichardL.gif Source of image: WSJ article cited below.

(p. A1) David F. Morehouse, senior geologist with the U.S. Department of Energy’s Energy Information Administration, contends there is more new oil to be found in the continental U.S. Finding it, he says, will “depend on people doing the data analysis and, quite frankly, people going in and drilling enough in the right places.”
Mr. Findley, who is 54 years old, did just that. Now production in this part of eastern Montana is growing, and new investors are arriving to explore the potential. At least one midsized firm, Marathon Oil Co., has begun buying leases. Halliburton Co., the big Houston-based oil-services company, has invested with Mr. Findley. The state says the proven oil find in the area will likely be in the range of 150 million barrels, hardly what oil-patch hands call an “elephant,” but nevertheless boosting the nation’s proven oil reserves by about 1%.
. . .
(p. A14) While many people associate big oil finds with big companies, over the years about 80% of the oil found in the U.S. has been brought in by wildcatters such as Mr. Findley, says Larry Nation, spokesman for the American Association of Petroleum Geologists. Wildcatters search for oil, nail down drilling rights, then seek money from banks or bigger companies to extract it.
Mr. Findley grew up in Corpus Christi, Texas, the son of an accountant for a chain of grocery stores. A brother-in-law, a geologist, hired him as a field assistant to hunt for oil in west Texas. “I just fell in love with geology,” he recalls. He graduated from Texas A&M University in 1975 and got a job as a geologist with Tenneco Oil Co. In 1983 he left to found his own Montana-based consulting and exploration company, a one-man operation.
Three years later, world oil prices crashed, and fluctuating prices dogged Mr. Findley as he tried to stay in the business. In the 1990s, the majors left the area in the belief that it was played out. Mr. Findley felt there was more oil to be found and began putting together small exploration deals.
His income had dropped by more than half to $45,000 a year, and he wasn’t sure how much longer that would last. “Many times, my wife and I sat down at the kitchen table and said, ‘What are we going to do next?’ We always came to the same conclusion. [Geology] is what I know. This is what I love. So we just kept going.”

For the full story, see:
JOHN J. FIALKA. “Second Look; Wildcat Producer Sparks Oil Boom On Montana Plains After Majors Pulled Out, Mr. Findley Drilled Anew; Size of Find Still Unclear; A Rival Counts Tanker Trucks.” The Wall Street Journal (Weds., April 5, 2006): A1 & A14.
Source of map: WSJ article cited above.

United States Still Has Vitality in Research and Innovation

Has the United States lost its vitality? No. Americans remain the hardest working people on the face of the earth and the most productive. As William W. Lewis, the founding director of the McKinsey Global Institute, wrote, ”The United States is the productivity leader in virtually every industry.” And productivity rates are surging faster now than they did even in the 1990’s.
Has the United States stopped investing in the future? No. The U.S. accounts for roughly 40 percent of the world’s R. & D. spending. More money was invested in research and development in this country than in the other G-7 nations combined.
Is the United States becoming a less important player in the world economy? Not yet. In 1971, the U.S. economy accounted for 30.52 percent of the world’s G.D.P. Since then, we’ve seen the rise of Japan, China, India and the Asian tigers. The U.S. now accounts for 30.74 percent of world G.D.P., a slightly higher figure.
What about the shortage of scientists and engineers? Vastly overblown. According to Duke School of Engineering researchers, the U.S. produces more engineers per capita than China or India. According to The Wall Street Journal, firms with engineering openings find themselves flooded with résumés. Unemployment rates for scientists and engineers are no lower than for other professions, and in some specialties, such as electrical engineering, they are notably higher.
Michael Teitelbaum of the Alfred P. Sloan Foundation told The Wall Street Journal last November, ”No one I know who has looked at the data with an open mind has been able to find any sign of a current shortage.” The G.A.O., the RAND Corporation and many other researchers have picked apart the quickie studies that warn of a science and engineering gap. ”We did not find evidence that such shortages have existed at least since 1990, nor that they are on the horizon,” the RAND report concluded.
. . .
. . . , the American workplace is so competitive, companies are compelled to promote lifelong learning. A U.N. report this year ranked the U.S. third in the world in ease of doing business, after New Zealand and Singapore. The U.S. has the second most competitive economy on earth, after Finland, according the latest Global Competitiveness Report. As Michael Porter of Harvard told The National Journal, ”The U.S. is second to none in terms of innovation and an innovative environment.”

For the full commentary, see:
DAVID BROOKS. “The Nation of the Future.” The New York Times (Thursday, February 2, 2006): A23.

“The world we have lost was ripe for rejection”

   The source for the image of the book cover is: http://img.textbookx.com/images/large/91/0521633591.jpg

 

Roche delineates minimal light and exiguous fires, chilblains and miasmas, the distinction of white linen, the rare treat of sweetness, the still rarer taste of coffee that made its drinkers sparkle, and the hankerings they inspired. Limited access to water affected drinking habits, cooking, hygiene, and sartorial practices. Housewives and laundresses coped with mountains of dirty linen by river or by pond; the great sent their laundry to the American islands for a whiter wash; the poor rioted for soap as well as bread. Society moved from an economy of scarcity and salvation to one of plenty and prodigality. But the move was slow and spotty. The world we have lost was ripe for rejection.

 

For the full review, see:

Weber, Eugen. "Recommended Reading." The Key Reporter 67, no. 2 (Winter 2002): 12.

 

The reviewed book is:

Roche, Daniel. A History of Everyday Things: The Birth of Consumption in France, 1600-1800. Cambridge University Press, 2000.

 

Villepin Attacked for Trying to Make French Economy More Open to Creative Destruction

VillepinProtesters.jpg
French students in Lyon protest Villepin with a sign that says “Villepin branche ton sonotone” which I think translates into “Villepin, plug in your hearing aide.’ Source of image: http://www.larazon.es/noticias/noti_int18071.htm
There is much to dislike about French Prime Minister Dominique de Villepin; for example his performance on Iraq, and his restrictions on foreign companies buying French companies. But, so far, he has acted heroically in trying to add flexibility to French labor laws. French students have marched and rioted, French unions will not speak to him, and French politicians have ridiculed him. Now he is under attack, even within his own party.

“. . . one day we are alone on the front line,” he said in defending his youth jobs plan last month. “In this solitude we must find the force to advance.”
But Mr. de Villepin’s problem of late is that his enemies have been multiplying, even in his own camp.
On Wednesday, Interior Minister Nicolas Sarkozy, who, like Mr. de Villepin, wants to run for president next year, for the first time distanced himself from his boss over the new labor law, which would allow employers to fire workers under the age of 26 without cause during their first two years on the job.

For the full story, see:
ELAINE SCIOLINO. “Labor Protests Put French Premier in a Bind.” The New York Times (Thurs., March 23, 2006): A10.
VillepinSalute.jpg A salute to Villepin may be in order. Source of image: http://www.lesoir.be/rubriques/monde/page_5715_419028.shtml

Tom Friedman’s The World is Flat, is Worth the Wait


Source of the graphic is page 1 of: MICHAEL O’CONNOR. “Library may help turn borrowers into buyers.” Omaha World-Herald (Saturday, March 4, 2006): 1 & 2.
If you live in Omaha, and want to check out a copy of Thomas Friedman’s pro-trade and globalization best-seller The World is Flat, it looks as though you’re going to have to wait awhile. While you’re waiting, you may want to read his earlier, and in some ways better, The Lexus and the Olive Tree. It is better in its discussion of the importance of Schumpeterian creative destruction, and better in terms of the coherence and flow of the argument.
See:
Friedman, Thomas L. The Lexus and the Olive Tree. New York: Anchor Books, 2000. [ISBN # 0-385-49934-5]
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.