Courage and Cunning in the Defense of Freedom

LiAo9-19-05picNYT.jpg
(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.

“Treat Me with Benign Neglect.”

Source: Screen capture from CNN “Refusing to Leave” report by Dan Simon on the morning of 9-9-05.

“This is America. Has your neighborhood ever been invaded by state troopers from another state?” “I will leave when I am dead.” Ashton O’Dwyer can’t understand why he is being forced to leave his dry, intact home in New Orleans. He asks the city: “Treat me with benign neglect.” The 9-9-05 report was followed up by Drew Griffin on 9-10-05 with the “Staying Put” report that presented businesses, and Afro-Americans, expressing sentiments similar to O’Dwyer’s.
Dr. Michael Baden on the “On the Record” Fox News show, hosted by Greta Van Susteren at about 9:47 PM central time on 9-9-05, stated that there was little danger from the “toxic” water unless people drink it. (Toxic water is the main reason given for the current, post-hurricane, forced evacuations.) Baden claims if the city wants to help people, they would be much more effective if they sprayed the water against mosquitoes.
(Dr. Michael Baden is the Chief Forensic Pathologist of the New York State Police, and was formerly the Chief Medical Examiner of New York City.)

Watch the CNN report: “Refusing to Leave“:

Watch the CNN report: “Staying Put“:

For more on O’Dwyer, see also:
CHRISTOPHER COOPER. “Old-Line Families Escape Worst of Flood and Plot the Future.” THE WALL STREET JOURNAL (September 8, 2005): A1.

Higher Return to R&D in U.S than in Japan and Europe

 

The following may be further support for Martin Neil Baily’s claim that the U.S. is more productive than Europe and Japan because the U.S. is more open to creative destruction.

 

<615> . . ., most reserachers conclude that the rates of return to R&D are comparable magnitudes in different countries. This is confirmed by our <616> meta-analysis. However, the elasticities are significantly lower in Europe and Japan, as compared with the USA. (pp. 615-616)

 

Source:  Wieser, Robert. "Research and Development Productivity and Spillovers: Empirical Evidence at the Firm Level." Journal of Economic Surveys 19, no. 4 (2005): 587-621.

Also see: Baily, Martin Neil. "Macroeconomic Implications of the New Economy." Proceedings, Federal Reserve Bank of the Kansas City (2001): 201-268. (Especially see graph on p. 220) Martin Feldstein’s Jackson Hole presentation, was also supportive of the Baily claim.

 

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.

 

Brozen and Demsetz: Modern-Day Schumpeterians

The dominant view among economists in the field of industrial organization in the 1960s was that industries with a few firms were monopolistic and that this explained why profit rates were higher in concentrated industries than in unconcentrated ones. Harold Demsetz, a former Chicago colleague who moved to UCLA in 1971, dubbed this the “market concentration doctrine.” Brozen, with Demsetz, was a modern-day Schumpeterian who saw a dynamic competitive process at work. In industries in which a few companies had a large market share, they believed, concentration didn’t cause high profits. Rather, concentration and high profits were caused by successful competition. In his 1982 book, Concentration, Mergers, and Public Policy (Macmillan), Brozen weaves together evidence from Demsetz and other economists, along with his own findings, to drive home that point.

Henderson, David R. “In Memoriam: Yale Brozen.” The Freeman 48, no. 6 (June 1998). Posted online at: http://www.libertyhaven.com/thinkers/yalebrozen/memoriam.html

Software Industry Exemplifies Creative Destruction

(p. 4)  In our view, Microsoft’s dominant share in operating systems evolved legitimately from a free-market competitive process. The PC software industry was legally open and contained many talented players (Sun, Netscape, Novell, Oracle, Apple, IBM), some larger than Microsoft, some smaller. The market process in this industry has always been characterized by intense innovation, rapid growth, sharply falling prices, and bitter rivalry (and occasional cooperation) between rivals. The industry exemplifies Austrian economist Joseph Schumpeter’s vision of competition as a process of creative destruction. Microsoft achieved its market position by aggressively innovating and promoting an open, standardized operating system platform . . . 

 

Source: 

Armentano, Dominick T. Antitrust: The Case for Repeal. 2nd ed: Mises, 1999.