Category Archives: Economics

freedom (or bread)

<P>Two interesting things crossed my desk this week, both dealing with the growing global economy. One of the reports looks from the bottom up, and one from the top down. I am talking about the Hertige Foundation's <a href="http://www.heritage.org/index/">2007 Index of Economic Freedom</a>, and the Economist Intelligence Unit's <a href="http://www.eiu.com/site_info.asp?info_name=eiu_CEO_Briefing_Corporate_priorities_for_2007">CEO Briefing: Corporate Priorities for 2007 and beyond</a>.
<P>Heritage produced a system with some new methodologies this year, and created a baseline percentage for each country to be graded by (previously they had only awarded a 1 to 5 rating). The rankings are <a href="http://www.heritage.org/index/countries.cfm">here</a>, and certainly raise some eyebrows. Hong Kong is #1; Singapore, perceived as not so free by the media, is ranked #2; the USA follows at #4. The Russians who congregated to talk about the report together on Wednesday night certainly were not amused at Russia's standing at #120, since they were behind Georgia(#35), Estonia(#12), Moldova(#81), and even the Kyrgyz Republic(#79), but more interesting than that were India's standings at #104 and China at #119.
<P>The reason for China's low dip, and Russia's low standing as well, was explained to me as a product of the inefficient IP laws and piracy in those markets; Russia's $1 billion estimated pirate market and China's $5 billion market heavily affected the ratings. Corruption was another problem; both entries were cross-referenced with <a href="http://www.transparency.org/">Transparency International's</a> own <a href="http://www.transparency.org/policy_research/surveys_indices/global/cpi">set of rankings</a>.
<P>The EIU report, instead of being generated by overall economic reports from each country, compiled surveys from CEOs, CFOs and other international decisionmakers. Their opinion of India and China was hmm, more bullish:
<P><code>Six out of ten respondents (60%) believe the
region offers the greatest sourcing opportunities,
followed by central and eastern Europe with 15%.
Businesses are putting their money where their mouth
is. The largest share (43%) of respondents will pump
most new investment into Asia, with western Europe,
eastern Europe and North America all lagging well
behind.</code>
<P><code>The Economist Intelligence Unit predicts that
growth in the economies of Asia and Australasia
(excluding Japan) will average 6.3% between 2007
and 2011. China and India lead the way with dramatic
growth rates of 9.6% and 7.6% in 2007, respectively.</code>
<P>In short, both documents are happy with economic growth, but the Heritage report certainly gives us a capsule report of overall economic indicators (bottom-up), while the EIU report shows us the point of view from major industry leaders (top-down, or 'boardroom-down', if you want). However, what these industry leaders decide to do in the marketplace will probably affect everyone more in the future.

return to a classic

<P><I>I haven't read enough of the <a href="http://robotwisdom.com/">Robot Wisdom Weblog</a></I>, I thought to myself as I was banging away on my MALD thesis tonight, and so I procrastinated a bit by reading <a href="http://www.cepr.net/err/2006_01_09.htm">this report</a> from the Center for Economic and Policy Research. In it was a nice zinger about <a href="http://www.nytimes.com/2006/01/03/international/europe/03putin-Q.html?ex=1293944400&amp;en=78fb6eee3e99c334&amp;ei=5090&amp;partner=rssuserland&amp;emc=rss">an article</a> in the <i>New York Times</i> about Russia, Ukraine and natural gas:
<P><code>This article reports the dispute over the price of the natural gas that Russia sells to Ukraine. The article notes that Russia has been selling natural gas to Ukraine at far below market prices. It now wants to raise the price to the world market price. The article implies that an immediate rise of this magnitude would impose a severe burden on Ukraine's economy.
<P><code>
While this view is certainly plausible, it is worth noting that the IMF has often argued the opposite, specifically in the case of Russia. Rather than seeking a gradual path from a centrally planned economy to a market economy, the IMF insisted on "shock therapy," the immediate conversion to a market economy. While this policy resulted in an economic collapse in Russia (its economy shrank by more than 40 percent), the IMF has never explicitly acknowledged this plan as failure, and no one publicly lost their job because of their bad advice. </code>

Stiglitz on IP, finally

<P>I am, of course, happy as a schoolgirl in May that <a href="http://www.dailytimes.com.pk/default.asp?page=story_16-8-2005_pg5_12">Stiglitz weighs in in WIPO</a> in the Pakistan Times. It's not the first time <a href="http://mini.pair.com/fletblog/lifeblog/archives/000071.html">I've written about WIPO and its flaws</a>, of course, but just not on this blog.

very nice to see you, too

From Foreign Affairs' <a href="http://www.foreignaffairs.org/20050501faessay84311/thomas-bleha/down-to-the-wire.html">Down to the Wire</a>: <P><code>Once a leader in Internet innovation, the United States has fallen far behind Japan and other Asian states in deploying broadband and the latest mobile-phone technology. This lag will cost it dearly.</code>
<P>No big surprise here. Japan is moving ahead of the US in broadband deployment. However, Japan had better learn from its Korean neighbors, who deployed broadband like <a href="http://www.technet.org/technetissues/broadband_hawley/">crazy</a>, if the graph is true to life. However, they overextended and many of the Korean telcos <a href="http://www.manhattan-institute.org/html/_wsj-bringing_the_broadband_mi.htm">are now reorganized under bankruptcy</a>.<P>
And yes, it's been a while. I've been busy, what's your excuse?

Econ Theory 101.

Over the spring, I took Michael Fairbanks’ class in International Entrepreneurism. It’s not entrepreneurship as much as it is business as usual in developing countries; Fairbanks founded the OTF Group, which specialises in strategy consulting for developing nations like Macedonia, Jamaica, Rwanda, etc. One of the last lectures he delivered in the class was a discussion of strategy versus innovation. Which economic strategies exist that support innovation? Which suppress it?

In the class, we came up with nine ways to explain prosperity in developing countries:

1. Macroeconomic: structural incentives should be put in place by the government, everything else will follow. Stabilize, Privatize, Democratize, and Liberalize. See Jeffrey Sachs, Dani Rodrik.

2. Microeconomic: firms compete, not nations. See Michael Fairbanks, Michael Porter.

3. Institutional Domain: rule of law and social welfare leads to predictable behavior.

4. Natural Capitalism: all investments and development should be made with future prosperity in mind. See L. Hunter Lovins, Amory Lovins and Paul Hawken.

5. Cultural School: culture matters, and a cultural heritage can make you progress-prone or progress-resistant. See Harrison’s Culture Matters.

6. Knowledge School: individuals should be in pursuit of closing the ‘idea gap’. See Stiglitz and Romer.

7.Comparitive Advantage: all wealth is based on finite resources, and some countries can manage their resources better than others. See
Adam Smith, Ricardo, Malthus.

8. Human Capital: all knowledge has legs, the only investment worth caring about is ourselves. See
Gary S. Becker, and a nod to Nordstrom and Ridderstrale’s Funky Business and
Karaoke Capitalism.

9. Evolution: survival only belongs to the fittest. See Thomas Seoul and
Jared Diamond.

In this list, there are specialists who concentrate in one field, maybe two, maybe three. But what if a specialist can diversify and analyse developing countries from all nine different points of view? In the lecture, Fairbanks points to a place like the Fletcher School as a place with an ability to train diverse enough scholars/practitioners able to analyse on many levels; places like the Kennedy School all subscribe to Sachs’ point of view, and other schools like Columbia’s SIPA and Johns Hopkins’ SAIS can’t do much better than that.

Maybe I’m wrong, but seeing all the economic theories up on a wall is fascinating in and of itself. Fairbanks is big on fascination, and with it, he captures attention. At least for a short while.