October 2006 – Page 2 – artdiamondblog.com

In Egypt: The Authorities Versus the Entrepreneur

Cairo entrepreneur serves good food to willing customers. Source of image: online version of the NYT article quoted and cited below.

In The Other Path, Hernando de Soto wrote about how governments in much of the world make it nearly impossible for the poor to legally get a start as entrepreneurs. Here is a perfect example of de Soto’s point:

CAIRO, Oct. 2 — With his cart tucked beneath a highway overpass, just beside the railroad tracks and behind a parked taxi, Farouk Salem darted his eyes back and forth nervously as he awaited customers.

On most days, except during Ramadan, the sun has barely risen and worshipers are shuffling out of the nearby mosque after morning prayers as the first customers make their way to Mr. Salem. A few quick flicks of a ladle, the shaking of a bottle or two, and breakfast is ready.

Mr. Salem sells ful, the fava bean stew that is a staple of Egyptian cuisine, as a cheap, hearty breakfast for just 20 cents. But he is an unlicensed street vendor, one of the many hundreds of thousands of Egyptians who make their living in what economists here describe as Egypt’s informal work force: selling, delivering, cooking, cleaning, serving, ferrying, shoeshining, anything that will provide income.

Dr. Rashad Abdou, a professor of economics at Cairo University, estimated that the informal sector might account for as much as 60 percent of Egypt’s economy.

“As long as I keep a low profile, they don’t bother me,” Mr. Salem said on a recent day, as his brother worked behind the parked metal cart, dishing out bowls of ful. The police have forced him to move many times and have even confiscated his cart. But it is hard to keep a really low profile when the food is good and the prices are cheap.

As the sun began to heat up the morning air, customers showed up in a steady stream, some still in their pajamas.

“It’s good,” said Muhammad Abbadi. “It’s clean. And the most important thing is it’s cheap. We are poor. You see how poor we are in Egypt.”

. . .

“If the authorities want to chase me away, they will do it,” he says, his face tight and nervous. “If they want to put me in prison, they can. If they want to take my cart away, they can.”

He walked over to get some more bread as Muhammad kept ladling.

For the full story, see:

MICHAEL SLACKMAN. "CAIRO JOURNAL; A Hand on the Ladle, and an Eye Out for the Law." The New York Times (Tues., October 3, 2006): A4.

(Note: ellipses added.)

Ful is a fava bean stew that is popular in Cairo. Source of image: online version of the NYT article cited above.

The reference to the de Soto book is:

Soto, Hernando de. The Other Path: The Invisible Revolution in the Third World. 1st ed: HarperCollins, 1989.

Laptops Update Read and Friedman’s “I, Pencil” Story

Source of graphic: scanned from p. B1 of NYT article cited below.

Leonard Read in his classic "I, Pencil" told the story of how the various compenents of a mere pencil came from different suppliers the world over. People who did not know each other, and might not like each other if they met, but who were brought together in productive co-operation through the power of the market. Milton Friedman frequently presented his own verison of this story. The cover of my 1980 edition of Free to Choose has a picture of Friedman holding a pencil as if in the middle of this story. And there is a short video-clip of Friedman telling the story.

A similar story could be told with many other products, and several sources have presented the raw materials in print to tell the story for laptop computers. (By "raw materials" I mean that they list the diversity of sources of the inputs; but usually without drawing all the lessons that Reed and Friedman drew.) One source is a chapter in Thomas Friedman’s The World is Flat.

Two other sources are articles that appeared within a few days of each other in The New York Times and The Wall Street Journal.

The reference to The New York Times article is:

DAVID BARBOZA. "An Unknown Giant Flexes Its Muscles; Amid Talk of Deal With I.B.M., Lenovo of China Sheds Some Obscurity." The New York Times (Sat., December 4, 2004): B1 & B3.

The reference to The Wall Street Journal article is:

Jason Dean and Pui-Wing Tam. "The Laptop Trail; The Modern PC Is a Model Of Hyperefficient Production And Geopolitical Sensitivities." The Wall Street Journal (Thurs., June 9, 2005): B1 & B8.

Source of graphic: scanned from p. B1 of WSJ article cited above.

Profit-Maximizing Infrastructure Installation

Verizon employees in New York installing fiber optic cable. Source of photo: online version of the NYT article cited below.

(p. C1) Building a whole new state-of-the-art network is a laborious and expensive process that Verizon says it must undertake to fend off rivals like Comcast and Vonage, which are moving fast into the phone business. As Verizon replaces more of its old copper network with more durable fiber lines, the company also expects to save billions of dollars in maintenance costs.

Verizon will spend about $20 billion by the end of the decade to reach 16 million homes from Florida to California. But it is in New York City where Verizon has the most at stake, because New Yorkers are some of the nation’s biggest buyers of video, Internet and phone services. The company plans to spend about $3 billion to reach the city’s 3.1 million homes and apartments.

With such a high concentration of potential customers, competition is fierce — and Verizon has been losing ground. Time Warner Cable, Cablevision and others are stealing about 1,000 Verizon phone customers a day, and their discounted services are making it hard for Verizon to win them back — another reason to get the fiber network up quickly.

“The guys understand the importance of this fiber project,” said Robert Fighera, a lineman and chief union steward in the Bronx, nodding to the workmen nearby. “We’re also stockholders, and we know we have to install this or we’ll fall by the wayside of all these other companies.”

For the full story, see:

KEN BELSON. "Verizon Is Rewiring New York, Block by Block, in a Race for Survival." The New York Times (Mon., August 14, 2006): C1 & C6.

“Man in White Suit” Science Fiction, Now Nearly Science Fact

PART of what sold James Tirey on a change in attire was the coffee spilled on his legs during a rough flight. ”It stayed sticky until it dried,” he said, ”about mid-Atlantic.”

To avoid such incidents, he bought a new pair of pants with an invisible, high-tech surface suited to the exigencies of business travel. These pants look and feel like most others, but the ingenious finish on the fabric is different: it is made of tiny, nanosized particles that repel water, ketchup, honey, blood, vinaigrette and a thousand other potential indignities. With such a surface, he said, ”if coffee is spilled on you, it just beads up” or runs off. The pants can be wiped with a paper napkin — even the skimpy cocktail kind handed out on airplanes — leaving the material dry and unscathed.

Mr. Tirey, who lives in northern Virginia, bought his pants, called the Steel Pant, at Beyond, a Eugene, Ore., company that makes and sells outerwear for men and women at BeyondFleece.com. The material is manufactured by the Swiss company Schoeller Textil, which makes both the weave and the nanofinish, called NanoSphere. On the Beyond Web site, the pants cost $119, the nanocoating an additional $15. ”It was definitely worth the money,” Mr. Tirey said of the purchase.

For the full story, see:

ANNE EISENBERG. "NOVELTIES; The Chemist’s Find: A Way to Shrug Off Spills." The New York Times , Section 3(Sun., August 27, 2006): 5.

The Opportunity Cost of a Bad Bottle of Wine

Len Evans. Source of photo: http://www.smh.com.au/news/national/heart-attack-kills-len-evans-king-of-australian-wine/2006/08/17/1155407960581.html

BACK in the early 1990’s Len Evans, the Australian wine man and legend in his own lifetime, gave me some advice.

”I’d say you’re about 60,” he said, ”and from the looks of you, you’ll be lucky to make 75. You’ve got about 15 years ahead of you, and it’s time for you to learn my Theory of Capacity.

”You’ve got to make the most of the time you’ve got left, man. You’ve got to calculate your future capacity. A bottle of wine a day is 365 bottles a year. Which means you’ve probably only got 5,000 bottles ahead of you.

”People who say you can’t drink good stuff all the time are fools. You must drink good stuff all the time. Every bottle of inferior wine you drink is like smashing a superior bottle against a wall: the pleasure is lost forever. You can’t get that bottle back.”

For the full story, see:

FRANK J. PRIAL. "A Wine Man Who Vowed to Drain the Cup." The New York Times (Weds., August 30, 2006): D7.

Technology Liberates the Paralyzed

Paralyzed from a stabbing, Matthew Nagle can move computer cursor by means of a sensor implanted in his brain. Source of image: online version of NYT article cited below.

(p. A1) A paralyzed man with a small sensor implanted in his brain was able to control a computer, a television set and a robot using only his thoughts, scientists reported yesterday.

Those results offer hope that in the future, people with spinal cord injuries, Lou Gehrig’s disease or other conditions that impair movement may be able to communicate or better control their world.

“If your brain can do it, we can tap into it,” said John P. Donoghue, a professor of neuroscience at Brown University who has led development of the system and was the senior author of a report on it being published in today’s issue of the journal Nature.

For the full story, see:

ANDREW POLLACK. "Paralyzed Man Uses Thoughts to Move a Cursor." The New York Times (Thurs., July 13, 2006): A1 & A21.

German Opera House “Falling On Its Knees Before the Terrorists”

"A scene added to “Idomeneo,” shown in a 2003 rehearsal, includes Muhammad and other religious figures." Source of photo and caption: online version of the NYT article cited below.

(p. A1) BERLIN, Sept. 26 — A leading German opera house has canceled performances of a Mozart opera because of security fears stirred by a scene that depicts the severed head of the Prophet Muhammad, prompting a storm of protest here about what many see as the surrender of artistic freedom.

The Deutsche Oper Berlin said Tuesday that it had pulled “Idomeneo” from its fall schedule after the police warned of an “incalculable risk” to the performers and the audience.

. . .

Political and cultural figures throughout Germany condemned the cancellation. Some said it recalled the decision of European newspapers not to reprint satirical cartoons about Muhammad, after their publication in Denmark generated a furor among Muslims.

Wolfgang Börnsen, a culture spokesman for Chancellor Angela Merkel’s conservative bloc in Parliament, accused the opera house of “falling on its knees before the terrorists.”

For the full story, see:

JUDY DEMPSEY and MARK LANDLER. "Opera Canceled Over a Depiction of Muhammad." The New York Times (Weds., September 27, 2006): A1 & A12.

(Note: ellipsis added.)

R&D Stats Better; But Still Omit a Lot of Innovation

GDPgrowthWithR&Dgraph.gif Source of graphic: online version of WSJ article cited below.

Note well Romer’s caveat below that, although we may be measuring better, we are still not measuring Schumpeterian innovations (such as the Wal-Mart innovations that are vastly increasing the efficiency of retailing).

That research and development makes an important contribution to U.S. economic growth has long been obvious. But in an important advance, the nation’s economic scorekeepers declared they can now measure that contribution and found that it is increasing.

. . .

Since the 1950s, economists have explained economic output as the result of measurable inputs. Any increase in output that can’t be explained by capital and labor is called "multifactor productivity" or "the Solow residual," after Robert Solow, the Nobel Prize-winning economist considered the father of modern growth theory.

From 1959 to 2002, this factor accounted for about 20% of U.S. growth. From 1995 to 2002, when productivity growth accelerated sharply, that grew to about 33%. Accounting for R&D would explain about one-fifth, by some measures, of the productivity mystery. It suggests companies have been investing more than the official data had previously shown — a good omen for future economic growth. "The slump in investment is not as drastic as people thought before they saw these figures," says Dale Jorgenson, professor of economics at Harvard University.

Mr. Jorgenson noted a lot of the multifactor productivity growth remains unexplained. "The great mystery of growth . . . is not eliminated."

Paul Romer, an economics professor at Stanford Business School, said the better the measurements of R&D become, the more economists and policy makers will realize other factors may be more important. "If you look at why we had rapid productivity growth in big-box retailing, there were lots of intangibles and ideas that . . . don’t get recorded as R&D."

For the full story, see:

GREG IP and MARK WHITEHOUSE. "Why Economists Track Firms’ R&D; Data on Knowledge Creation Point to an Increasing Role In Domestic Product Growth." Wall Street Journal (Fri., September 29, 2006): A2.

(Note: The slightly different online version of the title is: "Why Economists Track Firms’ R&D; Data on Knowledge Creation Point to an Increasing Role In Domestic Product Growth.")

(Note: ellipses in Jorgenson and Romer quotes, in original; ellipsis between paragraphs, added.)

Hernando de Soto Creates Buzz in Clinton Hallways

Hernando de Soto and Bill Clinton at the second annual Clinton Global Initiative. Source of photo: online version of the WSJ article cited below.

. . . the buzz in the hallways centered on a topic that until recently most philanthropists all but ignored: registering poor people’s property so they could borrow against it to build businesses, pay taxes or for other purposes. Many citizens of developing countries don’t formally have title to their land, and many economists — including Peruvian economist Hernando de Soto, another conference attendee — see this as a key source of urban poverty. According to Mr. de Soto’s research, the value of unregistered land in developing countries totals over $9 trillion. Mr. Clinton told the audience that these assets "cannot be converted into collateral for loans — wealth locked-up and locked-down — keeping people in grinding poverty instead of being an asset that can lift them up." Up to 85% of urban land parcels in the developing world are unregistered, Mr. Clinton said, citing Mr. de Soto’s research.

But standing in the way of widespread land-ownership records are insufficient legal frameworks, confusing procedures and corrupt property registries. And establishing land ownership is all but impossible in communist and socialist countries, where property usually is owned by the state, said John Bryant, chief executive of Operation Hope, a nonprofit in Los Angeles that provides financial services to the poor.

For the full article, see:

SALLY BEATTY. "GIVING BACK; Helping the Poor Register Land." Wall Street Journal (Fri., September 29, 2006): W2.

(Note: ellipsis added.)

Sulfa: First Antibiotic Was Pursued for Profit

Source of the book image: http://ec1.images-amazon.com/images/P/1400082137.01._SS500_SCLZZZZZZZ_V52133117_.jpg

Economists have debated whether patents mainly provide incentives, or obstacles, to innovation. In the story of the development of sulfa, the first powerful antibiotic, the desire for profit, through patents, was one motive that drove an important part of the development process; this, even though, in the end, sulfa turned out not to be patentable:

(p. P9) Mr. Hager follows a group of doctors into postwar German industry — specifically into the dye conglomerate IG Farben. These men, having witnessed horrible deaths by infection on the battlefield, picked up on Ehrlich’s hypothesis by trying to synthesize a dye that specifically stained and killed bacteria. Led by the physician-scientist Gerhard Domagk, they brought German know-how, regimentation and industry to the enterprise.

Year after year the team infected mice with streptococci, the bacteria responsible for so many deadly infections in humans. The researchers then treated the mice with various dyes but had to watch as thousands upon thousands of them died despite such treatment. Nothing seemed to work. The 1920s turned into the ’30s, and still Domagk and his team held to Ehrlich’s idea. There was simply no better idea around.

Then one of the old hands at IG Farben mentioned that he could get dyes to stick to wool and to fade less by attaching molecular side-chains containing sulfur to them. Maybe what worked for wool would work for bacteria by making the dye adhere to the bacteria long enough to kill it.

. . .

The IG Farben conglomerate expected huge profits from Prontosil. But then French scientists at the Pasteur Institute in Paris dashed these dreams. The German scientists — all of them Ehrlich disciples — thought that the power to cure infection rested in the dye, with the sulfa side-chain merely holding the killer dye to the bacteria. The scientists at the Pasteur Institute, though, showed that the sulfa side-chain alone worked against infection just as well as the Prontosil compound. In fact, the dye fraction of the compound was useless. You could have Ehrlich’s magic bullet without Ehrlich’s big idea! This bombshell rendered the German patents worthless. The life-saver "drug" turned out to be a simple, unpatentable chemical available in bulk everywhere.

For the full review, see:

PAUL MCHUGH. "BOOKS; Medicine’s First Miracle Drug." The Wall Street Journal (Sat., September 30, 2006): P9.

(Note: ellipsis added.)

The reference for the book is:

Thomas Hager. The Demon Under The Microscope. Harmony, 340 pages, $24.95