Economics – Page 190 – artdiamondblog.com

Reforms Make it Easier to Start and Run a Business in Africa

(p. A12) Authors of the report, ”Doing Business,” by the World Bank and the International Finance Corporation, the bank’s private sector arm, say they hope simplifying and easing the rules of the capitalist game will entice more businesses above ground.

A team of 30 researchers found that African countries had made many incremental changes.

”The most surprising thing for me was to see the pickup of reform in Africa,” said Simeon Djankov, a World Bank economist who four years ago developed the rankings on the ease of doing business. ”Something has happened this year. At least two-thirds of Africa’s countries have at least one positive reform.”

Tanzania computerized its business and tax registries and reduced delays in customs inspections and the courts.

Ghana has cut the corporate tax rate to 25 percent, from 32.5 percent, and made it easier to export goods.

Rwanda scrapped a law adopted during Belgian colonial rule that had given one official a monopoly on notarizing documents for the entire country.

Ivory Coast slashed the time to register property to a month from more than a year by eliminating a requirement that the urban minister give his consent.

Wealthy donors like the World Bank, the United States and Britain, which focus on spurring economic growth and job creation, are putting heavier emphasis on such changes in deciding where to provide aid.

The Millennium Challenge Account, President Bush’s aid program, explicitly uses the bank report’s measure of days to start a business as one criterion for deciding who qualifies for large grants.

For the full story, see:

CELIA W. DUGGER. "Africa Moves Up the Ladder of Business-Friendly Regions." The New York Times (Weds., September 6, 2006): A12.

(Note: the online version of the article had this, slightly different, title: "In Africa, a More Business-Friendly Approach.")

Sprint to Risk Billions on New Infrastructure

Source of graphic: online version of the WSJ article cited below.

If Sprint bets on WiFi, they’re betting with their money; if the government bets on WiFi, they’re betting with your money. If Sprint succeeds, thereby benefiting the consumer, at no risk to the consumer, the consumer should not object to their earning huge profits.

Note also, that this is a plausble candidate for a firm trying to follow Clayton Christensen’s advice to try to disrupt itself. (And see the comment at the end, for someone who hasn’t read Christensen, or doesn’t believe what he has read.)

Analysts say building a nationwide WiMax network could cost Sprint between $1 billion and $4 billion, a hefty sum for a company that is already struggling to meet Wall Street’s expectations. Sprint said it expects to invest $1 billion on the project in 2007 and between $1.5 billion and $2 billion in 2008.

Sprint’s decision carries considerable risks: Investors have hammered telecom companies that have made large capital investments in new technologies, banking on future markets to emerge. For example, among other things, Verizon Communications Inc.’s stock has been under fire as the company is rolling out a costly new fiber optic network that it says will position the company to deliver a bundled TV, Internet, and phone service. Also, WiMax technology is still untested on a large scale.

Sprint is making a huge bet that consumer demand for wireless Internet access and services such as cellphone downloads of music and video will continue to grow in the coming years. Consumers already can get access to wireless Internet service at Wi-Fi "hotspots" in airports and coffee shops, and some cities, like Anaheim, Calif., are blanketing their terrain with Wi-Fi connections.

. . .

. . . , some analysts and industry experts question why the company is gearing up for such a major capital investment when it is already even or ahead the other top U.S. carriers, Verizon and Cingular Wireless, when it comes to data services. "Why compete against yourself? It doesn’t make a lot of sense at this point," said Mike Thelander, principal analyst at Signals Research Group who predicted several weeks ago that Sprint would choose WiMax.

For the full story, see:

AMOL SHARMA and DON CLARK. "Sprint Bets on New Wireless ‘WiMax’." Wall Street Journal (Tues., August 8, 2006): B1-B2.

(Note: the above passages are from the online version, which was later, and less tentative about Sprint’s intentions, than the print version.)

(Note: ellipses added.)

Tech Bubble Caused Much of 1990s Inequality Increase

Source of graphic: online version of the NYT article cited below.

It is widely recognized that income inequality increased in the 1990’s, but nobody knows quite why. Despite the lack of hard evidence, there are plenty of theories.

. . .

Two University of Texas researchers, James K. Galbraith and Travis Hale, added an interesting twist to this debate in a paper, “Income Distribution and the Information Technology Bubble” (utip.gov.utexas.edu/abstract.html#UTIP27).

According to Mr. Galbraith and Mr. Hale, much of the increase in income inequality in the late 1990’s resulted from large income changes in just a handful of locations around the country — precisely those areas that were heavily involved in the information technology boom.

. . .

A big advantage of looking at county data is that it is possible to identify counties that contributed the most to the increase in income inequality from 1994 to 2000. It turns out that the five biggest winners in this period were New York; King County, Wash. (with both Seattle and Redmond); and Santa Clara, San Mateo and San Francisco, Calif., the counties that make up Silicon Valley. The five biggest losers were Los Angeles; Queens; Honolulu; Broward, Fla.; and Cuyahoga, Ohio.

What do the counties in the first list have in common? Their economies were all heavily driven by information technology in the late 90’s. This is true for the rest of the list of winners as well. Harris, Tex. (home to Houston and Enron); Middlesex, Mass. (home to Harvard and M.I.T.); Fairfield, Conn.; Alameda, Calif.; and Westchester, N.Y., were also among the top 10 income gainers in this period.

The authors point out that half the 80 American companies in the CNET Tech Index are in those top 10 counties. Furthermore, when income inequality decreased after 2000, the income drop in the high-tech counties contributed most to the decline.

For the full commentary, see:

HAL R. VARIAN. "ECONOMIC SCENE; Many Theories on Income Inequality, but One Answer Lies in Just a Few Places." The New York Times (Thurs., September 21, 2006): C3.

Markets, Not Courts, Should Decide Intel Market Share

Intel executives, coming up on a pre-trial conference in a case that could decide their company’s fate, should be looking with envy and admiration at Tiger Woods, and wondering how to make their business more like his.

If golf followed the same path as other businesses, Tiger could expect to face a lawsuit contending that his dominance of professional golf is based on unfair competition. And in fact, a few years back Sergio Garcia whined that Tiger got better practice times, favorable treatment around the course, more protection against distracting fans — little things that could, Mr. Garcia intimated, explain Tiger’s edge. Sportswriters responded swiftly, deriding Mr. Garcia for looking to blame others for his being outcompeted. They understood that sports contests belong on the field, not in the media or the courts.

The same should be true of business. Market-based economies thrive on competition. The competitive economy doesn’t yield an infinite number of equally successful firms producing indistinguishable products, but lets winners and losers emerge from marketplace competition. The (inevitably) temporary dominance of one product or one firm spurs others to compete harder. Today, however, many businesses — especially American ones — find it easier to restrain a dominant competitor through the courts than to beat it in the market.

Take the case of Advanced Micro Devices and Intel, the dominant chipmaker for PCs and servers. AMD for years played the role of Phil Mickelson to Intel Corporation’s Tiger Woods — the talented rival who keeps coming up short in head-to-head competition. Last year, it decided to model Mr. Garcia rather than Mr. Mickelson, filing an antitrust action against Intel, charging it with a variety of unlawful actions.

. . .

AMD finds fault in Intel’s continued market dominance: Because Intel has had 80% or more of the x86 chip processor market for many years it must be doing something illegal to keep rivals out. Yet, George Stigler, among others, long ago debunked the significance of market share as a measure of competition. Duopoly markets, like the market for large commercial aircraft, can be fiercely competitive. Ask anyone working at Boeing or Airbus.

Moreover, markets can change rapidly, especially high-tech markets, often in ways unanticipated by antitrust suits. Witness the changes in computing that caused the government’s antitrust case against IBM to implode.

For the full commentary, see:

RON CASS. "RULE OF LAW; Tigers by the Tail." Wall Street Journal (Sat., September 23, 2006): A7.

“An Image Was Worth a 1,000 Statistical Tables”

Artistic vision of germ-laden hand. (This is not the photographic image mentioned below, and used as a hospital screen-saver.) Source of image: online version of the NYT article cited below.

(p. 22) Leon Bender noticed something interesting: passengers who went ashore weren’t allowed to reboard the ship until they had some Purell squirted on their hands. The crew even dispensed Purell to passengers lined up at the buffet tables. Was it possible, Bender wondered, that a cruise ship was more diligent about killing germs than his own hospital?

Cedars-Sinai Medical Center, where Bender has been practicing for 37 years, is in fact an excellent hospital. But even excellent hospitals often pass along bacterial infections, thereby sickening or even killing the very people they aim to heal. In its 2000 report “To Err Is Human,” the Institute of Medicine estimated that anywhere from 44,000 to 98,000 Americans die each year because of hospital errors — more deaths than from either motor-vehicle crashes or breast cancer — and that one of the leading errors was the spread of bacterial infections.

. . .

. . . the hospital needed to devise some kind of incentive scheme that would increase compliance without alienating its doctors. In the beginning, the administrators gently cajoled the doctors with e-mail, (p. 23) faxes and posters. But none of that seemed to work. (The hospital had enlisted a crew of nurses to surreptitiously report on the staff’s hand-washing.) “Then we started a campaign that really took the word to the physicians where they live, which is on the wards,” Silka recalls. “And, most importantly, in the physicians’ parking lot, which in L.A. is a big deal.”

For the next six weeks, Silka and roughly a dozen other senior personnel manned the parking-lot entrance, handing out bottles of Purell to the arriving doctors. They started a Hand Hygiene Safety Posse that roamed the wards and let it be known that this posse preferred using carrots to sticks: rather than searching for doctors who weren’t compliant, they’d try to “catch” a doctor who was washing up, giving him a $10 Starbucks card as reward. You might think that the highest earners in a hospital wouldn’t much care about a $10 incentive — “but none of them turned down the card,” Silka says.

When the nurse spies reported back the latest data, it was clear that the hospital’s efforts were working — but not nearly enough. Compliance had risen to about 80 percent from 65 percent, but the Joint Commission required 90 percent compliance.

These results were delivered to the hospital’s leadership by Rekha Murthy, the hospital’s epidemiologist, during a meeting of the Chief of Staff Advisory Committee. The committee’s roughly 20 members, mostly top doctors, were openly discouraged by Murthy’s report. Then, after they finished their lunch, Murthy handed each of them an agar plate — a sterile petri dish loaded with a spongy layer of agar. “I would love to culture your hand,” she told them.

They pressed their palms into the plates, and Murthy sent them to the lab to be cultured and photographed. The resulting images, Silka says, “were disgusting and striking, with gobs of colonies of bacteria.”

The administration then decided to harness the power of such a disgusting image. One photograph was made into a screen saver that haunted every computer in Cedars-Sinai. Whatever reasons the doctors may have had for not complying in the past, they vanished in the face of such vivid evidence. “With people who have been in practice 25 or 30 or 40 years, it’s hard to change their behavior,” Leon Bender says. “But when you present them with good data, they change their behavior very rapidly.” Some forms of data, of course, are more compelling than others, and in this case an image was worth 1,000 statistical tables. Hand-hygiene compliance shot up to nearly 100 percent and, according to the hospital, it has pretty much remained there ever since.

For the full commentary, see:

STEPHEN J. DUBNER and STEVEN D. LEVITT. "FREAKONOMICS; Selling Soap." The New York Times Magazine (Section 6) (Sunday, September 24, 2006): 22-23.

(Note: ellipses added.)

The screen-saver at Cedars Sinai Hospital. Source of image: http://freakonomics.com/pdf/CedarsSinaiScreenSaver.jpg

Higher Oil Prices Provide Incentive to Seek Deeper Oil

Source of map: online version of the WSJ article cited below.

(p. C1) The successful production of oil from the five-mile-deep Jack well in the Gulf of Mexico is likely to spur more deep-water exploration around the world — and that prospect is helping calm overheated crude-oil markets anxious about future supplies.

. . .

The successful Jack test underscores what a group of economists and oil-industry executives have been arguing for a while: High prices will encourage energy companies to find and pump oil in deep, dark places around the world that otherwise would have been uneconomical.

For the full story, see:

RUSSELL GOLD. "More Companies May Dig Deeper In Search for Oil Gulf of Mexico Discovery Fuels Prospects of Finding New Supplies; Lack of Resources Could Slow Push." Wall Street Journal (Tues., September 19, 2006): C1.

“Free to Choose” Turns Estonia into “Boomtown”

Source of book image: http://search.barnesandnoble.com/booksearch/imageviewer.asp?ean=9780156334600

If, like Mr. Laar, you are only going to read one book in economics, Milton Friedman’s Free to Choose, is not too bad a choice:

(p. A23) Philippe Benoit du Rey is not one of those gloomy Frenchmen who frets about the threat to Gallic civilization from McDonald’s and Microsoft. He thinks international competition is good for his countrymen. He’s confident France will flourish in a global economy — eventually.

But for now, he has left the Loire Valley for Tallinn, the capital of Estonia and the economic model for New Europe. It’s a boomtown with a beautifully preserved medieval quarter along with new skyscrapers, gleaming malls and sprawling housing developments: Prague meets Houston, except that Houston’s economy is cool by comparison.

Economists call Estonia the Baltic tiger, the sequel to the Celtic tiger as Europe’s success story, and its policies are more radical than Ireland’s. On this year’s State of World Liberty Index, a ranking of countries by their economic and political freedom, Estonia is in first place, just ahead of Ireland and seven places ahead of the U.S. (North Korea comes in last at 159th.)

It transformed itself from an isolated, impoverished part of the Soviet Union thanks to a former prime minister, Mart Laar, a history teacher who took office not long after Estonia was liberated. He was 32 years old and had read just one book on economics: ”Free to Choose,” by Milton Friedman, which he liked especially because he knew Friedman was despised by the Soviets.

Laar was politically naïve enough to put the theories into practice. Instead of worrying about winning trade wars, he unilaterally disarmed by abolishing almost all tariffs. He welcomed foreign investors and privatized most government functions (with the help of a privatization czar who had formerly been the manager of the Swedish pop group Abba). He drastically cut taxes on businesses and individuals, instituting a simple flat income tax of 26 percent.

For the full commentary, see:

JOHN TIERNEY. "New Europe’s Boomtown." The New York Times (Tues., September 5, 2006): A23.

Wal-Mart Really Does Benefit Consumers by Lowering Prices

Scholarly studies show Wal-Mart’s price reductions to be sizable. Economist Emek Basker of the University of Missouri found long-term reductions of 7 to 13 percent on items such as toothpaste, shampoo and detergent. Other companies are forced to reduce their prices. On food, Wal-Mart produces consumer savings that average 20 percent, estimate Jerry Hausman of the Massachusetts Institute of Technology and Ephraim Leibtag of the Agriculture Department.

All told, these cuts have significantly raised living standards. How much is unclear. A study by the economic consulting firm Global Insight found that from 1985 to 2004, Wal-Mart’s expansion lowered the consumer price index by a cumulative 3.1 percent from what it would have been. That produced savings of $263 billion in 2004, equal to $2,329 for each U.S. household. Because Wal-Mart financed this study, its results have been criticized as too high. But even if price savings are only half as much ($132 billion and $1,165 per household), they’d dwarf the benefits of all but the biggest government programs.

For the full commentary, see:

Robert J. Samuelson. "Wal-Mart as Red Herring." The Washington Post (Wednesday, August 30, 2006): A19.

New Concert Halls Reduce Money for Other Activities

”A new theater is not automatically simply great news,” said Marc Scorca, the president of Opera America, an organization serving opera companies nationwide. When a hall is added, he said, it may just divert audiences and their dollars from other performance and cultural institutions.

”This is all redistributing people’s expenditures from one activity to another,” said David Galenson, an economist at the University of Chicago who focuses on the arts.

Tyler Cowen, a professor of economics at George Mason University and the author of ”Good and Plenty: The Creative Successes of American Arts Funding,” said there was little solid research measuring the economic impact of arts centers on a city, although there was for sports stadiums. Such research shows no benefit for a city’s growth, he said, adding that he was skeptical about economic claims for new concert halls.

”The glorious tales are typically exaggerations,” said Mr. Cowen, who also contributes a monthly economics column to The New York Times.

For the full story, see:

DANIEL J. WAKIN. "This Season’s Must-Have Urban Accessory." The New York Times, Section 2 (Sun., September 3, 2006): 1 & 17.

Daley Shows Chicago is Still the “City of the Outstuck Neck”

I think it was the poet Gwendolyn Brooks who once described Chicago as the "city of the out-stuck neck." Chicago’s current Mayor Daley did himself and the city proud recently when he had the guts to stick his neck out by vetoing the proposed Chicago minimum wage. He deserves a salute from Chicago’s consumers and poor. Democrat Daley is the mayor of the out-stuck neck.

Chicago Mayor Richard M. Daley used the first veto of his 17-year tenure to reject a living-wage ordinance aimed at forcing big retailers to pay wages of $10 an hour and health benefits equivalent to $3 an hour by 2010.

The veto is important to Wal-Mart Stores Inc., which plans to open its first store in Chicago late this month in the economically depressed 37th ward.

. . .

In vetoing the ordinance, Mayor Daley cited a potential loss of jobs. In recent weeks, several big retailers had written to his office to oppose the ordinance. "I understand and share a desire to ensure that everyone who works in the city of Chicago earns a decent wage," the mayor wrote to the aldermen yesterday. "But I do not believe that this ordinance, well intentioned as it may be, would achieve that end. Rather, I believe that it would drive jobs and business from our city."

For the full story, see:

KRIS HUDSON. "Chicago’s Daley Vetoes Bill Aimed At Big Retailers." Wall Street Journal (Thurs., September 12, 2006): A4.

(Note: I can’t find the exact source of the out-stuck neck quote, but one reference on the web is: http://starbulletin.com/97/05/22/sports/fitzgerald.html )