hey, i was just reading this article by martin wolf in the FT about "this year's 'World Development Report' among the most important the World Bank has ever produced," which seems to basically take hernando de soto's position in 'the mystery of capital':

It is about how to make market economies work. This grand theme is hidden in the less than racy phrase "investment climate".* The arguments and evidence are as wide-ranging as the theme. The report is based on two big research projects: surveys of the investment climate that now cover 26,000 businesses in 53 countries; and the "doing business" project, which identifies obstacles to business in 130 countries. The result is a fascinating document.

[...]

Governmental failure is the most important obstacle business faces. Inadequate enforcement of contracts, inappropriate regulations, corruption, rampant crime and unreliable infrastructure can cost 25 per cent of sales (see chart). This is more than three times what businesses typically pay in taxes. Similarly, when asked to enumerate the obstacles they face, businesses list policy uncertainty, macroeconomic instability, taxes and corruption at the head of the list. What do these have in common? Incompetence and malfeasance by governments is again the answer.

What then is to be done? The report stresses, rightly, that a better investment climate is not necessarily the one business wants. Incumbents want neither taxes nor regulations but do desire barriers to new competitors. Yet taxes are needed to finance the activities of the state, while regulation is required to curb environmental or other damage. Moreover, competition is the engine of progress. What companies want is, in short, often the opposite of what the economy needs.

In many developing countries, the requirement is not less government but more and better directed government. What does this involve? Four requirements are listed: a reduction in the "rent-seeking" that affects all countries but mars developing countries to an extreme extent; credibility in the making and execution of policy; the fostering of public trust and legitimacy; and the tailoring of policy responses to what works in local conditions.

One of the conclusions the report rightly draws from this list is that reform is not a one-off event but a process. What is involved is not just discrete and well-known policy changes (such as lower tariffs) but the fine-tuning of policy and the evolution of institutions. This is why, it suggests, the credibility of the government's journey, as in China, may be more important than the details of policy at each stage along the way.

Turning these broad objectives into specific policy is a tricky business. The Bank describes its core recommendation as "delivering the basics". These are: stability and security, which includes protection of property (see chart), facilitating contract enforcement, curbing crime and compensating for expropriation; better regulation and taxation, which means focusing intervention where it is needed, broadening the tax base and lowering tax rates, and reducing barriers to trade; better finance and infrastructure, which requires both more competition and better regulation; and transforming labour market regulation, to foster skills, while avoiding the counterproductive interventions that so often destroy employment in the formal sector.

wolf then goes on to note that much of this is beyond the direct purview of the bank and why development is so difficult in the first place.

the relevant point for this discussion being that there's a good reason why some countries that could otherwise use the capital export it to the US instead for safe-keeping despite the relatively low returns. so hope that the US collectively deploys that capital more effectively and for positive real returns :D

cheers!

Posted by: glory on October 7, 2004 2:52 AM

ah, oops! that would be...

*A Better Investment Climate for Everyone, World Development Report 2005 :D

Posted by: glory on October 7, 2004 2:58 AM

Tatyana:

I don't see how unions are the bete noir of the American economy, like you do. And, I'm not sure that a PhD of Comparative Literature SHOULD be paid that significantly more than a good, skilled plumber. It's not JUST unions that drive up costs for the skilled trades-its the recent bias (one you share, it appears) that only college educated "professions" have any merit. Since CEOs and corporations "conspire" with one another wherever possible and in indirect ways to fix prices (and compensation packages at the executive level), I have no problem with unionized plumbers doing the same thing.

As for U.S. manufacturing returning if we just start paying our masses starvation wages (what you really mean), well, an American can never starve at the level of desperation of a Chinese rural migrant (or now, a Vietnamese eager to work for 1/3 the Chinese rate). I doubt that any Western country can win the race to the bottom

Posted by: Brian Miller on October 7, 2004 11:55 AM

Oh, I won't be so sure, Brian. If you add customs, shipping, paperwork, warehouse storing, etc charges (not counting bribes on all levels) to the wages of desperate Chinese rural migrant (btw, what animal is that? if he's rural - he lives in a countryside, if he's migrant- he's a city dweller in my book)- it might turned out more profitable to use unqualified (I stress) labor at home.

It's interesting to come across an example of what my Scientific communism' professor in "rural" Russia 20 yrs ago called "historical vulgar marxism" in internet-era America.
Namely,
1. You have no problem with thieves at the bottom if there are thieves on top - highly moral position, and very practical, too. Gives you ground, for example, to write bad checks or cheat on your taxes - why, if people on top all doing it, I can too.

2. You call me biased against uskilled labor. Another marxist dogma; yea, proletariat is always right, unlike these intellectual leeches stuck to workers' shoulders. Being there, you don't even imagine for how long - and what endless variation on this theme I can perform for audience pleasure...

As someone who's been working in different capacity, skilled and unskilled, on heavy truck factories, flower shops, in architectural firms and machine-tools design outlets I can tell you if there one thing as axiomatic as existence of sun and stars it is a simple logic that the product/service should paid for (before market kicks in) according to the amount of labor and preparation necessary for production.
If somebody demands to be paid $10 ph. for breaking down carton boxes (I kid you not, I can give names on request) because that's the minimum his union will allow; and highly skilled full-time managing editor job pays you $15 (see this), who is being paid "starvation wages"?

You might find it strange (or biased), but I believe in equal opportunity. If one segment of labor force being paid in accordance with prevailing market prices, and another segment's wages are artificially constructed, I call it unfair. If a person spent 15 years studying, which requires heavy intellectual labor and it lands him a 10 hrs a day job with high level of legal responsibility, without overtime pay, 1 week vacation and no sick days and another whose training lasted 10 months earns same salary, works 6 hrs a day, has 3 mandatory coffee breaks in addition to lunch and 2 months required vacation (and who CAN NOT BE FIRED) - I call it exploitation. (and guess, who is a carpenter in my example?)
OK, I have to stop: I'm not a union member and there is no laws prohibiting my employer from firing ME...

Posted by: Tatyana on October 7, 2004 3:35 PM

Oh, sorry, I forgot - the Vietnamese! The one willing to work for 1/3 of the Chinese wages.

Funny how this turned out- all the stink American lefties raised at the time of the Vietnam war to prevent US from liberating the country of Soviet-model economy (and Soviet "advisers") - and now, when they got their wish and Vietnam became ...what it became, they advocate America keep using unskilled desperation-level Vietnamese labor for peanuts rather than normilise our own labor market...

Posted by: Tatyana on October 7, 2004 4:30 PM

Well, tatanya: what does "normalize" really mean: impoverish everyone except those with the resources (often family income and time) to spend 10 years studying some arcane profesison that can't be easily outsourced? Again, using my example, becoming a good carpenter or plumber often requires significant time, energy, and even intellectual labor. I am not so willing to dismiss these individuals, especially since they arguably provide more benefit to society than my mythical professor-or your lawyer example (if I am guessing what you mean). I won't engage in lawyer bashing, but lawyers are far bigger parasites on productive enterprise than unions.

As for the dismissal of my argument that collusion at the top excuses collusion (via unions) at the bottom: in a morally perfect world, of course not. But, unionization rates have been falling at the same time as CEO salaries and benefits have been skyrocketing. Why should the union guys give up their rackets? They are a shrinking minority, anyway, and I'm unsure why you see unions as such a big factor.

As for Vietnam-I don't have an easy answer to your argument, I was just pointing out that the rush to the bottom is eternal. There will always be someone more desparate and free flowing capital to exploit that desparation.

Not everyone can be a genius PhD with 15 years of education. That does not mean that 80% of the population (or maybe 95%) should be "normalized" to Third World levels. Is unmitigated free trade/pure capitalism so important that it is worth impoverishing the country (or at least most residents)? I'm not so sure.

Posted by: Brian Miller on October 8, 2004 3:30 PM

Funny how this turned out- all the stink American lefties raised at the time of the Vietnam war to prevent US from liberating the country of Soviet-model economy (and Soviet "advisers") - and now, when they got their wish and Vietnam became ...what it became, they advocate America keep using unskilled desperation-level Vietnamese labor for peanuts rather than normilise our own labor market...

Posted by: 沥青 on October 27, 2004 7:09 AM






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