"It can’t be emphasized enough how important it is to present such illuminating, factual, compelling analyses to a public that is starved for the truth and routinely subject to lies, half-baked assertions, and irresponsibly outlandish claims about the state of American manufacturing."
http://www.JewishWorldReview.com | Why is it that Egyptians do well in the U.S. but not Egypt? We could make that same observation and pose that same question about Nigerians, Cambodians, Jamaicans and others of the underdeveloped world who migrate to the U.S. Until recently, we could make the same observation about Indians in India, and the Chinese citizens of the People's Republic of China, but not Chinese citizens of Hong Kong and Taiwan.
Let's look at Egypt. According to various reports, about 40 percent of Egypt's 80 million people live on or below the $2 per-day poverty line set by the World Bank. Unemployment is estimated to be twice the official rate pegged at 10 percent.
Much of Egypt's economic problems are directly related to government interference and control that have resulted in weak institutions vital to prosperity. Hernando De Soto, president of Peru's Institute for Liberty and Democracy (www.ild.org.pe), laid out much of Egypt's problem in his Wall Street Journal article (Feb. 3, 2011), "Egypt's Economic Apartheid." More than 90 percent of Egyptians hold their property without legal title.
De Soto says, "Without clear legal title to their assets and real estate, in short, these entrepreneurs own what I have called 'dead capital' — property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor." Egypt's legal private sector employs 6.8 million people and the public sector 5.9 million. More than 9 million people work in the extralegal sector, making Egypt's underground economy the nation's biggest employer.
Why are so many Egyptians in the underground economy? De Soto, who's done extensive study of hampered entrepreneurship, gives a typical example: "To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections."
Poverty in Egypt, or anywhere else, is not very difficult to explain. There are three basic causes: People are poor because they cannot produce anything highly valued by others. They can produce things highly valued by others but are hampered or prevented from doing so. Or, they volunteer to be poor.
Some people use the excuse of colonialism to explain Third World poverty, but that's nonsense. Some the world's richest countries are former colonies: United States, Canada, Australia, New Zealand and Hong Kong. Some of the world's poorest countries were never colonies, at least for not long, such as Ethiopia, Liberia, Tibet and Nepal. Pointing to the U.S., some say that it's bountiful natural resources that explain wealth. Again nonsense. The two natural resources richest continents, Africa and South America, are home to the world's most miserably poor. Hong Kong, Great Britain and Japan, poor in natural resources, are among the world's richest nations.
We do not fully know what makes some societies more affluent than others; however, we can make some guesses based on correlations. Rank countries according to their economic systems. Conceptually, we could arrange them from those more capitalistic (having a large market sector and private property rights) to the more socialistic (with extensive state intervention, planning and weak private property rights). Then consult Amnesty International's ranking of countries according to human rights abuses going from those with the greatest human rights protections to those with the least. Then get World Bank income statistics and rank countries from highest to lowest per capita income.
Having compiled those three lists, one would observe a very strong, though imperfect correlation: Those countries with greater economic liberty and private property rights tend also to have stronger protections of human rights. And as an important side benefit of that greater economic liberty and human rights protections, their people are wealthier. We need to persuade our fellow man around the globe that liberty is a necessary ingredient for prosperity.
From Mark J. Perry at http://mjperry.blogspot.com/
The news media is making a big deal about the fact that China surpassed Japan in 2010 as the world's second largest economy, see WSJ article here. But on a per-capita basis, China's GDP ranks #95 in the world, and is still lagging behind Ecuador and Iran. Japan's per-capita GDP is about 10 times greater than China's (see chart above).
While the cost factor for a horizontal well may be as much as two or three times that of a vertical well, the production factor can be enhanced as much as 15 or 20 times, making it very attractive.
Q: Why are these students studying under streetlights?
A: They don’t have electricity at home, so they go to the airport to study for exams. See the news report describing their situation.
Q: Why do you use this picture in your presentation?
A: All too often, the picture associated with the challenge of development is one of a starving child. This kind of picture may be helpful in motivating giving, but it does not necessarily lead to careful thinking about the forces that hold so many people back. There are, to be sure, desperate cases of people who are truly helpless. But images of extreme deprivation often obscure the fact that many of the world’s poorest residents attempt to help themselves, only to be stymied by bad rules.
Q: What kinds of rules keep people from having light in their homes?
A: Here are some simple examples of rules that can keep people in the dark:
Electricity is provided only by a government-owned firm.
Government employees can’t be fired, regardless of how poorly they do their jobs.
The low subsidized price of electricity for the lucky consumers who have access is determined by political considerations.
Under good governance, the people who want electricity in their homes can easily match up with the utilities that want to provide it to them.
Q: Wouldn’t most poor people rather live in rural areas instead of dangerous, unhealthy, crime-ridden slums?
A: The trend toward urbanization suggests not. People actually flock from rural areas to dangerous, unhealthy, crime-ridden slums. There are advantages in the city that attract them despite the awful things that they have to confront there. Imagine how much more attractive cities would be if they offered good public health, low levels of crime, small but modern housing units, schools for kids, and firms that would hire people in steady jobs.
Q: What do you mean when you refer to rules?
A: The rules that limit electrification cited above illustrate one type of rule.
Here’s an example of a different type. A common rule in cities in rich countries states that residents must live in structures with toilets connected to a sanitary sewer. A supporting rule makes it illegal to urinate or defecate anyplace other than in a toilet.
Many poor people live in cities where these basic rules about sanitation do not prevail. In these cities, it is common to see untreated sewage flowing through streets and into waterways.
The rule requiring toilets in structures is typically enforced through formal laws and regulations. The rule about public urination and defecation is enforced in different ways in different places. In some societies, people have internalized this rule. They would feel shame if they were caught urinating or defecating in public. In these societies, this internal mechanism is reinforced by ridicule and harassment by others.
But these internal and automatic mechanisms sometimes need support from the formal legal system. A recent news report on public urination in Paris suggests that it is still a significant problem there. The city government is responding with special police units that ticket men who urinate on walls.
Q: Isn’t having the right culture really the key to successful economic development?
A: Culture is typically a side effect, not a cause, of economic development. Good rules lead to faster development and cultural norms grow alongside of the rules to support them.
The discussion of public urination in Paris illustrates this point. In Paris, there is a persistent cultural norm that tolerates public urination. Government officials can nevertheless use formal rules and mechanisms like tickets and fines to overcome this norm and change behavior. Eventually, as public urination becomes less common, a new cultural norm will probably develop in Paris, one that discourages this behavior. Eventually, they may be able to get rid of the special police units and rely exclusively on the new social norm.
Culture is important, but so are laws and regulations. Over time, laws and regulations can change behavior, and behavior can change culture. As one of the charter cities blog posts shows, the contrast between North Korea and South Korea is a dramatic illustration of the degree to which different systems of formal rules, applied to people who started with a similar culture, led to dramatically different economic outcomes.
Q: Doesn’t it take aid to solve the problem of global poverty?
A: Aid is not a prerequisite and by itself can never be sufficient. To see why, consider the case of China.
In 1970, almost everyone in China was poor. Since then, average income in China has increased by about $7000 per person. This means that each year, the Chinese receive about $7 trillion more in income than they did in 1970. Aid did not play an important part in this growth success. What the Chinese did was change from the rules of central planning, which held people back, to market-based rules that let people be productive.
Aid flows could never generate improvements in income of this magnitude. There are only 1 billion people in the rich countries of the world. To give all Chinese extra income of $7000 per year, each person in a rich country would have had to donate $7000 per year.
Q: Are there historical precedents for a charter city?
A: Hong Kong is one obvious example in which two countries worked together to create a new city. In effect, China supplied the land and the people; Britain supplied the rules for a market-based economy together with basic rules such as sanitation, building codes, and civil codes that made the place where the market operated livable. Of course, this did not arise from a voluntary agreement between the Chinese and the British. But looking back, it turned out so well that a country wishing to follow China’s lead might well want to start by cooperating with a foreign country to build a Hong Kong.
The British established the legal and social system in Hong Kong long before most Chinese moved there, but they did not codify this system in a formal charter. A better example of a newly created region with a clear charter is Pennsylvania. William Penn was given Pennsylvania as a dominion. He wrote a charter that included a legal guarantee of freedom of religion. For many migrants, this made Pennsylvania more attractive than other more restrictive colonies in North America.
Q: Isn’t Hong Kong such a special example because of its location?
A: Once a city exists someplace, the location always seems special, even if it didn’t seem special before the city emerged.
Some cities have existed for thousands of years, including cities in China. Compared to these other places, the location of Hong Kong didn’t strike anyone as special. No city existed there until the British arrived and decided to develop it as a port.
To see how limiting it is to look back and focus on accidents of location, picture how the United States looked in 1900. One might have argued then that no major new cities could emerge and compete with the ones like New York, Chicago, and Philadelphia that had special locations. This kind of reasoning would have completely missed the emergence of Dallas, Houston, Miami, and Los Angeles.
As income grows and more people move into cities, there will be opportunities for hundreds of new cities throughout the world. These could be existing cities that grow larger. Or they could be new cities in new locations, just as Hong Kong was a new city in a new location at one time.
On the front page of today's WSJ, an excellent article about the rising occupational licensure in some states for some professions (see chart above, click to enlarge): "A License to Shampoo: Jobs Needing State Approval Rise," here are some key paragraphs:
"Mr. Kleiner, labor professor at the University of Minnesota, looked at census data covering several occupations that are regulated in some states but not others, including librarians, nutritionists and respiratory therapists. He found that employment growth in those professions was about 20% greater, on average, in the unregulated states between 1990 and 2000.
Licensing can also drive up costs to consumers. Licensed workers earn, on average, 15% more than their unlicensed counterparts in other states—a premium that may be reflected in their prices, according to a study published by the National Bureau of Economic Research and conducted by Mr. Kleiner and Alan Krueger, an economist at Princeton University.
Mr. Kleiner estimates that across the U.S. economy, occupational licensing adds at least $116 billion a year to the cost of services, which amounts to about 0.1% of total consumer spending. In a look at dentistry, Mr. Kleiner found that the average price of dental services rose 11% when a state made it more difficult to get a dental license.
In many service trades, licensure "is totally out of control," says Charles Wheelan, a lecturer in public policy at the University of Chicago. He says the marketplace might be a better judge than the government of whether a barber or a yoga instructor is competent. "It's fairly easy for you to tell whether you've gotten a bad haircut or not, and if quality turns out to be bad, it's not a big social problem," says Mr. Wheelan.
When a trade group does succeed in getting a licensing law passed, it sometimes exempts existing workers from the testing requirements. In Michigan, for instance, it will soon be a felony to practice massage without a license. Newcomers to the field must take 500 hours of classes and pass an exam to get that license. But a grandfather clause exempts most current massage therapists, including those who may never have taken a class at an accredited school."
MP: See Chapter IX ("Occupational Licensure") of Milton Friedman's book "Capitalism and Freedom."
From Jeff Jacoby's column in today's Boston Globe "Made in the USA":
"There’s just one problem with all the gloom and doom about American manufacturing. It’s wrong.
Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent (see chart above). China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.
Perceptions also feed the gloom and doom. In its story on Americans’ economic anxiety, National Journal quotes a Florida teacher who says, “It seems like everything I pick up says ‘Made in China’ on it.’’ To someone shopping for toys, shoes, or sporting equipment, it often can seem that way. But that’s because Chinese factories tend to specialize in low-tech, labor-intensive goods — items that typically don’t require the more advanced and sophisticated manufacturing capabilities of modern American plants.
A vast amount of “stuff’’ is still made in the USA, albeit not the inexpensive consumer goods that fill the shelves in Target or Walgreens. American factories make fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors. Not the sort of things on your weekly shopping list? Maybe not. But that doesn’t change economic reality. They may have “closed down the textile mill across the railroad tracks.’’ But America’s manufacturing glory is far from a thing of the past."
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