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Wednesday, 2 April 2008

Staying on top...

A new paper sheds light on what sustains growth. A very important issue for countries like Zambia which require sustained growth in order to meet the government's goal of "becoming a middle income country by 2030". Excerpt:

Our main findings confirm some previous results in the literature—in particular, that external shocks and macroeconomic volatility are negatively associated with the length of growth spells, and that good political institutions help prolong growth spells. We also have some more surprising findings. Trade liberalization, seems to help not only in getting growth going, as emphasized by previous authors, but also in sustaining it—particularly when combined with competitive exchange rates, current account surpluses, and an external capital structure weighted toward foreign domestic investment (see also Dell’Ariccia and others (2008) on this latter point). Furthermore, we find that export composition matters. Consistent with the findings of Johnson, Ostry, and Subramanian (2006, 2007), Hausmann, Hwang, and Rodrik (2006) and Hausmann, Rodriguez, and Wagner (2006), we find that the manufacturing share in exports, and more generally, export product sophistication tend to prolong growth. Most strikingly, we find that the duration of growth spells is strongly related to income distribution: more equal societies tend to grow longer.

33 comments:

  1. we find that the manufacturing share in exports, and more generally, export product sophistication tend to prolong growth.

    In other words, the more value is added to products locally or nationally, the better it is for the economy. :)

    Most strikingly, we find that the duration of growth spells is strongly related to income distribution: more equal societies tend to grow longer.

    Which is directly opposite to the neoliberal, Chicago School, supply side economics, which are all about the accumulation of wealth by the already economically successful.

    It is time for a return to demand side economics, and a version that is specifically attuned to the Zambian economy and society.

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  2. That's why the IMF is annoying.

    Good political institutions, macroeconomic stability, less external shocks, more trade, competitive exchange rates, current account surpluses, external capital structure, export product sophistication, not shockingly unequal income distribution..

    That's the list of things that correlate with sustained growth ? They would have made it shorter by saying "be a middle income country and you'll get to be a middle income country".

    That said I'm amused by Mr K's partial reading and misunderstanding.

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  3. My understanding is as fully informed as it can be, because I do not pick and choose what I want to know, like you do.

    Now if you want to supply evidence of anything you say, please do. If you just want to throw insults around, I suggest you go and bother someone else.

    Understood? Because this is getting more than a little boring.

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  4. That said I'm amused by Mr K's partial reading and misunderstanding.

    Blah, blah, blah.

    ReplyDelete
  5. "In other words, the more value is added to products locally or nationally, the better it is for the economy" - MrK

    Except of course that the same paper notes the importance of "an external capital structure weighted toward foreign domestic investment".

    "They would have made it shorter by saying "be a middle income country and you'll get to be a middle income country"." - Random

    Not sure I follow this.
    The question of "duration" determinants is actually quiet challenging econometrically. I think the paper does well to combine conventional econometrics with hazard analysis.

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  6. Not sure I follow this.
    The question of "duration" determinants is actually quiet challenging econometrically. I think the paper does well to combine conventional econometrics with hazard analysis.


    I only skipped through the paper so I may have the wrong impression but there is a causality issue. Strong continued growth generates all those things as much as those things generate growth, not to mention that most of those things are interconnected.

    I guess I'm complainning about those regression heavy papers and wondering about the practical decisions that can be made from them.

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  7. Mr K,

    I agree, it is boring. It's much more fun when we argue about specifics as we did during the last week.

    Anyway, evidence ? When I say partial reading I refer to you seeing the "income equality" but not the rest of the factors. And when i say misunderstanding, I refer to the conclusion you make about the sophistication thing.

    But all in all, that's the problem. Demanding to return to demand-side economic policies is as dogmatic as demanding to strictly apply supply-side ones. It's not a battle. Both can work and both can fail. The issue of understanding in which context, how and why a policy succeeds or fails is far more important and interesting than petty ideological battles.

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  8. Cho,

    "In other words, the more value is added to products locally or nationally, the better it is for the economy" - MrK

    Except of course that the same paper notes the importance of "an external capital structure weighted toward foreign domestic investment".

    Which is in favour of letting corporations send their capital to any place in the world, which works directly against keeping production local.

    So their findings are not without contradiction. :)

    However, there are other sources which argue for vertically integrating economies or recirculating money within the community as often as possible.

    Money Drain In The Community

    You can make the same argument for entire countries. And I like the term "Money Drain", as opposed to "Brain Drain".

    From the Regional Communities blog:

    First, winning the right to compete involves attracting business to the state. The brand influence and regional benefits promote competition for sites. The local brand plays a key role in winning repeat investment as 80 percent of job creation comes from reinvestment, Burghard said.

    What Is A Local Living Economy?

    When needs are met locally by locally owned enterprises, people have greater control over their lives, money is recycled in the community, jobs are more secure, economies are more stable, and there are the means and the incentives to protect the environment and to build the relationships of mutual trust and responsibility that are the foundation of community.

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  9. MrK,

    I was simply intrigued that you picked the most "politically acceptable" factor :)

    I agree with you though, ultimately economic security is more important, and that requires technological transfer from FDI to local businesses. China has been good with this, by ensuring that certain parts are bought from local Chinese firms and so forth.

    The challenge of course is to identify viable sectors where such transfers can occur at minimal cost to the foreign investor.

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  10. Random,

    I agree, it is boring. It's much more fun when we argue about specifics as we did during the last week.

    I agree. Let's call a truce and focus on the issues.

    Cheers.

    ReplyDelete
  11. Cho,

    The challenge of course is to identify viable sectors where such transfers can occur at minimal cost to the foreign investor.

    Maybe there should be supplier schemes, the way there are outgrower schemes in agriculture. Private business could work in collaboration with local universities to supply and train employees, to adjust the curriculum, coordinate business incubators, etc.

    Also, I think that if the neoliberal lessons of Singapore and Hong Kong were applied to individual cities (Lusaka, Ndola) and not the entire country, that might actually work.

    The problem comes when these city states' lessons are applied to real countries, which have large rural areas, thousands of miles of infrastructure to create or maintain (which requires taxation), and huge potential for indigenous development of natural resources. Which are actually opportunities Singapore and Hong Kong never had, and which should not be subject to free market theory and foreign ownership.

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  12. The challenge of course is to identify viable sectors where such transfers can occur at minimal cost to the foreign investor.

    Or maximal benefits !
    I'm not sure the parts requirements did as much for technological transfers as the fact that almost all FDI in China are in joint-ventures (and foreign investors WANT joint ventures). So to which extend is it an externality thing ?

    That said, technology can be bought. The machines Toyota uses can be bought and the people who design their process can be hired. So somehow, I think the crucial issue may be somewhere else.

    Also, I think that if the neoliberal lessons of Singapore and Hong Kong were applied to individual cities (Lusaka, Ndola)

    Actually, that wouldn't really work. Singapore, HK, Mauritius or even Tunisia are not only small places but are also natural ports close to major trade roads. Somehow re-export industries in those places are natural.

    That said, the Singapore lesson is not so much about taxing or not taxing, foreign or local ownership but making choices. They did invest heavily in infrastructure, in their workforce and have a huge public sector. However they did invest in a smart way and the same carefulness, pragmatism and humility are lessons we should learn from.

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  13. Actually, that wouldn't really work. Singapore, HK, Mauritius or even Tunisia are not only small places but are also natural ports close to major trade roads. Somehow re-export industries in those places are natural.

    Point taken about their ports, but I was thinking more of their hi-tech approach, the availability of public transport and an educated workforce (especially around the major universities), housing and airports.

    Right now, fibre optic cables are being laid in Lusaka, making high speed internet possible.

    It would be possible to create free enterprise zones for Zambian businesses instead of only foreign businesses, support technology students in setting up businesses, in fact, creating miniature silicon valleys in the major cities, with the full support of universities and business.

    I think those are the lessons of Singapore and Hong Kong Zambia's major cities could learn.

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  14. "Maybe there should be supplier schemes, the way there are outgrower schemes in agriculture. Private business could work in collaboration with local universities to supply and train employees, to adjust the curriculum, coordinate business incubators, etc." - Mrk

    That can work at a general lebel. but which sectors would it be beneficial to foreign investors?
    Contrary to your position I think it is in rural areas where FDI is most needed. Its also in those areas, where the technological transfer is more necessary. Until we found how in those remote areas FDI and local development can deliver a win-win situation then we wont make much progress.


    "Or maximal benefits !
    I'm not sure the parts requirements did as much for technological transfers as the fact that almost all FDI in China are in joint-ventures (and foreign investors WANT joint ventures). So to which extend is it an externality thing ? "
    - Random

    Indeed, cost minimisation / revenue maximation. At the end of the day it is has to be a win-win situation. I guess what I have in mind is the sort of partnerships discussed here, with a technological transfer dimension.

    I don't necessary think this is about "externalities" in the tradition sense. It is about delivering long term security. As you know standard classical economic analysis tends to down play that issue. It matters that a nation should not just consider the welfare benefits of today, but also the SOURCE of those benefits. At the end of the day, political power is derived from ownership of key resources. True independence can only be sustained by empowering your own people. Otherwise your economic gains may be temporary at best.

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  15. Point taken about their ports, but I was thinking more of their hi-tech approach, the availability of public transport and an educated workforce (especially around the major universities), housing and airports.

    But there's nothing "neo-liberal" about that. In fact it's all planning and industrial policy. Worse than that, both Singapore and Hong Kong have some of the higher percentages of state-ownership in housing in the world.

    But anyway, it is what I meant by "humility". Neither Singapore nor Hong Kong woke up in the 60's and decided to build IT parks. Before all that they had sweatshops, they had dirty industries, they had manufacturing, they had a transport industry which created a financial industry which led to hi-tech. I mean the demand was there, so was the obligation at that point as they became too rich to be competitive on cheap labour.

    Contrary to your position I think it is in rural areas where FDI is most needed. Its also in those areas, where the technological transfer is more necessary. Until we found how in those remote areas FDI and local development can deliver a win-win situation then we wont make much progress.

    In agriculture may be ?
    The biggest thing preventing a rush of FDI in African agriculture and agro-related businesses is the complexity and uncertainality of land tenure. Could a system similar to the chinese village entreprises work ? Encouraging joint-ventures between communities who provide land, security and local knowledge and investors who provide machinery, technical expertise and commercial know-how.
    It's a funny thing to think about, but both africulture and mining are really underdevelloped in Africa.

    I don't necessary think this is about "externalities" in the tradition sense. It is about delivering long term security. As you know standard classical economic analysis tends to down play that issue. It matters that a nation should not just consider the welfare benefits of today, but also the SOURCE of those benefits.

    I don't get it. Isn't being able to do things the source of the welfare benefits ? Would the people who learn how an irrigation system work or how to manage mining operations or how to keep accounting books for a cellphone company loose it if their employers pack up and leave ? Isn't the ability to re-create something the most important part of technology transfers ?

    At the end of the day, political power is derived from ownership of key resources. True independence can only be sustained by empowering your own people.

    Did you spot the irony in those two sentences ? You can explain the past 50 years of african economic history with those. :-)

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  16. Also I read the article on Bangladesh and was left cold about it. I Strongly dislike the term "social entrepreneur". It manages to both offend my inner socialist who thinks that social improvements are the result of, hmmm, social action and the capitalist who thinks that cold, self-interested, profit-driven entrepreneurship has inherent benefits.

    I don't get why they're trying to imagine any social intentions to the village phone ladies concept when it was just a good commercial practice (and pretty much a standard one in the cellphone industry in develloping countries). Sure, those women got trained and have a job but the goal is to sell phone time. How is it different from people trained and hired in rural areas so that they can sell fetilizer in agricultural extensions ? Are we supposed to buy into the PR myth corporations create by describing profit-driven business practices as humanitarian work ?

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  17. Random,

    "In agriculture may be ?
    The biggest thing preventing a rush of FDI in African agriculture and agro-related businesses is the complexity and uncertainality of land tenure."


    The abundant factors in rural areas is labour and land. So you are right, that would point to agriculture. The question then becomes whether these are really profitable enteprises that would attract FDI in the CURRENT ENVIRONMENT, and whether knowledge transfer can take place. Certainly the question of tenure security is important, as is the need to assure the locals that they are not losing their land. Leases seem as the obvious approach. The real challenge is how to ensure knowledge transfer takes place? Perhaps through funding rural agricultural colleges? Only 3% of Zambia's post secondary education is geared towards agriculture. This could change with an education focused rural FDI approach.

    How do these "chinese village entreprises" work?

    "I don't get it. Isn't being able to do things the source of the welfare benefits. Would the people who learn how an irrigation system work or how to manage mining operations or how to keep accounting books for a cellphone company loose it if their employers pack up and leave ? Isn't the ability to re-create something the most important part of technology transfers ?
    ?"


    I understood your initial point as whether ownership of resources matters, as long as welfare of society as a whole improves. My point is that not all knowledge can be transferred. In addition, there are other considerations e.g. capital and so forth. If they pack and go...these could go with them. Just ask Zimbabwe with the white farmers.

    "Also I read the article on Bangladesh and was left cold about it. I Strongly dislike the term "social entrepreneur". It manages to both offend my inner socialist who thinks that social improvements are the result of, hmmm, social action and the capitalist who thinks that cold, self-interested, profit-driven entrepreneurship has inherent benefits."

    I fail to see why you don't think a socially motivated person cannot leverage the market with social goals in mind.

    If anything the article successfully demonstrate that the pursuit of profit and "social objectives" are not always mutually exclusive.

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  18. http://en.wikipedia.org/wiki/Township_and_Village_Enterprises

    http://www.eldis.org/go/display/?id=27779&type=Document

    Basically they are owned and operated by local governments who usually gets into joint-ventures with foreign investors. The interesting aspect of them is the fact that the investors are guaranteed tenure security since their partner is the government. And governments, because they're partners and because they're competing with other government have incentives to not do anything damaging to their bottom-line.

    And of course, the fact that they're still collective entreprises makes economies of scale possible.

    I'm sort of conflicted on the "local loosing their land" thing. I mean if the goal is to have an industrialized society, surely the importance of wide land ownership is a bit of a misplaced priority, isn't it ?

    On agricultural colleges, well, yeah they would help but only so much.since the wrong set of incentives would prevent one from being productive no matter if he's knowledgeable or not.

    My point is that not all knowledge can be transferred. In addition, there are other considerations e.g. capital and so forth. If they pack and go...these could go with them. Just ask Zimbabwe with the white farmers.

    But what prevented the farmer who inherited those farms from getting the capital they needed was their unability to leverage land and the small size of the plots, right ?

    I fail to see why you don't think a socially motivated person cannot leverage the market with social goals in mind.

    Because a profit-driven entrepreneur is better at maximizing production which has benefits by itself and social policy is better done by people who only have social concerns and impliment it through politics.

    Yes, the pursuit of profit and "social objectives" are not always exclusive but it doesn't really have to be intentional either. Once again, using a micro-land bank's commercial infrastructure is just sound business practice. Nobody claims that an insurance company who hires local sale people has any humanitarian objectives.

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  19. Random,

    I fail to see why you don't think a socially motivated person cannot leverage the market with social goals in mind.

    Because a profit-driven entrepreneur is better at maximizing production which has benefits by itself and social policy is better done by people who only have social concerns and impliment it through politics.

    Yes, the pursuit of profit and "social objectives" are not always exclusive but it doesn't really have to be intentional either. Once again, using a micro-land bank's commercial infrastructure is just sound business practice. Nobody claims that an insurance company who hires local sale people has any humanitarian objectives.


    I think you are defining entrepreneurship too narrowly.

    There are many ways in which a business can make decisions in way that have the greatest social impact, while still making a profit, or making less profit, or create a win-win situation. The state can intervene and give tax breaks or subsidies to companies that do, because it thinks that in the long run for instance, it is important that unemployment in a specific region is reduced.

    Or, there are ways in which complex deals can incorporate other social goals on a break-even basis. Or include barter, which is how a lot of politicians structure their deals, by the way (I'm thinking of 'porkbarrel').

    A guy who is really interesting and you should look into, is African American money manager Alphonse "Buddy" Fletcher. He is an expert in identifying really obscure ways of squeezing a profit out of a process, or anomalies in taxation between countries, or deferring risk.

    From Stock Market Wizards, by Jack Schwager:

    Alphonse "Buddy" Fletcher Jr.

    Win-Win Investing

    Jack Schwager: What was this virtually risk-free market opportunity that you say was consistently available?

    Buddy Fletcher: The concept was based on the cost of financing. Sure IBM is worth whatever it's trading at. However, let's say that I can earn 7 percent on my money, and you can earn 9 percent on your money. Given the assumption of our having different rates of return on our money, I should be able to buy IBM and sell it to you on a future date for some agreed price, and we would both be better off. For example, I might buy IBM at $100,- and agree to sell it to you for $108 one year from now. I would make more than my 7 percent assumed alternative rate of return, and you would lock in ownership of IBM at less than your assumed opportunity cost of 9 percent annualized. The transaction would be mutually beneficial.

    Jack Schwager: Wouldn't arbitrage drive that opporunity away?

    Buddy Fletcher: Arbitrage will only eliminate opportunities where we both have the same cost of funds. If, however, your cost of funds is significantly higher or lower, then there will be an opportunity. In a more general sense, the markets might be priced very efficiently, if everyone had the same costs of funds, received the same dividend, and had the same transaction costs. If, however, one set of investors is treated very differently, and persistently treated differently, then it should be possible to set up a transaction that offers a consistent profit opportunity.

    Jack Schwager: Give me a specific example.

    Buddy Fletcher: Instead of IBM, say we're talking about an Italian computer company. Assume that because of tax withholding, U.S. investors receive only 70 cents on the dollar in dividends, whereas Italian investors receive the full dollar. If this is the case, consistent arbitrage becomes available, whereas a U.S. investor could sell the stock to an Italian investor, establish a hedge, and after the dividend has been paid, buy it back on terms that would be beneficial to both sides.

    END QUOTE

    My point is that there are ways of profiting from anomalies in regulation, taxation, or pricing in real estate and commodities, between regions or countries (or even districts), that can become part or the basis of any deal and that have nothing to do with maximizing production.

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  20. Random,

    Even classical economics recognises that not all firms are driven by profit maximisation. In complex organisations, the overall goal of the firm is defined by players interacting within it e.g. share holders, managers and so forth. Even within single ownership but with different competitive dynamics firms may pursue other goals besides profit.

    The pursuit of "profit", and the extent to which it moves society to a higher social welfare function, only works under special circumstances.

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  21. There are many ways in which a business can make decisions in way that have the greatest social impact, while still making a profit, or making less profit, or create a win-win situation. The state can intervene and give tax breaks or subsidies to companies that do, because it thinks that in the long run for instance, it is important that unemployment in a specific region is reduced. 

Or, there are ways in which complex deals can incorporate other social goals on a break-even basis. Or include barter, which is how a lot of politicians structure their deals, by the way (I'm thinking of 'porkbarrel').

    But the tax cuts for companies investing in depressed regions or the social requirement in pork barrel spending are social policy designed to generate incentives for the profit-motivated entrepreneur.
    What bothers the socialist in me in the concept of "social entrepreneur" is the assumption it makes about entrepreneurs generating social benefits beyond their own profit-motives.

    My point is that there are ways of profiting from anomalies in regulation, taxation, or pricing in real estate and commodities, between regions or countries (or even districts), that can become part or the basis of any deal and that have nothing to do with maximizing production.

    sure but i don't see how this opposes anything I've said.

    Even classical economics recognises that not all firms are driven by profit maximisation. In complex organisations, the overall goal of the firm is defined by players interacting within it e.g. share holders, managers and so forth. Even within single ownership but with different competitive dynamics firms may pursue other goals besides profit.

    Hmmm.. I'm aware that the profit-maximization goal is in a great deal reductionist. But not only I don't exactly get how relevant are the organisational details to the larger point I'm trying to make, I also wonder to which extend the other goals you're refering to are just means to maximize profit (or value) in the longer term.

    Once again my issue is about actions taken for business reason being described as "social". I can think of thousands of example and yet I have a hard time seeing how it's anything but good PR.

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  22. Random,

    "Because a profit-driven entrepreneur is better at maximizing production which has benefits by itself and social policy is better done by people who only have social concerns and impliment it through politics."

    Why do you think it is better? Under what conditions is it better? Under all conditions? You second statement is a matter of preference (subjective) and I cannot comment on it.

    What I would say is that, even classical economics recognises that not all firms are driven by profit maximisation. In complex organisations, the overall goal of the firm is defined by players interacting within it e.g. share holders, managers and so forth. Even within single ownership but with different competitive dynamics firms may pursue other goals besides profit.

    The pursuit of "profit", and the extent to which it moves society to a higher social welfare function, only works under special circumstances

    "But what prevented the farmer who inherited those farms from getting the capital they needed was their unability to leverage land and the small size of the plots, right ?"

    Are you refering to the specific case of Zimbabwe? If so, what prevented them was a combination of lack of technical know-how and the lack of "informal relationships" to the buyers in Europe.

    The issue of capital is relevant, in so far as it relates to the inability to access credit and so forth. To me this suggests that policies on technological transfer do not sit outside other issues. You need education, availability of credit and so forth to ensure that knowledge transfer is successful.

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  23. Random,

    Hopefully, my aim to condese the response has not confused matters!! You beat me to the deletion, so I have kept the original post in place...

    "Once again my issue is about actions taken for business reason being described as "social"."

    But you are assuming that "business" is always about profit. My point is that it is not. Firms undertake actions for a variety of reasons. Their goals depend on their business model, players within the firm, horizon, nature of competiton and so forth.

    The other problem I have with your assessment is your suggestion that social goals should be the domain policy.

    Why can't a charity for example for example set up a business whose aim was maximise output, rather than profit? I would regard such a charity as social entreprenuer. Would you not?

    I think what the article was suggesting is that there are strategic long term benefits for a firm motivated purely by private goals to engage such a charity.

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  24. Why do you think it is better? Under what conditions is it better? Under all conditions? You second statement is a matter of preference (subjective) and I cannot comment on it. 


    Who can judge and prioritize the desirability of divergent social outcomes better than the political process and other form of common institutions ? I mean social is the key word here.

    The pursuit of "profit", and the extent to which it moves society to a higher social welfare function, only works under special circumstances

    I don't disagree with that. I'm actually arguing against a confusion on those special circumstances.

    Are you refering to the specific case of Zimbabwe? If so, what prevented them was a combination of lack of technical know-how and the lack of "informal relationships" to the buyers in Europe.

    Yes I'm refering to the special case of Zimbabwe. I was pretty sure that quite early, everybody ackowledged that the new farmers had difficulties accessing credit partly because of the lack of formal title (and i guess recent massive dispossessions don't make bankers feel that land ownership is a secure collateral either) and partly because of the small size of their plot. And if I remember right, the government of Zimbabwe responded with a law obligating banks to earmark a percentage of their funds to credit for the new owners.

    I also wonder to what extend the lack of technical know-how was caused by the fact that land wasn't redistributed to the people who actually acquired some of it through knowledge externality: the commercial farm workers.


    But you are assuming that "business" is always about profit. My point is that it is not. Firms undertake actions for a variety of reasons. Their goals depend on their business model, players within the firm, horizon, nature of competiton and so forth.

    What are the alternative goals and to which extend they're really goals and not ways to eventually maximize profits ?

    Why can't a charity for example for example set up a business whose aim was maximise output, rather than profit? I would regard such a charity as social entreprenuer. Would you not?

    The GoodWill model ?
    Hmm.. That's exactly why the socialist in me is offended. It aims straight back to the "compassionate conservatism" libertarian "charity as social policy" territory. In short, the privatization of social policy as it existed in the gilded age.

    So no I don't regard charities or humanitarian activities as efficient ways to generate outcome that can be defined as "social". If there's no process of collective evaluation of the desirability of outcomes, the benefits most likely won't be collective. Or rather there would collective outcome satisfying to a small number of private players.

    After all, when one helps a family member, said family member's welfare is increased but it hardly qualify as "social" benefit. Otherwise, why have public schools when one can pay for their worse-off cousins ?

    I think what the article was suggesting is that there are strategic long term benefits for a firm motivated purely by private goals to engage such a charity.

    Of course there are ! But it's called PR or sound business practices or building brand fidelity or creating labour fidelity !

    Think about this way, are big companies that built stadiums and sponsor local football teams deserving of the "social" prefix to their entrepreneurial/paternalistic motives ? Should Union Miniere du Haut Katanga's decision to provide free healthcare (in the 1930's !), housing, schools and numerous other perks to their workers be described as a social benefit when we know it was all to attract and keep workers (and buy off some political support) ? To which extend De Beers acceptance of an increase of the government share of ownership in their joint-venture in Botswana driven by good-will and not by financial calculations ?

    I guess what I really don't understand is the insistence on describing self-serving service moves that may be benefitial to other as benevolent.

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  25. Cho,

    On the concept of vertical integration. This book by Claude Anderson called PowerNomics, sets out the theory that instead of focusing on owning companies, communities should aim to own the entire industry. For Black community, one can fill in any community, tribe, village, neighborhood or city (or country). The applications differ, but the concept of the aggregation of wealth and power by the entire community stay the same.


    Appendix A

    Powernomic Empowerment Model

    1) The National Black Empowerment Plan
    2) National Plan with New Tools: vision, ethno-aggregation and vertical integration
    3) a) Eliminate internal impediments to Black Self-Empowerment; b) Mind-Set: Operate on a broad sense of a Black community; c) Avoid External Cross-Purpose & Horizontal activities
    4) Establish geographical turf and Physical Communities
    5) a) Design schools for group competitiveness - equip students to achieve national plant; b) Build group based alternative economic structure - practice group economics; c) Build group based competitive political machinery - practice group politics; d) Expand traditional role of Black churches - Practice civil-religio-prosperity



    VERTICAL INTEGRATION

    Advantages Of Vertical Integration

    In association with the PowerNomics empowerment vision of economic and political reform for Black America, the vertical integration paradigm has numerous practical and important purposes. Nine purposes are listed here:

    1) Vertical integration gives Black Americans access to the primary holders of the nation's wealth and resource powers; 2) It gives Black America a collective sense of direction for their collective self-interests; 3) It gives Blacks a channel for upward mobility; 4) It is a tool to capture new physical, financial and cultural territority; 6) It gives Black Americans the mechanisms to control an economic industry from the raw material at the bottom, to the retail markets at the top; 7) It instills Black Americans with a mind-set that encourages them to concentrate and direct resources for maximum impact, benefit and visibility; 8) It promotes a hierarchy of authority and respect within Black families, Black neighborhoods and Black people; 9) Finally, it reduces Black Americans' vulnerability to competitive groups by dissuading them from engaging self-defeating horizontal integration, lateral mobility and cross-purpose issues.

    Vertical integration advantages Black Americans by vertically linking its authority and institutional leaders with the Black masses.

    Applications Of Vertical Integration

    Chapters Five through Eight contains specific applications of vertical integration, however, this paradigm applies across the board to all aspects of group empowerment. It applies especially to the business, education and political principles of self-interest, unity and monopolistic dominance. The vertical integration concept creates an alternative structure within which Blacks can collectively compete within most aspects of our society. In those businesses in which Black entrepreneurs have a competitive advantage based upon PowerNomics empowerment principles, the vertical integration model facilitates industrialization. Once Black communities are rebuilt, industries rather than businesses, will provide them with greater wealth, income, employment and power-building opportunities. Equally important, vertical integration serves as a mechanism for controlling every layer of business within an industry. For instance, if Black manufacturers of Black hair care products form a vertical industry, it will be possible for them as well as other Black entrepreneurs to move up or down in the production, distribution or retail processes. They will be able to protect themselves by establishing control over the raw materials and manufacturing, and by building their own suppliers, distributers and retail outlets. They will also be able to collectively encourage and support independent Black suppliers and retail outlets. Clearly, vertical integration holds enormous potential for Blacks.

    Do Our Competitors Benefit From Our Horizontal Orientation?

    Yes! Black Americans cannot protect their existing assets by moving horizontally. We paid a high price for horizontal integration, including the loss of our communities, culture, colleges, professional sports teams, political leadership and businesses.




    Urban Hydroponic Farming

    * Convert abandoned buildings into automatic hydroponic gardens
    * Form farming cooperatives and farmers markets on unused sites.
    * Organize regional warehouses and wholesale distributors.
    * Market products through a national network of retail outlets.

    Hydroponic organic farming [Organoponics or Bioponics would be both organic and hydroponic - MrK] within inner city communities is about survival at one level or another. Producing one's own food is empowerment. Hydroponic farming is a water based industry that can produce high quality food stuffs that can make inner-city Black communities self-sufficient. It addresses the absence of high quality, reasonably priced foods, the scarcity of chain supermarkets and the oversupply of rip-off stores that sell low quality foods at astronomical prices in inner cities.

    Hydroponic farming in inner cities can capitalize on a number of competitive advantages that Black America has for water based industries. Nearly every urban Black community borders on large bodies of water or has water plants. White flight, in response to the Black civil rights movement, left prime industrial properties and buildings abandoned that can now be used to do hydroponic farming.

    Inner-City Farmers Markets

    Produce from the hydroponic facilities or any other farming source can be sold to individual and food cooperatives. Abandoned schools or factories could be converted into marketplaces. The bulk of organically raised aqua products can be earmarked for regular chain and independent grocery stores or institutions. Black communities could re-establish the old farmers markets that were once available in every large city. Although most of them were razed in the 1950s, some of them still exist. Detroit has the Eastern Market, and Baltimore has the Lexington Market. Blacks are the major consumers at these markets, but the shops and foodstalls are owned and operated by ethnics who have passed ownership down through several generations. As the major consumer, and on a new mission, Blacks have the capability to changing the game. They can either buy the owners out or open their own vegetable farmers markets around the hydroponic industry. At the bottom line, the hydroponic gardening facilities would provide fresh, healthy, competitively priced food as well as business opportunities within urban communities. Basic needs for this industry would be land, large abandoned buildings, water, electricity, equipment, water tables, knowledge of hydroponics and access to millions of interested Black customers.

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  26. Random,

    ” I was pretty sure that quite early, everybody ackowledged that the new farmers had difficulties accessing credit partly because of the lack of formal title (and i guess recent massive dispossessions don't make bankers feel that land ownership is a secure collateral either) and partly because of the small size of their plot……I also wonder to what extend the lack of technical know-how was caused by the fact that land wasn't redistributed to the people who actually acquired some of it through knowledge externality: the commercial farm workers. .”

    The issue of farm size is quiet interesting. Simba Makoni has actually proposed the 1-farm per person policy. That would seem to go the way…lol! On technical know-how you are quite right. The wrong people got the land. The whole thing was poorly handled. But Zimbabwe’s farming suffers from other problems e.g. subsidization of inputs, marketing boards etc. At some point they’ll need some painful remedy.

    ”What are the alternative goals and to which extend they're really goals and not ways to eventually maximize profits ?”

    We are going in circles here. The aim of firm is driven by the goals of the owners and its managers. The goal of owners and managers would reflect their innate aims and short or long term strategies.
    A church organization for example can set up a company tomorrow whose aim was NOT to maximize profit, but to break even within a certain percentage. Yes, the good will model. I don’t know why liberals always think that society is driven by self interest. As I said, even behavioural economics is showing that people don’t always act in their own interests.

    ”Think about this way, are big companies that built stadiums and sponsor local football teams deserving of the "social" prefix to their entrepreneurial/paternalistic motives ?”

    Of course not. The example cited is one where a profit maximiser (MNCs) engages a break even “social focused” firm. If anything it argues for SEPARATION I of these functions.

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  27. MrK,

    Very interesting.

    I think what would be fascinating is whether government can pursue some of these models. Where specific firms can be set up that vertically integrated with existing charitable enterprises to deliver value.

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  28. Cho,

    I think what would be fascinating is whether government can pursue some of these models. Where specific firms can be set up that vertically integrated with existing charitable enterprises to deliver value.

    It would take a completely different mindset from the present mindset of just attracting FDI and letting them do it all.

    However, ironically, if done on favorable terms, FDI could actually be integrated from the point of bringing along technical expertise.

    For instance, if there was vertical integration of the gemstone industry, there could be (mining companies - facetting companies - fashion design houses - marketing/sales/pr companies) all integrated to deliver a high quality product.

    The mining companies would be local, a facetting company could be attracted from for instance Antwerp, on the condition that they train and hire as many locals as possible, with a prospect of the company becoming locally owned in the future. Fashion and design houses should be local and draw from design colleges and artists, to give a national flavour to the end product. The marketing/sales/pr company could be Zambian owned businesses in the US, France, Italy, etc.

    This would maximize the impact of wealth retention and job creation, as well as create a long term brand recognition for Zambian products.

    So rather than attracting foreign businesses to Zambia to 'create jobs' and repatriate all the profits, profits would be reinvested locally many times over, as part of business expenditure. Which is not unlike benefiting from compound interest.

    Which is what builds wealth.

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  29. Simba Makoni has actually proposed the 1-farm per person policy.
    "......." is my comment. lol.

    I don’t know why liberals always think that society is driven by self interest.

    You too have decided to call me a liberal ? Even if my main concern is the implied privatization of social issues ?

    And I thought that behavorial economics proved that people are confused about their self-interest (differences between what they think their self-interest is and how they behave to pursue it) and that self-interest is a complex thing that can include selfless behavior (which doesnt really contradicts neoclassical economics. they use rational self-interested players in their models out of convinience more than anything).

    And because of that, I will insist that organisation pursue the selfish goals for which they were created. A church setting up a non-profit business that aims to create revenue and well-being for the workers is pursuing self-interested goals: improve its image, recruit followers, consolidate its position.

    And describing that MNC partnership as "breaking even" is still buying into their PR machine. They used the distribution network and the brand reputation of a microloan bank. Just like in France, Western Union uses the distribution network of a another non-profit: the postal services.

    But back to my other argument, the one that states that non-profit maximizing firms are undesirable. Profit maximization and crude self-interest by all the players (the firm, the employees, the management, the shareholders) improves efficiency and generates lots of productivity gains. Adding alternative goals often leads to efficiency losses.

    My favorite example of this is the comparison between Pemex in Mexico and Petrobras in Brazil. Both are state-owned oil companies. Petrobras, the youngest of two was a monopoly for a long time but is not anymore, Pemex has always been a monopoly. Petrobras has become a key player in the oil business, one that develloped seeked technologies (very deep waters drilling) and because of it drills oil in a bunch of places, including the United States. Meanwhile Pemex can barely mantain its production level and is considering getting into partnerships to be able to extract Mexico's underwater oil reserves.

    Of course, the fact that Petrobras has to figure out how to extract that very deep water oil while Pemex had easy on-shore exploitation is part of the story. The competition Petrobras had from Brazil's ethanol is another.

    However the main difference lays somewhere else: Pemex's yearly budget is set by the Mexican parliament. As a result, the government's and the powerful unionized employees' is maximized at the expense of R&D, capital investment, maintenance budgets.. Petrobras is autonomous and the government behaves like a profit-maximizing share-holder, only caring about the value of its shares (dividents too but it's secondary).
    The difference is in the goals defined when the companies were created. And in the case of Pemex, the social goals crearly went against innovation, productivity and at the end of it, production. I don't know about you, but I feel like oil consumers gained from cheaper oil (and the consumer of oil consumers too), the state gained in possible revenue in the long-run and finally the poor gained more from government policies financed by that revenue than the poor mexican benefitted from Pemex largesse towards its (mostly-middle class) employees.

    That's what I meant by separating social policy and entrepreneurship.

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  30. a facetting company could be attracted from for instance Antwerp, on the condition that they train and hire as many locals as possible, with a prospect of the company becoming locally owned in the future

    How are they attracted ? What's in it for them ?
    I'm not saying they couldn't be but setting up if i had to set up a business on the conditions that I have to invest as much as possible (in trainning), have high costs (by hiring as many people as possible) and know that I have a time-limit on my revenues (that's what the prospect is), why would I bother investing there, especially when there are places where i can hire already trained people for cheap and make a more money for an infinite period ?

    Sure, not all FDI is equal and there are smart ways to attract the right FDI but it would be a trade-off, something has to attract them.

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  31. Background on PowerNomics and dr. Claude Anderson:

    The PowerNomics speech by dr. Claude Anderson on Youtube, PowerNomics Pt1. and Pt2

    The book is available here.

    The description of Claude Anderson from Amazon.com:

    Dr. Claud Anderson is a noted black author who has successfully implemented social and economic change throughout his career. His unique background of experience is reflected in PowerNomics: The National Plan. To implement the strategy of industrializing Black communities, he has established a vertically integrated seafood industry that is currently operating and will expand into urban areas across the nation. His company is one of the few black-owned companies to make stock available to the general public through an initial public offering. In addition to his most recent seafood project, he owns a vertically integrated publishing company and was one of the first blacks to own a radio station in Florida.

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  32. Dr. Anderson headed two economic development corporations in Florida and was appointed by President Jimmy Carter as Assistant Secretary of the U.S. Department of Commerce and the head of the Coastal Plains Regional Commission. In that position he worked with governors in the southeast states to develop and fund economic development projects, including seafood. He was Coordinator of Education for the State of Florida under Governor Reubin Askew during integration and has held a number of high-level positions in national and state politics. He is also President of The Harvest Institute, a black research, education and advocacy organization. He is imminently qualified to offer a plan to empower Black America.

    ReplyDelete
  33. Interesting article mentioning the global competition for talent:

    http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=15108634&source=hptextfeature

    ReplyDelete

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