Showing posts with label Regulation. Show all posts
Showing posts with label Regulation. Show all posts
Thursday, November 19, 2009
WHAT EASTERN EUROPEAN TIGERS CAN TEACH WESTERN EUROPE
In yesterday's edition of WSJ, Johnny Munkhammar and Nima Sanandaji wrote a well-argued dissussion (link) on how Eastern Europe's advantage in terms of competitive tax rates, low tax burden and sizeable reform efforts in emerging from the crisis offer a great lesson for economic recovery of the Western counterparts.
Thursday, August 06, 2009
SWISS BANKS AND FINANCIAL PRIVACY
Pierre Bessard of the Liberales Institut in Switzerland, makes the case in NY Times (link) why financial privacy shouldn't be infringed and why Dept. of Justice and the European Union should not exert pressures on Swiss banks regarding financial privacy and client information disclosure to foreign governments:
"Switzerland, which is home to an impressive number of global corporations, has also come under fire from the European Union for offering too-favorable tax rules, including exemptions for income earned abroad. But what critics forget is that these practices also benefit other countries. Swiss firms alone employ hundreds of thousands of people in the United States and Germany, for example. Subsidiaries of multinational corporations usually pay income taxes where they operate, so having their headquarters in Switzerland can help companies avoid multiple taxation in high-tax countries, thereby safeguarding productive capital for investment."
"Switzerland, which is home to an impressive number of global corporations, has also come under fire from the European Union for offering too-favorable tax rules, including exemptions for income earned abroad. But what critics forget is that these practices also benefit other countries. Swiss firms alone employ hundreds of thousands of people in the United States and Germany, for example. Subsidiaries of multinational corporations usually pay income taxes where they operate, so having their headquarters in Switzerland can help companies avoid multiple taxation in high-tax countries, thereby safeguarding productive capital for investment."
ANTITRUST, MARKETS AND COMPETITION
Earlier today, I read Steve Forbes's discussion (link) of recent antitrust reaction to the announced Yahoo-Microsoft search-engine global partnership deal (here and here) by the Department of Justice. The merger of Yahoo and Microsoft is ought to create a new competitor to tackle Google's supposed 75 percent market share in search advertising. Back in 2008, Department of Justice swatted the aligned Google-Yahoo search-advertising partnership, saying that "it would have furthered Google's monopoly"(link). Google is currently also under investigation by Department of Justice which accusses Google of copyright infringement in company's book-scanning project (link). In addition, Christine Varney, Obama's antitrust appointee at the Department of Justice, targeted Google's dominance in search-ad market by blaming the company for "starting to colonize the emerging cloud-computing industry and amassing enormous market power" which customers would hardly escape.
The antitrust policy enhanced by Sherman Act, Clayton Act and Robinson-Patman Act prohibits the so-called "predatory behavior" that could restrain trade, induce monopolization efforts or impose unfair trade practices such as price discrimination. The antitrust targeting of Google has been inspired by the antitrust case from 1964 United States vs. Aluminium Company of America in which the court, headed by Judge Learned Hand, laid down a landmark decision that "under certain circumstances, a company may come to dominate its field through superior skill, foresight and industry." (here, here and here).
Donald Marron, former CEA economist, recently wrote a nice piece on how Google may defend itself against Department's potential antitrust investigation (link). First, Dept. of Justice will face a difficult task in defining Google's relevant market. Antitrust commentators often point out that Google possesses more than 70 percent of revenues in search-advertising market. However, Google's top antitrust attorney say that such definition of the relevant market is too narrow, arguing that the company actually receives less than 2 percent of revenues from search-ad market. The merger of Yahoo and Microsoft's internet search-engines could deteriorate Google's market share.
The enforcement of antitrust policy in preserving competitive market structures has resulted in complete failures several times. Recently, the European Commission imposed € 1.06 billion fine on Intel Corporation for exercising illegal practices such as giving loyalty discounts and implicit rebates to computer manufacturers and major retailer under the condition that Intel's chips are integrated into CPUs. The Commission argued that such "illegal practices" prevented customers from choosing alternative products (link) and thus, Intel supposedly abused the dominant position. That is against the provisions of EC Treaty.
The enactment of antitrust policy relies on the idea of competitive market structures. Microeconomic theory teaches that a monopoly leads to a deadweight loss and, thus, its relative efficiency is inferior to competitive market structure which operate under zero-profit assumption. However, the classic microeconomic theory neglects economies of scale in industries with significant fixed costs and entry costs such as high tech, health-care and airline.
However, antitrust policy embodied in Clayton Act, Sherman Act and other legislative acts, often leads to protectionist pressures from interest groups since the enforcement of antitrust is driven by the political process. Thomas DiLorenzo, famous Austrian economist, showed how interest group use lobbying pressures to exercise antitrust policy in favor of protecting competitors rather than competition (link).
In recent years Google acquired several smaller companies. The Federal Trade Commission and Dept. of Justice, for instance, put the acquisition of DoubleClick in 2008 under investigation. However, acquisitions in tech industry could produce significant efficiencies in distribution and consumer prices (link).
The notion of Sherman Act is that practices that restrain trade are illegal and doomed to be prosecuted. However, antitrust enforcers should recognized that high fixed costs and entry costs are not the result of market action or conspiracy but natural obstacle. Thus, industrial organization in technology, retail, health care and airline industries, enables significant economies of scale through lower average costs of production. This requires high levels of innovation including merging resources and joint cooperation. By the token of perfect competition for instance, Wal-Mart should be broken (link). If federal antitrust enforces forced Wal-Mart to split into more parts, gains in distribution which enable low prices and various discounts, would diminish considerably.
Thus, the real aim of antitrust enforcement should not be to prosecute successful firms and deprive them of productive gains, but to prevent alledged conspiracy that inhibits market entry and harms the consumers. In a free market, natural monopolies are short-lived and challenged by either new entrants or international competition.
The antitrust policy enhanced by Sherman Act, Clayton Act and Robinson-Patman Act prohibits the so-called "predatory behavior" that could restrain trade, induce monopolization efforts or impose unfair trade practices such as price discrimination. The antitrust targeting of Google has been inspired by the antitrust case from 1964 United States vs. Aluminium Company of America in which the court, headed by Judge Learned Hand, laid down a landmark decision that "under certain circumstances, a company may come to dominate its field through superior skill, foresight and industry." (here, here and here).
Donald Marron, former CEA economist, recently wrote a nice piece on how Google may defend itself against Department's potential antitrust investigation (link). First, Dept. of Justice will face a difficult task in defining Google's relevant market. Antitrust commentators often point out that Google possesses more than 70 percent of revenues in search-advertising market. However, Google's top antitrust attorney say that such definition of the relevant market is too narrow, arguing that the company actually receives less than 2 percent of revenues from search-ad market. The merger of Yahoo and Microsoft's internet search-engines could deteriorate Google's market share.
The enforcement of antitrust policy in preserving competitive market structures has resulted in complete failures several times. Recently, the European Commission imposed € 1.06 billion fine on Intel Corporation for exercising illegal practices such as giving loyalty discounts and implicit rebates to computer manufacturers and major retailer under the condition that Intel's chips are integrated into CPUs. The Commission argued that such "illegal practices" prevented customers from choosing alternative products (link) and thus, Intel supposedly abused the dominant position. That is against the provisions of EC Treaty.
The enactment of antitrust policy relies on the idea of competitive market structures. Microeconomic theory teaches that a monopoly leads to a deadweight loss and, thus, its relative efficiency is inferior to competitive market structure which operate under zero-profit assumption. However, the classic microeconomic theory neglects economies of scale in industries with significant fixed costs and entry costs such as high tech, health-care and airline.
However, antitrust policy embodied in Clayton Act, Sherman Act and other legislative acts, often leads to protectionist pressures from interest groups since the enforcement of antitrust is driven by the political process. Thomas DiLorenzo, famous Austrian economist, showed how interest group use lobbying pressures to exercise antitrust policy in favor of protecting competitors rather than competition (link).
In recent years Google acquired several smaller companies. The Federal Trade Commission and Dept. of Justice, for instance, put the acquisition of DoubleClick in 2008 under investigation. However, acquisitions in tech industry could produce significant efficiencies in distribution and consumer prices (link).
The notion of Sherman Act is that practices that restrain trade are illegal and doomed to be prosecuted. However, antitrust enforcers should recognized that high fixed costs and entry costs are not the result of market action or conspiracy but natural obstacle. Thus, industrial organization in technology, retail, health care and airline industries, enables significant economies of scale through lower average costs of production. This requires high levels of innovation including merging resources and joint cooperation. By the token of perfect competition for instance, Wal-Mart should be broken (link). If federal antitrust enforces forced Wal-Mart to split into more parts, gains in distribution which enable low prices and various discounts, would diminish considerably.
Thus, the real aim of antitrust enforcement should not be to prosecute successful firms and deprive them of productive gains, but to prevent alledged conspiracy that inhibits market entry and harms the consumers. In a free market, natural monopolies are short-lived and challenged by either new entrants or international competition.
Tuesday, July 07, 2009
GLOBAL ENABLING TRADE REPORT 2009
World Economic Forum recently published its annual report on enabling trade around the world (link).
The report estimated broader openness to trade after taking all indicators, regulatory and administrative factors into account. Notably, among these are the ease of market access, customs administration, difficulty of export and import procedures, quality of transport infrastructure, the availibility of transport services and the use of ICT. The report found a positive and moderate correlation between the GDP per capita and enabling trade index. Thus, it implies that countries with higher GDP per capita, on average, tend to be more trade-friendly.
There are, of course, some other factors, aside from GDP per capita, that affect broader openness to trade. The research by the WEF found that the customs regulations, quality of regulatory and business environment and the quality of transport infrastructure and services significantly explain country's openness to trade flows fairly well.
Countries with the highest Enabling Trade Index (ETI) are Singapore, Hong Kong, Switzerland, Denmark and Sweden, followed by Canada, Norway, Finland, Austria and the Netherlands. In spite of robust growth of trade volume before the economic crisis, Russia ranks 109th out of 121 countries in the report, accompanied by countries such as Syria and Nepal. This suggests that Russia's growth of trade volume before the crisis can be assigned to its factor-driven economic growth. WEF's report reveals that Russia's score poorly in terms of border administration, market access and the business environment while performing modestly in terms of quality of transport infrastructure. Index of Economic Freedom noted that Russia's trade freedom is inhibited by the inefficient arbitrary customs administration. The latter restrains trade and is a popular protectionist policy measure. The least trade-friendly countries, according to the report, are: Chad, Cote d'Ivoire, Venezuela, Zimbabwe and Nigeria.
The report estimated broader openness to trade after taking all indicators, regulatory and administrative factors into account. Notably, among these are the ease of market access, customs administration, difficulty of export and import procedures, quality of transport infrastructure, the availibility of transport services and the use of ICT. The report found a positive and moderate correlation between the GDP per capita and enabling trade index. Thus, it implies that countries with higher GDP per capita, on average, tend to be more trade-friendly.
There are, of course, some other factors, aside from GDP per capita, that affect broader openness to trade. The research by the WEF found that the customs regulations, quality of regulatory and business environment and the quality of transport infrastructure and services significantly explain country's openness to trade flows fairly well.
Countries with the highest Enabling Trade Index (ETI) are Singapore, Hong Kong, Switzerland, Denmark and Sweden, followed by Canada, Norway, Finland, Austria and the Netherlands. In spite of robust growth of trade volume before the economic crisis, Russia ranks 109th out of 121 countries in the report, accompanied by countries such as Syria and Nepal. This suggests that Russia's growth of trade volume before the crisis can be assigned to its factor-driven economic growth. WEF's report reveals that Russia's score poorly in terms of border administration, market access and the business environment while performing modestly in terms of quality of transport infrastructure. Index of Economic Freedom noted that Russia's trade freedom is inhibited by the inefficient arbitrary customs administration. The latter restrains trade and is a popular protectionist policy measure. The least trade-friendly countries, according to the report, are: Chad, Cote d'Ivoire, Venezuela, Zimbabwe and Nigeria.
Thursday, February 19, 2009
ANOTHER ATTACK ON TAX HAVENS
A campaign against tax havens has been launched by the British PM (link).
Friday, November 14, 2008
WHAT TO DO ABOUT HOUSING MARKET?
Allan Meltzer suggests an increase in demand for housing as a way to prevent mortgage defaults.
Wednesday, June 11, 2008
REGULATION AND ENTREPRENEURSHIP
Kevin Hassett of the American Enterprise Institute recently published in article (link) in which he explained why there is a negative correlation between high regulation of entry and entrepreneurship. Two economists, Silvia Ardagna and Annamaria Lusardi examined survey data collected from 150,000 individuals in 37 different countries and showed that the amount of opportunity entrepreneurs is the highest in countries where there is less regulation of entry. For example, the United States has the highest share (8 percent) of opportunity enterpreneurs and the fewest regulatory entry barriers, after Canada and Denmark. On the other side, Spain, France, Belgium and Slovenia have the lowest share of opportunity enterpreneurs and unsurprisingly many regulatory barriers of entry.
Tuesday, April 01, 2008
ALLAN H. MELTZER ON REGULATION
Allan H. Meltzer wrote an article (link) on regulation published in Wall Street Journal:
"The first principle of regulation is: Lawyers and politicians write rules; and markets develop ways to circumvent these rules without violating them... The financial markets offer many examples. In the 1970s, Federal Reserve Regulation Q restricted the interest rate that banks and thrifts could pay depositors. In response, the market developed money market funds that circumvented the regulation. In the late 1980s, the government set up the Resolution Trust Corporation to buy the mortgages held by failed thrifts. The result: Most of the thrift industry was eliminated and the taxpayers ended up taking a loss of about $150 billion in the early '90s ... The perennial argument of regulators is: "If only I had more power. . ." Not so. Regulators did not see the chicanery at Enron. Nor did they prevent the dot-com bubble or the Latin American debt problems in the 1980s. A main reason is "capture" -- when the interests of the regulated dominate the interests of the public."
"The first principle of regulation is: Lawyers and politicians write rules; and markets develop ways to circumvent these rules without violating them... The financial markets offer many examples. In the 1970s, Federal Reserve Regulation Q restricted the interest rate that banks and thrifts could pay depositors. In response, the market developed money market funds that circumvented the regulation. In the late 1980s, the government set up the Resolution Trust Corporation to buy the mortgages held by failed thrifts. The result: Most of the thrift industry was eliminated and the taxpayers ended up taking a loss of about $150 billion in the early '90s ... The perennial argument of regulators is: "If only I had more power. . ." Not so. Regulators did not see the chicanery at Enron. Nor did they prevent the dot-com bubble or the Latin American debt problems in the 1980s. A main reason is "capture" -- when the interests of the regulated dominate the interests of the public."
Saturday, December 22, 2007
WILL THE LARGEST EUROPEAN ECONOMY RECOVER FROM A NON-REFORM DISEASE?
The Economist has recently published an article about the current state of Germany's economy. At this time, Germany faces persistent structural problems affect the dynamics of economic performance. The sub-prime mortgage mess has not been stretched to German market as less than 10 percent of German exports go to the United States and thus, German exposure to U.S slowdown is not huge. Germany's economic growth is estimated to fall from 2,6 percent in 2007 to 2 percent or less in 2008. What is actually behind a lingering growth performance? The growth of export performance is likely to decline, facing a drop from 8 percent in 2007 to 4,8 percent in 2009.
Among the economic issues, there was a significant surge of inflation which hit 3,1 percent annually in 2007 mostly due to higher food and energy prices. A detailed analysis of the demand conditions may reveal that the coefficients of price and income elasticity of demand have been quite inelastic, moving somewhere in the interval between 0 and 1. The suppliers know very well, that if demand is quite inelastic and consumer behavior quite monotonic, price increases could prop up their income. Germany's inflation rate may be transiotry as there are strongly supported expectations about the normalization of energy and food prices in the period to come.
Although consumer sentiments remained well-positioned, consumption-inflated spending may not boost the potentials of German economy on the way to recovery from low overall growth.
Germany's future and prosperity will crucially depend on the pace of economic reforms. The policy outcome of current government coalition is mixed. Labor-market reforms contributed one fifth to overall growth but there is a number of issues hampering the ability of German economy to operacompete successfully in a global environment. Bundesbank, German central bank, has shown that the contribution of labor to economic growth is likely a result of drawing unskilled workers into labor supply. Also, German government cut public spending and put limits on the growth of overall spending. Quite logically, the investment picked up an incentive and grew at a higher rate.
An impeding obstacle to Germany's prosperity is the attitude oriented against the economic reforms. The preference of economic justice over the need for tomorrow's change is a road to self-destruction. The consequence of such a misty combination of political and voting behavior is the lack of willingness and political courage to implement much-needed reforms. Steming away and streaming for status quo is what causes riots, dissatisfaction and an endless cycle of statist propaganda inflated by politicians, interest groups and the media.
Unemployment benefits, raising the minimum wage in public sector and similar policy implementation strongly discourage the economic performance from going to growth to searching for privileges from the state through various mechanism such as tax system, collective bargaining and public sector. In Germany's case, the raise of minimum wages in a state-controlled postal company, is nevertheless a sign of rent-seeking. If such collective demands are granted, the steps in the wrong direction will multiply. There is hardly any argument for the minimum wage. On demand side, minimum wage is a form of taxation that raises the overall cost of labor and increases the probability of being fired or unemploymed in the future. On supply side, the minimum wage reduces the productivity potentials and does not stimulate labor supply to spend more hours in the market.
Regulating job market will not boost job creation subject to external pressure on the allocation of labor resources and productivity of the labor supply. The pursuit of various form of unemployment insurance, which has flipped Germany into a mirage of structural unemployment, discourages laborers from seeking a job. It rather encourages seeking priviliges from the state and the lack of incentives to search job due to unfavorable working environment and the influence of trade unions on job growth and labor market.
The question is whether Germany will move out of the cage of low growth and discouraging structural picture. The answer is mix of particular sets of policy conditions and macroeconomic estimates. On macroeconomic level, inflation expectations remain favorable and consumer price index is expected to normalize subject to transitory shock on particular prices. On fiscal level, estimates suggest that more should be done to decrease public spending, cut taxes on productive behavior and reduce government size and consumption. Many futures answers to thequestion of where Germany will stand in the future, will depend on whether the polocymakers will give up the political payoffs emerged from rent-seeking and special interest groups.
Going in the reverse way, where political decision-making neglects economic costs, further makes it quite difficult for policymakers to implement long-range reforms regarding health-care, welfare state and labor market. In those areas, the presence of pressures from interest groups and trade unions will radically oppose the economic reforms to protect the benefits handed to special groups and priviliged from the state. There is no need to endure old-styled western European type of corporatist society where the interests of stakeholders are protected at first hand.
There is always a need for change in economic and structural terms, just as deregulation and openness created German economic miracle after the World War 2. Change is the engine of tomorrow's freedom and progress and an opportunity is rare, while a clever man will never let it go.
Rok SPRUK is an economist.
Copyright 2007 by Rok SPRUK
Among the economic issues, there was a significant surge of inflation which hit 3,1 percent annually in 2007 mostly due to higher food and energy prices. A detailed analysis of the demand conditions may reveal that the coefficients of price and income elasticity of demand have been quite inelastic, moving somewhere in the interval between 0 and 1. The suppliers know very well, that if demand is quite inelastic and consumer behavior quite monotonic, price increases could prop up their income. Germany's inflation rate may be transiotry as there are strongly supported expectations about the normalization of energy and food prices in the period to come.
Although consumer sentiments remained well-positioned, consumption-inflated spending may not boost the potentials of German economy on the way to recovery from low overall growth.
Germany's future and prosperity will crucially depend on the pace of economic reforms. The policy outcome of current government coalition is mixed. Labor-market reforms contributed one fifth to overall growth but there is a number of issues hampering the ability of German economy to operacompete successfully in a global environment. Bundesbank, German central bank, has shown that the contribution of labor to economic growth is likely a result of drawing unskilled workers into labor supply. Also, German government cut public spending and put limits on the growth of overall spending. Quite logically, the investment picked up an incentive and grew at a higher rate.
An impeding obstacle to Germany's prosperity is the attitude oriented against the economic reforms. The preference of economic justice over the need for tomorrow's change is a road to self-destruction. The consequence of such a misty combination of political and voting behavior is the lack of willingness and political courage to implement much-needed reforms. Steming away and streaming for status quo is what causes riots, dissatisfaction and an endless cycle of statist propaganda inflated by politicians, interest groups and the media.
Unemployment benefits, raising the minimum wage in public sector and similar policy implementation strongly discourage the economic performance from going to growth to searching for privileges from the state through various mechanism such as tax system, collective bargaining and public sector. In Germany's case, the raise of minimum wages in a state-controlled postal company, is nevertheless a sign of rent-seeking. If such collective demands are granted, the steps in the wrong direction will multiply. There is hardly any argument for the minimum wage. On demand side, minimum wage is a form of taxation that raises the overall cost of labor and increases the probability of being fired or unemploymed in the future. On supply side, the minimum wage reduces the productivity potentials and does not stimulate labor supply to spend more hours in the market.
Regulating job market will not boost job creation subject to external pressure on the allocation of labor resources and productivity of the labor supply. The pursuit of various form of unemployment insurance, which has flipped Germany into a mirage of structural unemployment, discourages laborers from seeking a job. It rather encourages seeking priviliges from the state and the lack of incentives to search job due to unfavorable working environment and the influence of trade unions on job growth and labor market.
The question is whether Germany will move out of the cage of low growth and discouraging structural picture. The answer is mix of particular sets of policy conditions and macroeconomic estimates. On macroeconomic level, inflation expectations remain favorable and consumer price index is expected to normalize subject to transitory shock on particular prices. On fiscal level, estimates suggest that more should be done to decrease public spending, cut taxes on productive behavior and reduce government size and consumption. Many futures answers to thequestion of where Germany will stand in the future, will depend on whether the polocymakers will give up the political payoffs emerged from rent-seeking and special interest groups.
Going in the reverse way, where political decision-making neglects economic costs, further makes it quite difficult for policymakers to implement long-range reforms regarding health-care, welfare state and labor market. In those areas, the presence of pressures from interest groups and trade unions will radically oppose the economic reforms to protect the benefits handed to special groups and priviliged from the state. There is no need to endure old-styled western European type of corporatist society where the interests of stakeholders are protected at first hand.
There is always a need for change in economic and structural terms, just as deregulation and openness created German economic miracle after the World War 2. Change is the engine of tomorrow's freedom and progress and an opportunity is rare, while a clever man will never let it go.
Rok SPRUK is an economist.
Copyright 2007 by Rok SPRUK
Friday, October 12, 2007
NOBEL PEACE PRIZE 2007
Nobel Peace Prize has usually been awarded to the individual contribution for making the world a more peaceful place. The list of prominently distinguished prize winners include Yasser Arafat, Shimon Peres, Aung San Suu Kyi, Mohamed El Baradei and other distinguished names as well.
In 2007, the prize was awarded to Albert Al Gore and Intergovernmental Panel on Climate Change. The committee explained the awarding decision to those two entitities in the following way:
"for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change"
IPCC has put together scientific knowledge in quite a comprehensive form while Al Gore has pushed policymakers to take action concerning global warming. Establishing scientific consensus on global warming is a difficulty. Regarding the definition of the consensus is that the latter is the agreement on particular issue or type of issue where everyone agrees with it, but in broader terms, nobody believes in. In 1992, professor Richard S. Lindzen wrote a fascinating article, a compelling truth about global warming where he wrote:
"The simple picture of the greenhouse mechanism is seriously oversimplified. Many of us were taught in elementary school that heat is transported by radiation, convection, and conduction. The above representation only refers to radiative transfer. As it turns out, if there were only radiative heat transfer, the greenhouse effect would warm the Earth to about seventy-seven degrees centigrade rather than to fifteen degrees centigrade. In fact, the greenhouse effect is only about 25 percent of what it would be in a pure radiative situation. The reason for this is the presence of convection (heat transport by air motions), which bypasses much of the radiative absorption."
Source: Richard S. Lindzen: Global Warming, The Origin and Nature of the Alledged Scientific Consensus (link)
In the course of global warming debate, there are several sceptics. On the issue of global warming, the understanding of science is crucial to the analytical predictions and estimates in the future about this particular issue. In addition, it is essential to separate science from non-science. Remember what Mr. Gore said in the interview on ABC when Mr. Stephanopoulos confronted him with the fact that the best estimates of rising sea levels are far less dire than he suggests in his movie:
"Scientists don't have any models that give them a high level of confidence."
Economist published a well-argued and notable article, judging whether Al Gore truly deserved to get a Nobel prize. In fact, the question is since when a movie which could hardly be identified as a documentary can serve as a tool for decision-making over such a distinguished award as a Nobel prize for peace. Clearly, the term "peace" includes effort that support the institution of peace in relation to preventing conflicts and suggesting solutions to solve particular complex problems. For instance, if there is a vast empirical evidence on the positive correlation between the decline of regional conflicts and free trade, then free international exchange is, in fact, the contributor to peace.
In Guardian, Bjorn Lomborg wrote a sizzling article on the Nobel prize for peace in this year. Have you read Mr. Lindzen's article Don't believe the hype? Here is a link to the article where professor Lindzen summarizes the fact that there is actually no consensus on global warming:
"So what, then, is one to make of this alleged debate? I would suggest at least three points.
In 2007, the prize was awarded to Albert Al Gore and Intergovernmental Panel on Climate Change. The committee explained the awarding decision to those two entitities in the following way:
"for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change"
IPCC has put together scientific knowledge in quite a comprehensive form while Al Gore has pushed policymakers to take action concerning global warming. Establishing scientific consensus on global warming is a difficulty. Regarding the definition of the consensus is that the latter is the agreement on particular issue or type of issue where everyone agrees with it, but in broader terms, nobody believes in. In 1992, professor Richard S. Lindzen wrote a fascinating article, a compelling truth about global warming where he wrote:
"The simple picture of the greenhouse mechanism is seriously oversimplified. Many of us were taught in elementary school that heat is transported by radiation, convection, and conduction. The above representation only refers to radiative transfer. As it turns out, if there were only radiative heat transfer, the greenhouse effect would warm the Earth to about seventy-seven degrees centigrade rather than to fifteen degrees centigrade. In fact, the greenhouse effect is only about 25 percent of what it would be in a pure radiative situation. The reason for this is the presence of convection (heat transport by air motions), which bypasses much of the radiative absorption."
Source: Richard S. Lindzen: Global Warming, The Origin and Nature of the Alledged Scientific Consensus (link)
In the course of global warming debate, there are several sceptics. On the issue of global warming, the understanding of science is crucial to the analytical predictions and estimates in the future about this particular issue. In addition, it is essential to separate science from non-science. Remember what Mr. Gore said in the interview on ABC when Mr. Stephanopoulos confronted him with the fact that the best estimates of rising sea levels are far less dire than he suggests in his movie:
"Scientists don't have any models that give them a high level of confidence."
Economist published a well-argued and notable article, judging whether Al Gore truly deserved to get a Nobel prize. In fact, the question is since when a movie which could hardly be identified as a documentary can serve as a tool for decision-making over such a distinguished award as a Nobel prize for peace. Clearly, the term "peace" includes effort that support the institution of peace in relation to preventing conflicts and suggesting solutions to solve particular complex problems. For instance, if there is a vast empirical evidence on the positive correlation between the decline of regional conflicts and free trade, then free international exchange is, in fact, the contributor to peace.
In Guardian, Bjorn Lomborg wrote a sizzling article on the Nobel prize for peace in this year. Have you read Mr. Lindzen's article Don't believe the hype? Here is a link to the article where professor Lindzen summarizes the fact that there is actually no consensus on global warming:
"So what, then, is one to make of this alleged debate? I would suggest at least three points.
First, nonscientists generally do not want to bother with understanding the science. Claims of consensus relieve policy types, environmental advocates and politicians of any need to do so. Such claims also serve to intimidate the public and even scientists--especially those outside the area of climate dynamics. Secondly, given that the question of human attribution largely cannot be resolved, its use in promoting visions of disaster constitutes nothing so much as a bait-and-switch scam. That is an inauspicious beginning to what Mr. Gore claims is not a political issue but a "moral" crusade.
Lastly, there is a clear attempt to establish truth not by scientific methods but by perpetual repetition. An earlier attempt at this was accompanied by tragedy. Perhaps Marx was right. This time around we may have farce--if we're lucky."
Thursday, September 27, 2007
DOING BUSINESS 2008
The newest World Bank's Doing Business is here.
The top five economies where doing business is the easiest are:
1. Singapore
2. New Zealand
3. United States
4. Hong Kong
5. Denmark
...
55. Slovenia
The top five economies where doing business is the easiest are:
1. Singapore
2. New Zealand
3. United States
4. Hong Kong
5. Denmark
...
55. Slovenia
Friday, August 24, 2007
FRANCE'S EXCESSIVE REGULATION PROPOSAL WOULD DISTORT FINANCIAL MARKETS
"Capitalism without failure is like a religion without sin."
France responded to recent turmoils and frictions in credit markets by calling for tougher and tighter regulation of global financial markets. Clearly, recent dynamics of credit markets and ECB's strongest intervention yet, reflect the turbulence and heating of risk over debt securities in avoiding speculation and credit default swamps which notably increase the probability of financial crisis (Mishkin, Herbertsson 2006).
The question is whether regulative pressures to disclose more of particular data and information about traded financial products could ease the credit flows and ensure more transparency. Since information is the most valuable tool in picking-up financial products to invest in particular assets with sufficient return predictions, adding trickier code laws would simply burden the ability of financial markets to catch growth momentum and enforce risk management rules to respond to the volatility of the level markets properly. Risk management is of course an important aspect of decision-making in globally competitive markets. In addition, pressures for more information disclosure would enforce control over credit and broadly financial markets.
Financial markets are faced by risks and shocks every day and failures which occur frequently could hardly be a reasons for imposing more regulation on decision-makers. One of the ways to confront risk-taking and risk-minimization measures is to ensure a broader access to particular funds, thus to provide sound sources of liquidity.
Recently, France's finance minister stressed (link):
"We have been proven right. We need more transparency and better governance in financial markets and we need it on a G-7 basis."
The evaluation of risk which investors and creditors face in the course of financial market, crucially depends on the ability to reduce the risk of biased information regarding decision-making in particular activity, say hedge fund industry or private equity investment. Transferring the liabilites of governance and transparency to a global body would fail already in the short-run because the amount of information needed to be absorbed and the lack of acceptance of risk in terms of responding to the outcome of the excessive regulation, are the prime reasons why globally enforced regulation would punish and penalize financial markets which could face significant distortions and risk aversion leading to lower returns and discounted ability to target particular markets with particular financial products respectively.
Recently published in Wall Street Journal, Allan Meltzer wrote a simple fact which politicians obviously can't understand:
"But whatever the perceived problem, more regulation is not the answer. It is far better to change some incentives for excessive risk-taking."
Because the regulation of credit and financial markets does not achieve stated objectives, information-sharing pressure reversingly forces equity investors, traders and market actors in particular financial industry to disclose the information required and this, in turn, leads to more complexity and government's control over the financial markets to go for an intervention which is perceived as a negative affection of stock market performance. For instance, could the regulation of carried risk in hedge fund industry really ensure more transparency if trading is conducted on the basis of contract deals where the treatment of information is regarded as contract stakers negotiate.
If the assessment of risk is perceived as low and underestimated, than the portfolio and price reassessment boosted by spontaneous market behavior would give bankers, traders and investors a far better incentive to re-evaluate the risk involving repackaged debt securities. A regulation such as proposed by France's policymakers rather induce external risk pressures to hit hedge fund industry, stock market and private equity firms, causing more harm than good.
The cinism of France's minister of finance is well seen:
"It's not a question of forbidding trading or barring market activity, it's making sure that the sophistication of financial products does not get so complicated that even investors dealing in those products are lost as to what they actually are."
So according to this statement, government officials know better how and where to allocate market resources to maximize the return from financial markets by purchasing traded products at agreeable conditions to traders and investors/purchasers. Market fluctuations are a daily reaction to innumerable decisions and contracts in the financial markets. The assessment of product sophistication could hardly be attached to government's responsibility. The proper degree and size of regulation is much better managed trhough contract deals at which both sides agree on terms and conditions involving particular products to take action in financial markets. In sum, transparency of particular financial products is the matter of the contractual enforcement and the reflection of dealing preferences and the overall efficiency of trading and financial markets always gets worse when government decides to intervene the market with excessive regulation whereas the cost adjustment is high; both for the cost of government and the private trading sector's ability to akin compliance burden.
Allan Meltzer
France responded to recent turmoils and frictions in credit markets by calling for tougher and tighter regulation of global financial markets. Clearly, recent dynamics of credit markets and ECB's strongest intervention yet, reflect the turbulence and heating of risk over debt securities in avoiding speculation and credit default swamps which notably increase the probability of financial crisis (Mishkin, Herbertsson 2006).
The question is whether regulative pressures to disclose more of particular data and information about traded financial products could ease the credit flows and ensure more transparency. Since information is the most valuable tool in picking-up financial products to invest in particular assets with sufficient return predictions, adding trickier code laws would simply burden the ability of financial markets to catch growth momentum and enforce risk management rules to respond to the volatility of the level markets properly. Risk management is of course an important aspect of decision-making in globally competitive markets. In addition, pressures for more information disclosure would enforce control over credit and broadly financial markets.
Financial markets are faced by risks and shocks every day and failures which occur frequently could hardly be a reasons for imposing more regulation on decision-makers. One of the ways to confront risk-taking and risk-minimization measures is to ensure a broader access to particular funds, thus to provide sound sources of liquidity.
Recently, France's finance minister stressed (link):
"We have been proven right. We need more transparency and better governance in financial markets and we need it on a G-7 basis."
The evaluation of risk which investors and creditors face in the course of financial market, crucially depends on the ability to reduce the risk of biased information regarding decision-making in particular activity, say hedge fund industry or private equity investment. Transferring the liabilites of governance and transparency to a global body would fail already in the short-run because the amount of information needed to be absorbed and the lack of acceptance of risk in terms of responding to the outcome of the excessive regulation, are the prime reasons why globally enforced regulation would punish and penalize financial markets which could face significant distortions and risk aversion leading to lower returns and discounted ability to target particular markets with particular financial products respectively.
Recently published in Wall Street Journal, Allan Meltzer wrote a simple fact which politicians obviously can't understand:
"But whatever the perceived problem, more regulation is not the answer. It is far better to change some incentives for excessive risk-taking."
Because the regulation of credit and financial markets does not achieve stated objectives, information-sharing pressure reversingly forces equity investors, traders and market actors in particular financial industry to disclose the information required and this, in turn, leads to more complexity and government's control over the financial markets to go for an intervention which is perceived as a negative affection of stock market performance. For instance, could the regulation of carried risk in hedge fund industry really ensure more transparency if trading is conducted on the basis of contract deals where the treatment of information is regarded as contract stakers negotiate.
If the assessment of risk is perceived as low and underestimated, than the portfolio and price reassessment boosted by spontaneous market behavior would give bankers, traders and investors a far better incentive to re-evaluate the risk involving repackaged debt securities. A regulation such as proposed by France's policymakers rather induce external risk pressures to hit hedge fund industry, stock market and private equity firms, causing more harm than good.
The cinism of France's minister of finance is well seen:
"It's not a question of forbidding trading or barring market activity, it's making sure that the sophistication of financial products does not get so complicated that even investors dealing in those products are lost as to what they actually are."
So according to this statement, government officials know better how and where to allocate market resources to maximize the return from financial markets by purchasing traded products at agreeable conditions to traders and investors/purchasers. Market fluctuations are a daily reaction to innumerable decisions and contracts in the financial markets. The assessment of product sophistication could hardly be attached to government's responsibility. The proper degree and size of regulation is much better managed trhough contract deals at which both sides agree on terms and conditions involving particular products to take action in financial markets. In sum, transparency of particular financial products is the matter of the contractual enforcement and the reflection of dealing preferences and the overall efficiency of trading and financial markets always gets worse when government decides to intervene the market with excessive regulation whereas the cost adjustment is high; both for the cost of government and the private trading sector's ability to akin compliance burden.
Thursday, August 23, 2007
MULTINATIONALS, TAXES AND COMPETITIVENESS
Here is a report from Financial Times:
"Multinational companies with US subsidiaries could face huge new tax bills under a law passing through the US Congress. The new measure, known as the Doggett law after the Texas Democrat who proposed it, aims to prevent international companies avoiding US tax when they transfer funds from the US to parent groups via countries with favourable tax treaties, such as the UK and the Netherlands. At present, companies with headquarters in countries that have no US tax treaty, such as Taiwan and Singapore, can avoid a 30 per cent tax on funds transferred from US subsidiaries by setting up a unit in countries with favourable treaties. Congressional Democrats say the legislation is focused on “tax haven hideaways”."
Source: US tax bill set to hit multinationals, Financial Times, August 19 2007 (link)
A new tax hike on multinationals introduced by the U.S. Congressman could seriously hurt job creation and force multinationals to leave the U.S. despite some of the particular competitive advantages of the business environment in the U.S. such as sound access to venture capital. The performance of multinational companies in areas such as value-added and venture formation crucially depends on tax rates hiking capital gains, corporate income and savings. In fact, net direct investment and capital inflows into low-tax and offshore jurisdictions reflect the attractiveness of particular locations to invest and transfer investment funds into the most favorable place with regard to corporate strategies undertaken by multinational companies.
Penalities levied on setting up business units in jurisdictions with non-punitive tax regime, would certainly force capital and investment managers to avoid taxes through unfavorable results such as less job creation as a measure to fight resisting cost pressures caused by the introducing particular tax bills on companies seeking to maximize growth and output in jurisdictions with lower statutory rates on corporate income and private equity.
Nevertheless, taxation of private equity has distorting effects on decision-making where and how to allocate investment resources in particular to maximize the output and return on equity. In fact, there is a numerous evidence that outsourcing benefits outward company performance and provides opportunities to investors and offshore/onshore service supply. Obviously politicians do not know that multinational companies frequently run several business units and that particular domestic markets do not neccessarily offer suitable or attractive access to particular capital and investment funds and that restricting access to international markets could result in a lack-luster performance of multinationals and consequently, in the loss of gains from competitiveness and access to provide liqudity and additional funds to fuel growth and perform the business strategy.
"Multinational companies with US subsidiaries could face huge new tax bills under a law passing through the US Congress. The new measure, known as the Doggett law after the Texas Democrat who proposed it, aims to prevent international companies avoiding US tax when they transfer funds from the US to parent groups via countries with favourable tax treaties, such as the UK and the Netherlands. At present, companies with headquarters in countries that have no US tax treaty, such as Taiwan and Singapore, can avoid a 30 per cent tax on funds transferred from US subsidiaries by setting up a unit in countries with favourable treaties. Congressional Democrats say the legislation is focused on “tax haven hideaways”."
Source: US tax bill set to hit multinationals, Financial Times, August 19 2007 (link)
A new tax hike on multinationals introduced by the U.S. Congressman could seriously hurt job creation and force multinationals to leave the U.S. despite some of the particular competitive advantages of the business environment in the U.S. such as sound access to venture capital. The performance of multinational companies in areas such as value-added and venture formation crucially depends on tax rates hiking capital gains, corporate income and savings. In fact, net direct investment and capital inflows into low-tax and offshore jurisdictions reflect the attractiveness of particular locations to invest and transfer investment funds into the most favorable place with regard to corporate strategies undertaken by multinational companies.
Penalities levied on setting up business units in jurisdictions with non-punitive tax regime, would certainly force capital and investment managers to avoid taxes through unfavorable results such as less job creation as a measure to fight resisting cost pressures caused by the introducing particular tax bills on companies seeking to maximize growth and output in jurisdictions with lower statutory rates on corporate income and private equity.
Nevertheless, taxation of private equity has distorting effects on decision-making where and how to allocate investment resources in particular to maximize the output and return on equity. In fact, there is a numerous evidence that outsourcing benefits outward company performance and provides opportunities to investors and offshore/onshore service supply. Obviously politicians do not know that multinational companies frequently run several business units and that particular domestic markets do not neccessarily offer suitable or attractive access to particular capital and investment funds and that restricting access to international markets could result in a lack-luster performance of multinationals and consequently, in the loss of gains from competitiveness and access to provide liqudity and additional funds to fuel growth and perform the business strategy.
Wednesday, August 22, 2007
INDIA'S DRUG MARKET TO REACH $20 BN CAPITALIZATION BY 2015
Currently, the retail sales value of India's high-growing drug market is on the solid path to sustain sound growth of market capitalization. Financial times reports that Indian drug market is projected to reach a remarkable $20 billion USD net capitalized value by 2015. India, with an outstanding 8,4 percent growth rate driven by high-return investment infusions, outperforms the rest of the world as is estimated to grow by 7,8 percent in 2008 (link).
It is noteworthy that India's human capital sector is growing rapidly, with two universities among top 100 Asian universities (link). Significant gains in output growth reflect the India's composition of the GDP where services dominate 60,7 percent of the GDP.
The forecast is favorable for the drug market, implying a forecasted 12,3 percent growth rate annually. The mechanics behind the significant growth of drug market can be explained by both, supply and demand. On the side of demand; with regard to market preferences (utility functions), a growing income standard leads to a growing demand for specific drugs driven by high rates of chronical diseases in India.
On supply side, India's pharmaceutical industry is processing a sectoral and price convergence of productivity and product quality, leading to new varieties of product choice delivered on the market to improve the health-care conditions individually.
Private investment such as hospital chains can naturally generate greater revenue and profit as opposed to public hospitals, and consequently higher rate of overall market capitalization which is an important aspect of international sectoral competitiveness.
Even health insurance is expected to double by 2015. As a responding incentive, new insurance claims and joint-ventures (to reduce the risk of sufficent capital allocation) could further boost the volume of capitalization and the size of investment pouring into India's high-growing health-care sector. Openness to technological innovation is an important pre-condition for delivering external results to match-up the relationship of supply and demand in the market.
One of the questions is whether government should intervene the drug market and impose price controls? The imposition of price controls negativelly affects both, supply and demand, in the long run. In fact, if a national agency or some governmental body decides to fix the price of qualified drugs, it cannot reach supposed results due to the lack of supply information. If government officials decide to lower the price of genetic drugs where the elasticity of demand is prone to changes in price and quality, then lower price fixation would result in shortages of supply of generic drugs.
On the other side, the upward fixation of the price could result in an unsold surplus and the demand side would be denied the access to generic drug products due to higher price which obviously wouldn't match the demand precisely. The excess regulation of health insurance and subsidies attached to generic industry through hidden contract inversion, delivers negative results and side-effects nevertheless.
It is noteworthy that India's human capital sector is growing rapidly, with two universities among top 100 Asian universities (link). Significant gains in output growth reflect the India's composition of the GDP where services dominate 60,7 percent of the GDP.
The forecast is favorable for the drug market, implying a forecasted 12,3 percent growth rate annually. The mechanics behind the significant growth of drug market can be explained by both, supply and demand. On the side of demand; with regard to market preferences (utility functions), a growing income standard leads to a growing demand for specific drugs driven by high rates of chronical diseases in India.
On supply side, India's pharmaceutical industry is processing a sectoral and price convergence of productivity and product quality, leading to new varieties of product choice delivered on the market to improve the health-care conditions individually.
Private investment such as hospital chains can naturally generate greater revenue and profit as opposed to public hospitals, and consequently higher rate of overall market capitalization which is an important aspect of international sectoral competitiveness.
Even health insurance is expected to double by 2015. As a responding incentive, new insurance claims and joint-ventures (to reduce the risk of sufficent capital allocation) could further boost the volume of capitalization and the size of investment pouring into India's high-growing health-care sector. Openness to technological innovation is an important pre-condition for delivering external results to match-up the relationship of supply and demand in the market.
One of the questions is whether government should intervene the drug market and impose price controls? The imposition of price controls negativelly affects both, supply and demand, in the long run. In fact, if a national agency or some governmental body decides to fix the price of qualified drugs, it cannot reach supposed results due to the lack of supply information. If government officials decide to lower the price of genetic drugs where the elasticity of demand is prone to changes in price and quality, then lower price fixation would result in shortages of supply of generic drugs.
On the other side, the upward fixation of the price could result in an unsold surplus and the demand side would be denied the access to generic drug products due to higher price which obviously wouldn't match the demand precisely. The excess regulation of health insurance and subsidies attached to generic industry through hidden contract inversion, delivers negative results and side-effects nevertheless.
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