Relevant and even prescient commentary on news, politics and the economy.

The ATM Myth

Brad DeLong cited this passage from Ron Suskind’s latest book on Monday:

Both [Christina Romer and Larry Summers], in fact, were concerned by something the president had said in a morning briefing: that he thought that high unemployment was due to productivity gains in the economy.

The same meme spread across the economics spectrum: Scott Sumner was horrified. Mike Konczal’s reaction (on Twitter) was restrained (“This is…depressing”) by comparison.

In the context of Suskind’s book, we might just assume that Obama was, as usual, being gulled by his handler Rahm and his Svengali, Timmeh Geithner. However, via Karl Smith, we can set to rest any doubt that Barack Obama is just being misled. Matt Yglesias catches a lazy piece of  “thinking” from the President—who has had Austan Goolsbee, Larry Summers, Peter Orszag, Alan Kreuger, Jason Furman, Jason Bernstein, and several others (even dissing Christina Romer, as the Now-Sainted-by-the-Press-for-his-Fairness-to-Women Obama explicitly did) to correct him:

In a June interview with Fox News, President Obama appeared to argue that the country is suffering from high unemployment because productivity enhancing technologies such at ATMs have reduced the need for work.  It wasn’t clear to me at the time if the president really meant that or if it was just a bad moment in an interview,  . . .

Team Obama has, I think, landed on a more sophisticated version of this theory, and that explains some of the reason why Romer & Summers aren’t in the administration anymore and haven’t been replaced by like-minded people. [link in original]

Now, Barack Obama “might not be particularly well-informed about economics” (Sumner), but I never would have thought he was that obtuse.

Let me talk for a moment about our shared experience. Obama was a year behind me in college. As a transfer student, he didn’t start with on-campus housing; he got a room in a flat in the mid-100s.  So he walked to school—past several banks, one of which was undoubtedly more than happy to open an account for a never-attended-public-school Ivy Leaguer who, even then, knew how to manage up. (Heck, they opened one for me, and I fail miserably at most of that description.)

And the one thing you got—whether it was Chase (back before Manny Hanny acquired it) or Citibank (before it became The Big C)—as a student, no minimum balance required, was an ATM card, usable (in the case of Chase) virtually any time in one of the three (3) enclosed ATMs.  They dispensed $5 and $10 bills.

(The “enclosed” is essential, not just for nighttime safety, but also for days of rain and snowses. Years later, in MBA school, we attended the presentation of a guest speaker, a prominent Georgian who had founded an “Internet bank.” He freely stated that he didn’t understand why some companies enclosed their ATMs; I put the now-bankrupt company on my “short” list immediately.)

That was thirty (30) years ago. Putting this as politely as possible, that’s a heckuva long time for “structural change” in employment to take effect.  To put it in context, I know hot type setters who have been out of that business for less time.

It would take someone who was completely unaware of the world around him to point to the ATM as a ca.-2007 cause of structural unemployment in the United States.

Now, you may, correctly, note that there are Many More ATMs in 2011 than there were when Barack H. Obama moved to Morningside Heights in 1981.  And I will certainly agree with you: after all, if you spend 25 years privileging capital investment over labor—not to mention thirty attacking labor—you should expect capital growth.

But that doesn’t mean that capital growth is welfare-enhancing, or even necessarily has a positive ROI.

At Bear Stearns’s main building, 383 Madison, there were two Chase ATMs on the second floor. Those who know NYC will note that there are not one but two Chase branches across the street, but traders and senior executives require convenience, not crossing a NYC street (which they only did to cash/deposit their bonus checks) or, especially, standing in a queue behind people whose time is much less valuable.

(Tone notwithstanding, the last part of that is rather serious: if being away means you or your firm might take a loss in the mid-five or low-six figure range, your work time is more valuable than that of a Claire’s Stores saleswoman. Much better when the worst-case scenario is to be stuck behind one or two of your fellow traders, who wouldn’t waste their time not knowing exactly what they intend to do before getting to the machine.)

And, since the traders and executives weren’t willing to be personally ripped off, the ATMs were no-fee, even for non-Chase cards.

And here is where an alert economist will say cui bono? The answer is: the firm paid $1.2MM ($1,200,000; $600,000 per machine) for those two machines to be there, be maintained, and be fee-free.

So when you point to those ATMs in the grocery store, I point to the 99 cent ($0.99) fee for a $40 withdrawal and say glibly, “Yes, usury is alive and well; you don’t even need to be in a counting house.” 

How many jobs does that ATM destroy?

And—again, if you’re able to think about it, the way some economists (mostly health economists and econometricians, it seems) are able to do—you look at the proliferation of ATMs and realize that each of them needed to be stocked with bills (now $20s and $50s), have their network connections maintained, be repaired, have (a portion of) a staff member available to deal with customer complaints and issues, and be installed based on an initial capital outlay/agreement that covers all of those costs.

If we treat the Bear Stearns arrangement—and Bear and Chase were tight even before the latter “paid the two dollars”—as a benchmark, a semi-full service (as with the ATMs in most grocery stores and Duane Reades, they didn’t take deposits) ATM costs a lot more to run than a bank teller does. As a ballpark, it may be an order of magnitude more, and that’s rounding the ATM costs down (ca. $500K) and the teller expenses up ($50K).

All of the above is even ignoring The Baumol Problem.  You can provide most of your services through an ATM, or a group of ATMs, if it/they work(s) perfectly, but you cannot eliminate the “teller” role completely. You can redefine it: a bonded employee to restock the bills being dispensed is needed, so you can take a teller away from a “window” for an hour a day: seven hours as a teller, one in service of the ATM. And you can move new bank branches into slightly smaller spaces (based on not needing so many tellers), but you’re more likely to convert some of that space in old branches to space for HNW banking efforts, concentrating on areas that require greater customer service.

So the specific, limited job of “bank teller” might have been reduced (assuming bank branches remained constant; anecdotally, I would suggest they expanded significantly)—unlike hot type, it didn’t go away. But the skillset required for tellers is mostly transferrable: excepting any specific licensing/bonding requirements, if you can be a teller, you can be a cashier or a customer service representative or a sales assistant or a realtor.  It’s not like hot type in that respect—the initial skillset is transferrable.

Add the jobs that become available—network engineers, security people, drivers, system administrators, and people to build all of that equipment—when an ATM is installed and reduce that by a fraction of the tellers who won’t get hired.  Throw in an adjustment for the deadweight loss that is added to the economy via the ATM fees (which is at least partially balanced by the expansion of the ATMs themselves), and overall you have to conclude that the ATM increased the number of jobs available.

Economists often call it “creative destruction,” and you would think that the Goolsbees and Summerses of the world would have explained it to Obama.  In fact, you would think it would be something about which a community organizer would have heard, since much of the effort required there is making it possible for your clients to find retraining opportunities.

That he would speak so absurdly so recently reflects poorly on the economists who advised him (not to mention those who still believe his explanation),

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Elain Kamarck on Welfare Reform: a Critique

Elaine Kamarck wrote an article in The Washington Monthly’s blog “Ten Miles Square” entitled “NO Time to Go Wobbly on Welfare Reform”

Briefly for those who have not clicked the link, the article stresses that TANF (aka welfare) is a very small component of the social welfare safety net (as was AFDC before welfare reform). Kamarck argues that one would not have such a negative view of welfare reform if one considered the whole poverty assistance system. She presents data on the poverty rate and discusses its change over time. Then mixing political strategy and policy analysis, she argues that it would be very politically costly for Democrats to question welfare reform.

I agree entirely with the first claim, which is not related to the rest of the article (which discusses policy not politics and reality not the median voters’ perception of reality).

The article contains factual errors. They are not minor.

1) Kamarck shows a graph of total EITC and AFDC/TANF benefits and writes “As the following chart illustrates, spending on the EITC took off just as welfare reform was adopted.” This claim is false. As the graph shows, spending on the EITC took off in 1993 following the passage of the Clinton recovery bill (tax increase for rich people, .7 cent a gallon gas tax and massive expansion of the EITC). This was three years before the welfare reform bill signed in 1996. Kamarck asserts 1993=1996. In fact 1993
2) Kamarck writes “the welfare rolls, which, by supporting mothers only if they weren’t working and weren’t married.” In fact in 1996 (and earlier) some married women and some employed women received AFDC benefits. In 1996 AFDC was available to married couples with children (subject to availability for work rules) in 25 states. It is just not true that only unmarried women received AFDC (it is true that few married couples with children were poor enough to qualify but that is a fact about income distribution and not about the program in those 25 states). Also AFDC was available to women who worked but had very low incomes (benefits would be zero for someone who worked year round full time for the minimum wage). IIRC the effective marginal tax rate was around 70%. However, for Kamarck’s claim to be true, it would have to be infinite at labour income =0.

Now both of Karmack’s claims about AFDC are uncontroversial — they are something which everyone thinks he or she knows. They are also false. I think they should be corrected.

In addition to the two very important (central to the article) errors of fact mentioned above, Kamarck makes very serious errors of omission. She notes that Clinton vetoed an earlier welfare reform bill which converted food stamps to a block grant. She neglects to mention that the bill he signed massively cut food stamps. The projected savings from the bill were overwhelmingly due to the food stamps cuts not the transition from AFDC to TANF.

I suspect (just a guess not a claim) that the actual ex post cuts in the 90s were more than 100% due to the cuts in food stamps — the AFDC was an entitlement without a fixed budget so spending would have fallen during the late 90s boom. The federal TANF contribution is a block grant which does not depend on how many people are needy so it didn’t fall in the 90s. I guess that in the first years after welfare reform TANF cost the Federal Government more than AFDC would have cost.

But the cuts to the food stamps program were severe dwarfing the cuts to AFDC/TANF spending.

It is not at all possible to evaluate the effect of welfare reform on the poor by looking at the poverty rate. For one thing food stamps are not counted as income in the calculation of the poverty rate. The program and the massive cuts in 1996 just don’t appear in the headline data on poverty.

Much more importantly, neither TANF nor AFDC is designed to reduce the poverty rate. AFDC and TANF benefits are not high enough to bring income over the poverty line. The purpose of the programs is to prevent severe poverty while keeping the long long term unemployed poor so that they have an incentive to seek work.

The poverty rate is just one statistic which gives us some information about poverty. It would be the whole story only if a household with income one cent before the poverty line suffered as much as a household with 0 income. To find possible costs due to welfare reform, one has to consider the distribution of income among households below the poverty line. One easily available statistic is the severe poverty rate (also called the deep poverty rate) the fraction of people in households with income below half the poverty line.

Data on severe poverty rate only go back to 1975. The current level is the highest on record. The ratio of the severe poverty rate to the poverty rate has increased since welfare was reformed. The sever poverty rate and this ratio are useful if one wishes to determine whether welfare reform may have hurt the poor by making them severely poor and not just poor. Kamarck considers only the poverty rate. This is a serious conceptual error.

I believe that her article contains false claims of fact which should be corrected and that it makes a contribution to the discussion of no value whatsoever.

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PSA: Mark Thoma, Schlesinger and Jack Otter Answer Questions about the Economy at 2:00pm today (EDT)

From my email (with formatting lost):

Ask the Experts: What’s Next for the Economy?

It’s a big week for the American economy. President Obama announced his plans to reduce the deficit on Monday, and Wednesday afternoon the Federal Reserve announces its new plan to boost growth. Do these proposals make sense? And what do they really mean for your money?

MoneyWatch editors Jill Schlesinger and Jack Otter will discuss in this week’s live “Ask the Experts” webcast. They will be joined by economist and MoneyWatch blogger Mark Thoma.
• Where should you be investing now?
• Will any jobs be created this year?
• Where can you find a job now?
• Has the housing market finally hit bottom?
• What will it really take to restart the American economy?

________________________________________
If you have questions, concerns, or comments send an e-mail to AskTheExperts@MoneyWatch.com, or join the webcast via our live chat feature.
________________________________________
Don’t miss Ask the Experts on Wednesday, September 21st, 2pm ET / 11am PT.

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Lifted from comments

Lifted from comments on the housing situation by Spencer…Housing vs. Household formation. Of course the point also being…what is going to be the source of growth for US citizens?

kharris comments and adds another contributing factor on the housing market:

…Banks already have pretty nearly all the housing assets they care to have, thank you very much. If banks don’t want more housing assets, then they won’t lend much money against houses. That reluctance to lend is going to keep effective housing demand down, even if demographics are favorable.

And herein lies the problem. Housing demographics are responding to labor market conditions, and financial conditions. Each needs to improve, and the failure of either to improve limits improvement in the other. We traditionally rely on housing to lead recoveries, and there are self-reinforcing limitations on housing right now. Rather than overall growth responding to housing, this time housing needs overall growth. That means we need some other source of growth to lead.

In response to that situation, one party says “cut taxes and regulation and (mumble, mumble, mumble), and then the economy will be great and all our problems will be gone.” The other party says “the best we can do is go small and pretend it’s enough.” There is no alternative source of growth in either of those.

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CGI 2011 – Developing Green Technology

Van Jones of Rebuild the Dream introduces the two presenters by noting that we are in the “post-Whale oil” strategy for liquid fuels; using algae and biomass technologies. Jonathan Wolfson, CEO of Solazyme, Inc. opens by thanking his investors and then stating,  “We make oil.”  He declares that oil is not going away, and is not going to be replaced; the choice is what type of oil we are going to use of the three types: petroleum, plant, and animal.

It’s fairly easy to figure out where he is heading.  As Van Jones noted, we tried animal, and we’re using petroleum now.  Peak oil is past or, at best, demand for petroleum is going to outstrip supply even if we find and refine more and more of it.

Wolfson notes that the developed world uses oil for everything, with a concomitant increase in price as demand rises and the world becomes more developed.  He dismisses the inorganic alternatives without even bothering with environmental concerns: natural gas, fracking, and coal liquefaction are all non-renewable, and therefore doomed as an alternative.  Working on renewable oil: biomass conversion, plant sugars, photosynthesis and microalgae to convert sugar to oil.  Does not require changes in current processing system; renewable oil is fungible with the dinosaur-based creation.  Have created a hearty-healthy oil that is similar to olive oil in other ways; have an alliance with a French company.

Solazyme told potential private-sector partners that their technology could produce $1.50/gallon oil. Response was always: don’t talk about costs until you can show us you can scale. So made a deal with the U.S. Navy, and are delivering “the promise of advanced biofuel.”

Following Wolfson is his major investor, Deputy Assistant Secretary of the Navy for Energy Thomas Hicks. Hicks is well-versed in the Total Cost of Ownership:  “The Navy simply relies too much on fossil fuels…degrades our national security…and ultimately endangers our planet.” We have young men and women in Afghanistan protecting fuel convoys that begin in Pakistan. Multiple convoys per day; for every 50 fuel convoys, we have one Marine who is killed or wounded. “That is too high a price to pay for fuel.”

Hicks is leveraging the Marine Corps is reducing that dependence, through demonstration in Quantico. Took the winning technologies and moved them into combat zone in May—and then in September into Afghanistan. Solar tents, solar blankets, LED lights—resulted in a 30-90% reduction in fuel use.  Patrols able to travel three weeks, not two days, without a Battery Resupply. Now equipping all units in Afghanistan, with a payoff timeframe of six months.  Still looking for more, but it’s a great start.

Admits ongoing operations in “Afghanistan, Iraq, and Libya.” Additional cost for fuel last year ($38/barrel increase) was about $1B ($1,000,000,000)—which comes out of the extant fuel  budget, not as an additional appropriation.  (In this manner, the U.S. Navy is like a family.) The price volatility of the fuel has a direct impact on ability to engage in efforts, including support.

So the Navy has started an effort to move to 50/50 use of renewable/biomass fuel and oils at a price comparable to that of petroleum.  If they can do it, why cannot—has not—private enterprise??

The Navy intends to lead an energy revolution; they have a $1B RFI out, closing at the end of the month, in their continuing attempt to find alternative fuels. “Together we can build a new energy future, a new energy economy.”  Again, why do I have to hear this from the Navy, when everyone tells us that the private sector is the leader?

Hicks and Wolfson agree that have a climate that is built for technological innovation. Hicks notes, again, that it worries him that the Navy, not the private sector, is out in front on alternative energy exploration. Speaker from the floor notes that there has been a paradigm shift since a single person took out the power grid in CA and AZ.  Energy efficiency retrofitting will put people back to work (as it does in NYC). Will launch a career some time in 2012—not on Earth Day, but on a day—with 50/50 blended fuel all through, including the backup generator. By far the largest purchase, excluding ethanol., in history, per Mr. Wolfson.

Are you certain the extant energy company leaders—and, yes, I am including Jim Rogers of Duke Energy, who has been talking this game for at least twenty years—are really “job creators”?

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Markets and Merchants’ Guilds: Which is the Chicken? Which the Egg?

This post was provoked by a moment of frustrated pique, another in a series of ‘shakes cane at clouds’ moments as this classic New Deal Liberal is driven to craziness by otherwise sensible social liberals who still fetishize markets. And yes I am pointing fingers right at Erza K, Matt Y and Kevin D. But in this case directly at Kevin and his piece today that should raise hackles at the very sight of its title: A Conservative Medicare Plan Liberals Could Love Here is the core proposal:

What to do? Via Reihan Salam, Yuval Levin proposes a revised version of Ryan’s plan that’s based on a genuine conviction that market forces can work. Each year, Medicare would define a minimum benefit level, and then providers in each Medicare region (there are four) would bid for business:

The level of the premium-support payment in each region for that year would be set at, for instance, the level of the second-lowest of the bids. Seniors would then be able to apply that amount toward the purchase of any of the plans on offer in their area. Thus, in each region, there would be at least one option that would cost less than the Medicare benefit, and seniors choosing that option would get the difference back as cash in their pockets; there would be at least one plan that cost the same as the benefit, so that seniors could obtain it with only the same out-of-pocket costs they have today; and there would be other plans that cost more (perhaps because they offered more, or because they failed to find ways to drive greater efficiency in their networks of doctors and hospitals) and for which seniors would pay an additional premium if they chose.

….In such a system, the premium-support benefit would grow exactly as quickly as required to provide a comprehensive insurance benefit, since the growth rate would be determined by a market process rather than a preset formula…. If market forces did drive costs down, as conservative health care experts expect, the reform would save the government an enormous amount of money….If market forces did not drive costs down, then we would have to find another way to address our entitlement costs. We would be back where we started, which is where Democrats want to end up anyway. Whether the reform succeeded or failed, seniors would have a guaranteed benefit and essentially no added financial risk.

Generally speaking, there’s no reason this idea should offend liberals.

Well as I said over there maybe just one tiny reason. I call it “the whole effing history of market relations” reason. Rant continues below.

My question is inherent in the post title. Historically did free markets precede artificial market barriers and price fixing? And in the European context the answer is clearly no. As the historical record dawns in the West long range trade is firmly in the hand of the Phoenicians and their colony in North Africa Carthage. Firmly because enforced by swords and fighting ships. Which in turn means harnessing state military power to enforce market barriers. And this model never changed over the three plus millennia to follow. Whether you take the Athenian Confederacy, the Roman Empire, medieval merchants guilds, the English Staple, the Hanseatic League, the East India Company in each case you have a cartel backed by or buying off state power to control entry to markets. And with enforced market barriers you have price fixing in more or less rigid form, competition on price always bounded.

Which doesn’t mean no competition at all, there will almost always be some level of internal price variation as well as external competition from smugglers and itinerent travelling merchants but the former were often treated as simple criminals to be punished by state power while the latter mostly relegated to openly marginalized groups, in Europe historically the Jews, the Roma/Gypsies, the Irish Travellers alternately grudgingly tolerated for specialized skils like tinkering or money lending or brutally suppressed, but never or very rarely simply accepted within the literal or figurative walls that protected major commodity markets.

Real economic historians please chime in with counter-examples, clarification, or simple vilification, AB is a blog, we exist to start conversations. But in the case highlighted by Drum the gaping flaw is obvious. All it takes to game this system is for the cartel of health insurers to decide who is going to be the number two in any given market, who is tasked to undercut him marginally and so be the ‘low-cost’ provider, while anyone else is free to adopt or try to leverage off the price level set by no 2. Which price doesn’t have to have any particular relation to cost of providing services or marginal productivity or any of the other fetishes of free-market absolutists. Instead any time you have a commodity based production commodity whether that be rice, wool, or simple labor supply, where withholding that commodity is not an option in real terms, not when the producers are at or near subsistence levels, the price of wholesale and retail is set by the market controllers. Because in the case of these basic commodities neither supply nor demand is infinitely or even partially elastic, the farmer needs to sell his crop, the village or urban worker needs to eat, and in between is the merchant’s guild backed by state power as necessary. And certainly health care for seniors falls into this must have category, and doubly so if the actual funding is mostly external to the end consumer.

It has always been such since Egyptian faience glass was exchanged for Baltic amber or either for tin from the Pretannic Isles (the Greek name for Britain). Historically there have always been middle men and in all cases in which I am familiar those middlemen had some sort of internal coordination on both pricing and in keeping competing cartels out of their market by all means necessary.

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CGI 2011 – Plenary on Climate Change (AGW)

President Clinton introduces the panelists, noting that there is a UN discussion of Libya scheduled for 10:00 a.m. and that they will have to leave quickly.  First up is Mexican President Felipe Calderón Hinojosa, about whom President Clinton is enthusiastic.

Calderon is less vibrant, but presents an impressive array of detail on Mexico’s unilateral reduction in carbon usage, noting that 26% of the energy used in the country now is from renewable sources.  Part of this has been accomplished by the simple things: a concerted consumer campaign toward replacing old refrigerators and light bulbs with modern ones.

President Calderon notes that much of the problem in developing countries has originated with cutting down the extant trees.  The Cancun meetings resulted in a new international agreement.  Today, we have a new challenge: continuing the Kyoto Protocol.  “Most important agreement and most important instrument”—saying this in front of President Clinton—needs leadership and mobilization of public opinion.

President Clinton notes that the countries that have been putting major effort into climate change have outperformed the United States in jobs, growth, and reducing income inequality.

President Jacob Zuma, President of the Republic of South Africa, notes that “we all agree that climate change is a danger” and that “we need to work together to address the challenges.”  The people on the ground—the voters—see this as a direct matter of life and death; it is the leadership that is needed in Durban.

Jens Stoltenberg, the Prime Minister of the Kingdom of Norway, says that he would not have believed you if you had told him ten years ago that emissions trading in Europe would be possible. Need to have legal agreements, not just a Durban-style reiteration of Kyoto and Copenhagen. (Those of us who were talking about trading energy and weather derivatives twenty years ago probably should be less amazed at this statement than I am.)

President Clinton asks how to work toward energy use reduction in developing countries. The Prime Minister of Grenada, Tilman Thomas, addresses this, mostly by noting a “moral responsibility” to the people of his country. President Clinton notes, repeating what he said last night, that of all of the Caribbean countries, only Trinidad produces any of the carbon-based energies—all other countries have to import oil and natural gas at great cost.  If there were financing available, could expand alternative sources: solar, hydro, and sugar-ethanol, for instance.

The Prime Minister of Slovenia, Danilo Türk, notes that there is Global Governance taking place without global government. Carbon tax would be good because it makes costs predictable. “Very fundamental long-term development challenge,” need to find the “appropriate public funds for transformative technologies now,” following the German solar precedent.

(President Clinton noted that the sun shines in Germany “as much as it does in London.”  I take this to mean that it is not a bright, cheerful country.)

Bangladeshi Prime Minister Hasina echoes the sentiment expressed by several others:  there needs to be a legal requirement. She notes that 20% of the land of her country will be eliminated as the current trend runs.  President Clinton adds The Maldives and even Afghanistan to the list of places that will have to do more and more with less and less (land and resources).

Prime Minister of Mali Cissé Mariam Kaïdama Sidibé notes that one of the biggest problems facing her country is “brain drain” to the United States and Europe.

European Commission President José Manuel D. Barroso notes that many countries have taken individual steps, but that much more is needed to reach the 2 degrees C target—currently on target for only about 60% of that.  “Transparency is key.” Have two very important alliances: science, which is on our side, and public opinion, which should be.

President Calderon has been leading in reforestation; planted about half (500MM) of the trees U.N. Secretary General requested—and collaterally made Mexico City a better place to live.  Tells a story about Tanzania, in which a village grew trees for carbon credits: and gave back more than half of that to get more people in the village a better life.  (I suspect this is an example of what David Graeber is talking about when he notes that communal obligation has always preceded—and generally superseded—economic theory.)

President Clinton also notes that the U.S. Senate is now only 50% “global warming deniers.”  He apologizes for that, but notes that it is progress from the 95-0 vote against the Kyoto Treaty.

I believe that is also the only time the phrase “global warming” was used in the entire discussion.  It was almost as if people were afraid to note that the changes are of our own doing, not just the Earth getting mad.

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CGI 2011: Haiti Development Workshop

[updates and edits, especially in the 4th-6th grafs]

“The winner” in Haitian development created 12,000 jobs in the garment industry in the past eight years in Haiti.  Seems as if all of the participants today will be garment manufacturers, though WJC notes that companies such as Coca-Cola and Newmont Mining are also considering investment.

When I sent an email out indicating that I was thinking of attending, the best response I got to questions you would like to ask was “Is Haiti doomed forever to be the developed world’s sweat shop? Will it ever be allowed to have an agricultural economy of its own?”

Only 43% of the aid pledged after the earthquake nearly two years ago has been disbursed today. (Take that, “shovel-ready” complainers!) WJC: “Haiti will not have a sustainable economy unless there are new investments, new jobs, and new business.”  President Clinton describes the disaster as “best opportunity in my lifetime” for the country.” (I’m guessing this is in the same way as education privatization has worked in New Orleans since Katrina.)  Most of the donor monies have not gone through the local institutions, but President Martelly is determined to have local government integrated in the discussions. 

As an example of the problems before the earthquake, WJC notes that there was no market in lending—even mortgage lending—in the country before now.

WJC describes Donna Karan as “Haiti has taken over her life to the extent that I am now a back-bencher.”  I think this is a positive statement.  Also gets a pledge for development from the new group run by Mohammed Yunus (who I interviewed at the 2009 CGI) and one other group [update: Zafen appears to be the other Commitment].

WJC, leading up to the President of Haiti, mentions that W. described the President of the United States as the “decider in chief.” Clinton said that he rather agrees with that statement, noting of Martelly that “This man will make a decision.” He also declares that most of them have been good ones, something he did not say, at least now, about GWB.

The President of Haiti Michel Martelly rehashes some of these points in more detail and discusses the plans of his administration to make it easier to start a business in Haiti and complete a new Industrial Park, with two more apparel companies and a furniture manufacturer joining there by the end of the year. Working with USAID, IADB, and others to ensure that their business-friendly approach will be highlighted around the world. Revamping processes and reshaping policies to create trade agreements with other countries, such as Brazil, using the model of the 10-year agreement with the United States.

Upsides: free education for all pledged, as well as opening a state university and (separate) vocational school.  Will be subsidizing the education of 772,000 Haitian children and leverage their location near the largest market (U.S.) and the “booming markets of Latin America.”

WJC notes that even the long-antagonistic Dominican Republic has worked with Haiti to rebuild since the earthquake.

First speaker is Magalie Dresse, owner, Caribbean Craft, who notes that her business has expanded rapidly thanks in large part to Donna Karan’s commitment and some major effort from Ms. Dresse herself.

A representative from the Haiti Action Network—or perhaps Denis O’Brien of Digicell—follows, claiming that Haiti has been a democracy for only five years.  He’s still alive, and follows that by declaring that “there’s no country that has more creativity than Haiti.”

Luis Alberto Moreno, the president of the Inter-American Development Bank (IADB), follows, declaring that the five-month President”inspired us all.” (I’m hoping I misheard that and that he was really referencing WJC.)  He then goes on to talk about “Juan Valdez” and the Colombian coffee industry.  I cannot tell if the audience is too polite, too young (doesn’t look like the way to bet), or just too stunned.  But he goes on to make good points about possible developments that would not be dependent on the rag trade.

President Martelly speaks again; it’s easy to understand why people like him, and he clearly has a vision for agricultural development as well as economic development.  Not certain I would quit my job to work for him, but it would be worth thinking about.

The next speaker is Woong-Ki Kim, chairman of the Sae-A Trading Company—or, more accurately, Ron Garwood, who is working as his interpreter. Chairman Kim has several reasons for his Haitian investment, including shorter delivery times, “an abundant and motivated labor supply,” a preferential Trade Agreement with the U.S. that provides duty-free entry, and that the U.S. and the IADB are building up the North Industrial Park, including an eco-friendly , state-of-the-art waste-water treatment plant, a power plant, and housing, not to mention giving them land (150 hectares, if I heard correctly). Mr. Alberto Moreno notes that another Korean company—a Fiber-Optic firm—and an American furniture company are also seriously planning to move into that park to create jobs.

WJC, who I still maintain is rivaled by no one in his ability to process and retain data, asks about sugar production in Haiti, noting that it is very fragmented and strongly concentrated in rum manufacturers.  Mr. Alberto Moreno notes that the IADB has been speaking with the Brazilians about their recent efforts in using sugar cane as energy and leveraging that technology into power generation. Haiti pays the highest KwH power cost of anywhere.  “This is insane.” – WJC.  As most of this is effluvia to sugar generation, the marginal cost is almost solely derived from capital investment—virtually no labor cost, even if you provide better (“good”) income to workers.  Mr. Alberto Moreno confirms President Clinton’s vision for energy generation, noting the hydropower generation opportunities as well.

President Martelly notes that Haitian are working to produce sugar—in Santo Domingo.  Providing the opportunities at home would cause repatriation and improve human capital. (“They would rather stay home and do it—so we should try it.”)

Talk goes to tourism, with the best sight gag of the day: President Martelly says, “I could stand up and tell you”—stands up—“that Haiti is the most beautiful country in the world.”  He then goes on to note that voudoun is an attraction. (Maybe I would quit my job and work for his government after all.)

Mr.O’Brien notes that he toured Haiti this summer and that there are many opportunities for “boutique” hotels (20 rooms or fewer) and other boutiques in areas—“either way, left or right, as you come out of the airport”—that are growing in other areas but are underavailable to tourism.

(Having been to Punta Cana, I suspect that the areas outside of Port-au-Prince are more diverse, and therefore more interesting, than those in the DR.  But I could be wrong; if I am, please note so in comments,)

WJC notes that former colonies tend to have “a legacy rules-based government.” (This is standard cant among the technocratic center, with a large grain of truth and somewhat deliberate elision of the reason many of those rules were put in place initially.)

Ms. Dresse notes that Donna Karan’s declaration that the potential for Caribbean Craft is 20-30,000 more jobs “underestimates the potential.”

Mr. Alberto Moreno closes with an announcement of an investor conference on 29-30 November in Haiti. “Guarantee you will be pleasantly surprised.”  Had more than 300 investors from Latin America at a conference three months  before the earthquake.

The abiding feeling from this presentation—for me at least—is that the Latin American countries and Korea recognize and are moving toward an opportunity. Whether U.S. investors are so enthusiastic is still TBD.

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Clinton Global Initiative 2011

As with last year and the year before, I will be (as much as possible) at the Clinton Global Initiative, now with even more Social Media and Networking Goodness.

If you’re here, say hello. If you’re not, look for posts and peruse the offerings for the conference. If there’s something you’re especially interested in, email me or mention it in comments.

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