From the Department of Self Promotion…

Here is an article on The Katoomba Group’s Ecosystem Marketplace, The Innovator: Can Lars Christian Smith Take Protected Areas to Market?

Infant industry protection

Ha-Joon Chang writes that almost all rich countries got wealthy by protecting infant industries and limiting foreign investment.

Once upon a time, the leading car-maker of a developing country exported its first passenger cars to the US. Until then, the company had only made poor copies of cars made by richer countries. The car was just a cheap subcompact (”four wheels and an ashtray”) but it was a big moment for the country and its exporters felt proud.

Unfortunately, the car failed. Most people thought it looked lousy, and were reluctant to spend serious money on a family car that came from a place where only second-rate products were made. The car had to be withdrawn from the US. This disaster led to a major debate among the country’s citizens. Many argued that the company should have stuck to its original business of making simple textile machinery. After all, the country’s biggest export item was silk. If the company could not make decent cars after 25 years of trying, there was no future for it. The government had given the car-maker every chance. It had ensured high profits for it through high tariffs and tough controls on foreign investment. Less than ten years earlier, it had even given public money to save the company from bankruptcy. So, the critics argued, foreign cars should now be let in freely and foreign car-makers, who had been kicked out 20 years before, allowed back again. Others disagreed. They argued that no country had ever got anywhere without developing “serious” industries like car production. They just needed more time.

The year was 1958 and the country was Japan…

Read the article here.

Ha-Joon Chang is the author of Kicking Away the Ladder: Policies and Institutions for Economic Development in Historical Perspective and the forthcoming Bad Samaritans—Rich Nations, Poor Policies and the Threat to the Developing World. 

The UN World Food Program in Somalia

The World Food Program dumps food on the market in Somalia, with predictable results. From The Independent,

“Food aid sent to Somalia to combat one of the world’s largest malnutrition crises has been criticised by Somali elders for causing violence - and for being delivered at the start of the harvest season.

More than 33,500 tonnes of food aid has been delivered to Somalia by the UN’s World Food Programme (WFP) since the start of the year. But in Marere district in the lower Juba valley, farmers and elders said the food distribution had brought chaos and driven down the price of maize by 60 per cent.

“WFP shouldn’t have brought it now,” said Mohammed Abdullahi Gure, chairman of the elders committee in Marere, who said distribution of the food had caused serious security problems.[...]

It is not the first time that Marere’s elders have criticised the WFP. After a chaotic food distribution last year, which also took place during the harvest season, the elders wrote to WFP asking the UN organisation not to deliver food again.[...]

Musa Yusuf Ahmed, 44, was a policeman before the Somali government collapsed in 1991. Now, he tries to make a living from farming, growing maize, beans and watermelons. He normally sells a 50kg bag of maize for 100,000 Somali shillings (about £3.10), but Mr Ahmed said it had dropped to 40,000 (£1.25). “For we farmers it is a big problem,” he said. “The food will benefit the people with no money but it will hurt the farmers.”

Some recipients of the food aid have also claimed that the quality is so bad they have had to feed it to their animals…”

Farm subsidies

This letter made me laugh…

Rt Hon David Miliband MP
Secretary of State,
Department for Environment, Food and Rural Affairs (DEFRA),
Nobel House
17 Smith Square
London SW1P 3JR

16 May 2007

Dear Secretary of State,

My friend, who is in farming at the moment, recently received a cheque for £3,000 from the Rural Payments Agency for not rearing pigs. I would now like to join the “not rearing pigs” business.

In your opinion, what is the best kind of farm not to rear pigs on, and which is the best breed of pigs not to rear? I want to be sure I approach this endeavour in keeping with all government policies, as dictated by the EU under the Common Agricultural Policy.

I would prefer not to rear bacon pigs, but if this is not the type you want not rearing, I will just as gladly not rear porkers. Are there any advantages in not rearing rare breeds such as Saddlebacks or Gloucester Old Spots, or are there too many people already not rearing these?

As I see it, the hardest part of this programme will be keeping an accurate record of how many pigs I haven’t reared. Are there any Government or Local Authority courses on this?

My friend is very satisfied with this business. He has been rearing pigs for forty years or so, and the best he ever made on them was £1,422 in 1968. That is - until this year, when he received a cheque for not rearing any.

If I get £3,000 for not rearing 50 pigs, will I get £6,000 for not rearing 100?

I plan to operate on a small scale at first, holding myself down to about 4,000 pigs not raised, which will mean about £240,000 for the first year. As I become more expert in not rearing pigs, I plan to be more ambitious, perhaps increasing to, say, 40,000 pigs not reared in my second year, for which I should expect about £2.4 million from your department. Incidentally, I wonder if I would be eligible to receive tradable carbon credits for all these pigs not producing harmful and polluting methane gases?

Another point: These pigs that I plan not to rear will not eat 2,000 tonnes of cereals. I understand that you also pay farmers for not growing crops. Will I qualify for payments for not growing cereals to not feed the pigs I don’t rear?

I am also considering the “not milking cows” business, so please send any information you have on that too. Please could you also include the current Defra advice on set aside fields? Can this be done on an e-commerce basis with virtual fields (of which I seem to have several thousand hectares)?

In view of the above you will realise that I will be totally unemployed, and will therefore qualify for unemployment benefits.

I shall of course be voting for your party at the next general election.

Yours faithfully,

Nigel Johnson-Hill

[via Guido Fawkes]

The Myth of Inevitable Progress

A review of Indur M. Goklany’s The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet by James Surowiecki.

The core message of Goklany’s book is that economic growth and technological change are the keys to improving people’s lives. But the success of China and India suggests that no one really knows how to bring these achievements about, which makes Goklany’s wide-eyed optimism about the future seem misplaced.[...]

The fact that every country’s experience is different does not mean that there are not deeper truths to be uncovered by looking at the experience of the world as a whole. But the truths thus far uncovered are relatively few in number and often limited in impact. So, yes, free trade is a good thing, subsidies to agriculture and official corruption are bad things, and so on. And policymakers should be aggressive in implementing those practices and policies that there is a good reason to think will work. But they also need to be cautious about taking theoretical pronouncements for reality, and they should be pragmatists rather than evangelists. After decades of misplaced certainty, it may be time to recognize the limits of our own knowledge — at least if we want the state of the world to continue improving.

Microfinance: doing well by doing good?

Felix Salmon writes,

Outsize Returns From Investing in Microfinance

In April, Mexico’s Banco Compartamos went public, raising $450 million. By the end of the first day’s trading, the bank was worth more than $1.8 billion, and the people who had invested money in the bank during its early days found themselves sitting on enormous profits. It was a glorious day for Mexcian capitalism – except for one small problem: Banco Compartamos is a microfinance institution, devoted to improving the lives of the poor. What was it doing, then, improving the lives of already-rich private shareholders instead?

Development group CGAP was one of the early supporters of Compartamos, although it gave grants rather than equity capital, so it made no profit on the IPO. The group has now released a comprehensive report by Richard Rosenberg about what happened, and whether the outsize IPO profits came at the expense of the poor people Compartamos was founded to serve. In a word, it seems, the answer is yes.

The Compartamos numbers are stunning. It has a return on equity of more than 50% – something more or less unheard-of in the banking world. The interest rates that it charges borrowers are more than 100% per annum…

Story here.

The $40 billion handout

This week’s survey in The Economist of business and climate change explains why the US is likely to get a cap-and-trade system (as in the EU), rather than a carbon tax.

If the American governments adopts a cap-and-trade system [...], it will hand out permits to pollute. They are, in effect, cash. According to Paul Bledsoe of the National Commission on Energy Policy, those allowances are likely to be worth in the region of $40 billion. Companies therefore want to be involved in designing those regulations. As Mr Rogers explains: “There is a saying in Washington: if you’re not at the table, you’re on the menu.” [...]

A tax would be a better option. Unlike a cap-and-trade system, which stipulated the amount of CO2 that may be emitted and allows the price to vary, a tax sets a price and lets it determine the quantity emitted. [...] But the prospects for a tax are not good. Business - particularly in America - is allergic to the very word; and the allowances which companies tend to be handed in the early stages of a cap-and-trade system have an obvious appeal to companies concerned about rising costs.

There is an academic discussion (e.g. here and here) about which is better, a carbon tax or cap-and-trade. But the discussion will remain academic. The $40 billion cap-and-trade allowance giveaway offers so many opportunities for patronage, lobbying, and campaign contributions from firms that stand to benefit that it is hard to see how a carbon tax could stand a chance. And on top of that, it is called a “tax”.

Sustainable consumption

Below the fold, the second part of the report on sustainable consumption from Stratfor. The first part is here.

Environmental Idealists versus Realists

The realists are winning. In the EU they have been greatly strengthened by the demonstrated willingness of Russia to use energy for political blackmail. The idealists are in the impossible position of simultaneously arguing that climate change represents the possible end of the world, but that the situation is not so dire that we need to turn to nuclear energy or “clean coal” technology.

Pretty good article from Stratfor below the fold.

Carbon trading and subsidies

In the excellent series the Financial Times has been running on carbon trading, Fiona Harvey writes that

Power generators will make tens of billions of euros in profit from the second phase of the European Union’s emissions trading scheme, according to predictions in an analysis of the market released on Friday.

Companies don’t have to pay for most of the carbon they may emit, they are issued with allowances.

Across the EU, governments plan to auction only 1.5 per cent of the available allowances. Electricity generators are expected to profit by passing on the cost of buying allow­ances to customers in lib­­eralized electricity markets.

The EU Emissions Trading Scheme is a scheme that provides huge subsidies for power generators, most of which are coal powered.

Offsets for everything

Offset infidelity by buying offsets from CheatNeutral.

At Cheatneutral, we believe that we should all try to reduce the amount we cheat on our partners, but we also realise that fidelity isn’t always possible.

That’s why we help you neutralise your cheating. Your actions are offset by a global network of fidelity, developed by us. By paying Cheatneutral, you’re funding monogamy-boosting offset projects - we simply invest the money you give us in monogamous, faithful or just plain single people, to encourage them to stay that way.

Design of markets

Useful links on markets in general and prediction markets in particular:

On CASTrader Blog, 3 interesting posts on market structures by Alan Jewell. Part I, Part II (on Midas Oracle), Part III.

On Mercury’s Blog, Jed Christiansen informs us that he has set up a page on Squidoo on prediction market resources. Looks very useful.

On Midas Oracle, Chris Masse points to the Chris Hippert Explainers.

Buy ‘em, Trade ‘em, Protect ‘em

From the Dep’t of Self-Promotion: here is an article in Conservation Magazine about cap-and-trade for protected area visitor permits.

Protected areas can suffer from too much love. In the Galapagos Islands, tourism has brought invasive species and overuse. But it has also boosted the local economy. So the question is, how can we protect biodiversity without shutting down local tourism industries?

A new proposal based on the cap-and-trade concept now used to curb pollution emissions could help solve the problem. It would treat protected-area visitor permits as tradable commodities, limiting their number while raising capital through the sale of quotas.

Another Wolfowitz memo…

In reaction to possible inside trading by World Bank employees in “Paul Wolfowitz resignation contracts” on Intrade, Paul Wolfowitz allegedly wrote this top secret memorandum.

Hat tip to Midas Oracle.

Microsoft, RIP

Wikipedia writes that “Rest In Peace” (from latin: requiescat in pace) is a prayer that the departed may be at peace, not in torment, while awaiting Judgment Day. That seems appropriate for Microsoft.

Paul Graham writes,

A few days ago I suddenly realized Microsoft was dead. [...]

I’m glad Microsoft is dead. They were like Nero or Commodus—evil in the way only inherited power can make you. Because remember, the Microsoft monopoly didn’t begin with Microsoft. They got it from IBM. The software business was overhung by a monopoly from about the mid-1950s to about 2005. For practically its whole existence, that is. One of the reasons “Web 2.0″ has such an air of euphoria about it is the feeling, conscious or not, that this era of monopoly may finally be over.

Is geothermal energy the next big thing?

After wind energy, solar cells, and biofuels, will geothermal energy take off?

It could be the New, New Thing.

It is not without problems; individual sites can become depleted if used excessively.

But all renewable energy sources have their drawbacks. Wind generators, for example, use lots of cement, steel, and space, have lots of moving parts, are noisy, kill birds, and only work when the wind is blowing. But they are still seen as benign.

On Iceland, an investment fund, Geysir Green Energy, was recently established with an initial $100 million investment for the purposes of investing in geothermal energy. Given Iceland’s experience in this field, this can been seen as an initial step towards commercializing Icelandic experience and technology worldwide, e.g. that of the company Enex.

Other companies in this field,

Calpine Corporation

Ormat Technologies

Update: A comment on Muck and Mystery,

It isn’t clear if the technologies will be adopted with enthusiasm since money often flows to projects that are subsidized whether they make any sense or not without subsidies. Geothermal makes sense, but may not capture political minds and hearts. I think it will eventually come into its own, but perhaps not soon.

See Heat Mining for some discussion of recent work on enhanced geothermal systems (EGS).

How to manipulate markets and boost short-selling

Fairly outrageous video, suitable for use in business ethics classes,

http://www.youtube.com/watch?v=ZTt7IQB9rc0

More here.

Prediction markets in everything

The are now prediction markets in everything from economic derivatives to films and film stars on the Hollywood Stock Exhange.

Here is an explanation of prediction markets on YouTube, using the U.S. presidential election as an example (via Midas Oracle).

Midas Oracle has a list of markets here (scroll down). New prediction markets include Financial Next and PharmaDAQ, a “Fantasy Pharma Prediction Market”.

More here.

Update: Chris Masse says, The full listing of prediction exchanges is here: http://www.chrisfmasse.com/3/3/exchanges/