Thursday, November 30, 2000

Bold prediction: In the future, it will not be illegal to buy a PC without Windows pre-installed. Of course, this may involve taking Microsoft to court, as this rather amusing story points out.

Wednesday, November 29, 2000

Patents, especially of agricultural goods are a complicated part of globalization. Here is an article that talks about a US company patenting a grain of rice which is a cross between basmati and something else. Of course, various left wing organizations are crying foul. The article is pretty even handed (but read it all) about this complciated topic.

Tuesday, November 28, 2000

Brilliant article on how globalization can rework a cozy industry based on graft and deluding the consumer. Robert Parker, the most influential wine critic in the world, gained his prominence (and power) by being a consumer advocate, free from the commercial taint that other wine critics have, and judging wines solely by their quality.

This undermined the appelation system in France (particularly Bordeaux) where wines are rated (and priced) by who sells them. This allowed the old chateaux to charge exorbitant amounts for middling plonk. Parker, by not kowtowing to the established order, found a large audience who value his impartial advice, and changed the wine industry. Of course, he is hated in France.

This article is on the globalisation of the wine business, but in a strange way. it's an essay about how Robert Parker, rose to prominence by breaking the back scartching insider world of wine retailing, especially in Bordeaux. By being an outspoken advocate for consumers, and writing clear, honest reviews untainted by advertising or any other sort of support, Parker has gained control of consumer tastes. This revolution has meant that French wines are now being judged on their merits, not on who makes them, which is dismantling the appelation system that has placed the old estates at the top of the heap, year after year.

Globalization is NOT about loss of culture. It is about empowering consumers at the expense of producers through transparency and choice. (Thanks to NS for pointing me to the mag).

Spanish lunacy update On 11/26/00 I had a short post on how spanish phone operators wanted compensation for competition being introduced in their sector. Well, it seems they have managed to scrap plans for liberalization entirely. I hope they're proud.

Monday, November 27, 2000

Quickie! I just had to put up this quick note. It seems that attempts by Microsoft et al to make them even less responsible for their crappy software have stalled. Think about it: not only do they ship products that don't work, but we can't go in there and fix them ourselves. They want(ed) to extend this insanity.

On that note, it seems that Microsoft is once again trying to get the courts to ignore the fact it abuses its monopoly power.

China is close to joining the WTO Although some idiot american politicos want to keep China out of the organization, a few saner heads understand that joining the WTO may hurt China. WTO membership will force China to open up its markets, and drop exclusionary tariffs. This will be good for Chinese consumers, who will no longer have to put up with shoddy goods, but painful for Chinese producers, who produce said shoddy goods in the first place.

But don't overestimate the great inroads foreign firms may make if China opens its market. China is big and poor and strange, and the local industries are probably smarter and more agile that some give them credit for.

Sunday, November 26, 2000

Quick post on Spanish lunacy Spanish mobile telephony operators are to fight the government to gain compensation for the introduction of more competition in the sector. This is so ludicrous I am not even going to comment.

Wednesday, November 22, 2000

Two points of business today

Firstly, my archive section is almost up. Hopefully, this will reduce the load time of this page. As the archives are just labeled as dates, I am afraid that it won't help you hunt up old posts. Perhaps a search box will be next, as soon as the archives start working correctly.

Secondly, here is an excellent NY Times Op-Ed piece by Paul Krugman (thanks to JP, who is in Argentina right now, for the tip). It is refreshing to see someone who has their eye on the bigger picture while the rest of the idiot media tongue bathes themselves over the US electoral proceedings. Now, as the NY Times requires a subscription, AND (more importantly) because they allow posts to expire, I am reprinting the entire article here.

The Shadow Of Debt


If Argentina were a first-world country, its debt wouldn't be a problem. Both its budget deficit and its national debt are about the same fraction of G.D.P. as those of the U.S. eight years ago, and compared with Japan the country is a paragon of fiscal prudence. But global bond markets aren't equal-opportunity lenders, and third-world countries don't get the benefit of the doubt. In a recent debt refinancing Argentina had to pay an interest rate of 16 percent — 10 percentage points more than the U.S. Treasury pays.

Some of this premium reflects the country's unique problems. Not long ago Argentina's "currency board" monetary system, which fixes the value of the peso permanently at one dollar, was lauded as a model for other countries. Now that monetary system has become a trap; tied rigidly to a strong dollar while neighboring Brazil has devalued and the euro has slumped, Argentine producers find themselves priced out of world markets. The country has gone into a slow but dangerous tailspin. A depressed economy has led to budget deficits; the need to reassure skittish investors has forced the government to cut spending and raise taxes, further depressing the economy; and rising unemployment has led to growing social unrest, making investors even more nervous.

For now, a deal with the International Monetary Fund has staved off the imminent risk of default. There is considerable irony here: the loudest praise for Argentina's currency board came from the Wall Street Journal / Forbes / Cato Institute crowd, who saw it as the next best thing to a revived gold standard. Those are the same people who have been howling for the abolition of the I.M.F. and other international financial institutions. The irony gets deeper when you notice that Malaysia, which was supposed to have been cast into the outer darkness after it imposed controls on foreign investors two years ago, has had no trouble selling its bonds on world markets.

In any case, the situation is far from resolved. While the I.M.F. loan buys time, it is not at all clear how time will improve the situation.

Still, if this were a story only about Argentina, it would be an object lesson but not an omen. What makes the story ominous is that Argentina isn't the only debtor finding that markets are demanding much higher interest rates. In fact, around the world bond investors have been fleeing from anything that looks even vaguely risky. Interest rates on the debt of emerging-market nations like Argentina have risen by 1.5 percentage points just since September. And interest rates on high-yield corporate debt — what we used to call junk bonds — are at their highest levels in nearly a decade.

These soaring interest rates on risky debt are, in effect, a prophecy of future troubles for the world economy. All the official forecasts for the next couple of years are cheerful; budgeters and international organizations are increasing, not reducing, their estimates of future growth. But bond investors seem to think it likely that many overextended borrowers, countries and corporations alike, will not have enough revenue to meet their obligations.

As the financial crises of the 1990's taught us, such pessimistic prophecies can be self-fulfilling. A scenario for the next world financial crisis is already obvious: a default by a big debtor — maybe a country, maybe a big corporation (say an overambitious telecom company) creates a bond market panic. And the unwillingness of investors to buy risky bonds forces countries into drastic austerity programs, forces companies to cancel investment plans and leads to a slump that validates investors' fears.

Of course, it doesn't have to happen. We could be lucky; or we could act quickly to limit the damage when financial disruptions appear. A couple of weeks ago it seemed that an Argentine default might trigger a crisis; for the time being, at least, the I.M.F.'s loan package has averted that danger.

What worries me is this: The bond market is warning us of turbulence ahead. That would be O.K. if the world's largest economy were being run by experienced, open-minded officials like the ones who got us through the last crisis. But who will actually be in charge? If it turns out to be knee-jerk conservatives who are opposed to any government intervention in markets, you'll be amazed at how badly things can go wrong.

Article sponsored by ALCATEL, originally printed in the NY Times, 11/22/00

Tuesday, November 21, 2000

Wireless Auction Follies. Here's an interesting article I do not agree with. Although it makes some good points, the economics behind it is faulty. This fall, Sweden will also assign its wireless spectrum to telecom companies eager to offer next-generation (or 3G) wireless services, but instead of emulating Britain's budget-maximizing strategy, it opted for a seemingly wasteful beauty pageant. The article argues that since Swedish telecoms will not be taxed until AFTER the service produces revenues, it will be keener to experiment.

I would argue that the logic is reversed. Swedish companies have been given a gift for free, and can now squander it as they choose. British Telecom, on the other hand will have to think very very hard about how to make its investment as valuable as possible. Now, whether BT comes up with anything clever I don't know, but they every incentive to do so.

PS. I apologise for posts being late, problem with blogger servers

Friday, November 17, 2000

Two EU related posts today

People think that globalization can only happen between poor countries and rich. Well, consumers can benefit from more open trade even between similar countries, as this article about car distrubution in the European Union attests. Mind you, car manufacturers tying up dealers based on geography is also a problem in the US.

The EU is also being squeezed on letting new countries enter. Seeing as how the EU has not quite figured out what it is about (currently its seems to focus more on horse trading than freeing movement of goods and labor across borders) its not clear what the hopefulls are looking to get out of the deal. Agricultural subsidies, like France?

Thursday, November 16, 2000

Even the cozy world of venture capital is not safe from competitive forces. Here's a great article by Michael Lewis that talks about the rise of convertible bonds. Why is this interesting? It's because convertible bonds take what was once the purview of venture capitalists (stakes in red hot tech companies) and gives it to investment bankers (they men who used to control all the money). What does that mean? Cheaper capital for all. Also, as people are more comfortable with risk, transfering risk from the private to the public markets. It also means a lower risk premium (so more things will go bust).

Wednesday, November 15, 2000

CDU embroiled in immigration dispute Germany's opposition Christian Democratic Union will on Monday publish a new policy paper on immigration, which is expected to add to the problems facing the party's leadership by deepening divisions between the its liberal and conservative wings. The problem is that the policy paper recommends that immigrants follow "the german way," a position that some call racist. Globalization is both economic and social, money AND people should be able to move more freely, and the tensions that can cause are at the heart of Germany's troubles.

Tuesday, November 14, 2000

Cable Modems There is more to globalization (and the mindset behind it) than allowing poor people to sell their stuff to rich people. There is also the beleif that decisions should be made to benefit consumers, not producers, and that consumers should be free to make their own decisions. This is not a widespread beleif, and the world is rife with all manner of paternalistic softheadedness and monopolistic greed. Exhibit A: The American Cable Industry.

Currently, cable in the US is undergoing some scrutiny as the court looks carefully at the proposed AOL Time Warner merger as being potentially anti-competitive. But there are deeper problems afoot. Cable companies want to control the content that comes into peoples homes, and clueless courts are supporting this position.

Content and technology are intertwined in ways that make analytical seperability difficult and perhaps unwise

is one of the more choice quotes from the court, a remark so profoundly moronic that I shall let it damn itself. Clay Shirky has some good thoughts on why corporate controlled content is a bad idea, although I warn you, the site is awful and page 2 did not come up when clicked on. If you want to read the whole article, you may have to click the "print this article" link.

Monday, November 13, 2000

Looks like China is almost in the WTO. This is good, so long as the WTO stays focused on reducing trade barriers. There was much thoughtless ranting, especially in the US, about using WTO entry was a club to hit the Chinese with, not realizing that 1)China in the WTO helps everyone and 2)WTO membership will change how the Chineses do business. There is still a long way to go, as this article demonstrates, before China embraces free trade and transparency.

Friday, November 10, 2000

Russia's largest oil company, Lukoil, will not publish transparent financial results in accordance with generally accepting accounting principles (GAAP), for months. And GAAP is pretty spotty. Why is this interesting? The fact that Lukoil felt it was at all important to use transparent accounting is testement to how globalization presses companies to operate more transparently and improve standards.

Wednesday, November 08, 2000

Why you shouldn't have voted for Ralph Nader It's not because it made Gore lose. It's because Nader's policies are isolationist, and hellbent on keeping the poorest people in the world poor. And he doesn't even realize it. As Orwell said, "Saints should always be judged guilty until proved innocent." Krugman wrote an op-ed piece about this in the NY Times, but unfortunately, the article has been lost to the general public, put in their archives, and there is a $2.50 charge to view it. But, for those who are keen, here's the link, search the old archive for "Krugman Nader". Oh, and you need a subscription.

Monday, November 06, 2000

A hard landing for emerging markets This interesting Financial Times piece shows how risk aversion in the United States can lead to difficulties for emerging markets. This is interesting because how countries become interdependent through globalism is often rather strange.

Emerging market economies are linked together by oligopolies of speculators. What makes this troublesome is not that the investment is speculative, but that it is oligarchical. This means that, say, Brazil is necessarily exposed to, say, Russia, merely because the same sorts of people who invest in Russia also invest in Brazil. There is no solid underlying principle for this economic connection, it is an artefact of the way emerging markets are financed. Three solutions: 1) More globalization (diversify the investor base), 2) A larger domestic investor base (also good for diversity), and 3) Short positions on other emerging market currency (a hedge).

I have not seen many people twig this, and it is something I have a little first hand experience with, so I will write more about it in upcoming weeks.

Thursday, November 02, 2000

Spanish phone companies want to be compensated by the government after it introduced competition into the Spanish telephony arena. There are so many things wrong with this, I don't know where to begin. Let me focus on just this one point: economies should be run for the benefit of consumers, not producers.

Wednesday, November 01, 2000

A Feedmag piece on language and the role it plays in shaping international sentiment. Although this is about the Middle East (sorry) I think it also raises some important questions about how much the success of globalization depends on Orwellian language bending tricks, with "fair trade" being the most insidious of them all. Thanks again to CD for the tip.