Make America Whole Again

Donald Trump's rise seriously challenges U.S. openness to, and engagement with, the world. The system he attacks is worth defending, but must be modified to work for people it has left behind.



For months, Donald Trump was treated by the media and non-GOP-primary-voters as a sideshow attraction -- someone to gawk at, to raise one's eyebrows at, but ultimately to be dismissed when the time came. Unfortunately, for a man who utilizes attention the way the rest of us do oxygen, that was enough to propel him past a crowded field of unappealing Republican candidates. Since his unlikely ascension to the nomination there has emerged an appropriate focus on the obvious: that a vain and crass blowhard who espouses bigoted views against ethnic groups and religions, who has a poor business track record despite that being his claimed competency and source of fame, and who hasn't demonstrated a grasp of the details of any key aspect of public policy -- such an individual is a poor choice for president.

Even so, these criticisms have always been obvious to Trump's detractors and largely irrelevant to his supporters. It may yet be that, having come this far, his competitiveness has only been sustained due to former foes, critics, and the Republican Party apparatus dutifully falling in line behind him. And it isn't a stretch to think that Trump's unforced errors, such as a spat with the parents of a U.S. soldier killed in Iraq, combined with his seeming lack of interest in actual governance (versus personal brand-building), lead to a resounding defeat this November. And yet...

Millionaire Underdogs

Many sports fans blame "greedy" star athletes for chasing high-paying contracts and for high ticket prices to games, but that anger is better directed at far-wealthier owners taking advantage of players and fans.

An NFL star is a "greedy, me-first diva" if he holds out of training camp to protest being paid far below market worth, and is selfish if he doesn't emulate Tom Brady¹ by agreeing to take less money "for the good of the team". Yet in a league where contracts are not guaranteed, on the frequent occasions when teams cut players under contract it is a smart "business decision" and no one howls about "not honoring an agreement".

Professional athletes who sign big money deals based on their accomplishments are often looked at as sullied. They play a game, goes the common gripe, and being paid $100 million -- or poo-poohing that amount as too little -- to play a game is ridiculous. That's why ticket prices are too high for the average fan to attend, laments the typical ESPN talking head, newspaper "hot take" sports columnist, or pugnacious radio caller. The assumption is always that star players make too much money -- when actually, given the enormous value they generate for their franchises, the best talents often should be paid far more than they are.

Secretary of Explaining Things

The first presidential debate between Messrs. Romney and Obama affected the media's election narrative but did little to provide the average voter with a substantive understanding of key issues.

The widespread and bipartisan media consensus is that Mitt Romney won Wednesday's first presidential debate.  A somnolent President Obama spent most of his time on stage looking down at his podium, handing an easy victory on appearances to the guy who dissed Big Bird. What was reinforced to me, though, is that these debates -- barring the emergence of a popular caricature of one of the candidates -- are aimed at influencing the media's election narrative, not at voters.

These debates are supposed to elucidate a candidate's positions and to help voters distinguish between their choices.  But in practice, we're not given much to work with.  The candidates present what seem like "Mad Libs", random numbers without context or explanation ("4 million jobs" from energy independence; "2 million more slots in our community colleges"; a "$5 trillion tax cut"; "$2 trillion in additional military spending"; a "$4 trillion deficit reduction plan").  The result is empty speechifying, not debating.  And in a generally polite encounter without memorable "zingers" from either man, my eyes were glazing over.

America's Forgotten Poor

Scant attention has been paid to the record rise of poverty levels in America.

Click graphic above to see a detailed breakdown on poverty in the U.S. (Source: NPR)

Mitt Romney and Barack Obama and their campaigns have spent much of this election season tripping over themselves to appeal to all-important middle-class voters.  During the political conventions, Ann Romney spoke about how she and her husband once lived in a tiny apartment using an ironing board as a table.  She didn't note that they were living off of Mitt's investment income -- hey, he was the son of a multimillionaire governor -- while Mitt finished his studies.  Michelle Obama told a story about how when she began dating Barack his car was "rusted out" and had a hole in the door.  She skirted the fact that the pair met while working for a prestigious Chicago law firm.

The point here isn't to attack either candidate for their typical stretched "we're just like you" spiel, but to draw attention to the entire large segment of the populace that no one is overly concerned with winning over: the poor.  Over 15% of Americans, nearly 50 million people, live at or below the poverty line, defined as $23,000 for a family of four.  While much election-year rhetoric concerns the tax burden of the rich, or who is the real champion of the middle class, little more than lip service is paid to the lower rungs of our society.

Business for Profit and Social Change

Innovative business opportunities exist which can benefit corporations while serving the poor and middle-class in countries around the world.



One of the topics I have been most interested in over the past few years is innovation and entrepreneurship designed for non-traditional or under-served markets.  Mohammed Yunus, the 2006 Nobel Peace Prize Laureate, popularized the use of microfinance as a means of sustainably helping people lift themselves out of poverty.  Today, microfinance has become one of the hottest areas in the NGO/development world.

The late C.K. Prahalad published a book in 2004 called The Fortune at the Bottom of the Pyramid in which he talked about the potential business opportunities that existed to serve the world's poor (the "bottom" of the "financial pyramid").  Bill Gates described this as a way to "fight poverty with profitability".  To me, this represents a far more effective method than simply handing out money, which is unsustainable and of dubious effectiveness.  Involving the "bottom of the pyramid" in the modern economy, on the other hand, is win-win, with companies incented to provide goods and services to new markets, and those customers receiving access to what they need.

Understanding "Financial Alchemy"

As a result of the financial crisis, there has been a widespread vilification of Wall Street "alchemy" and the related realization that there is little understanding among the general public of what financial innovation has accomplished.  Addressing these two points is an excellent short paper, "In Defense of Much, but Not All, Financial Innovation" by the Brookings Institution's Robert Litan.

Writing in an accessible style easily understood by a layperson, Litan provides a nice overview and examination of the finance landscape, from basics such as bank deposits, credit/debit cards, and mutual funds to the development and use of collateralized debt obligations (CDOs) and structured investment vehicles (SIVs).

Despite the prevailing anti-finance backlash of the moment, Litan reminds us that there has been a lot of financial innovation in recent decades that have been beneficial, such as ATMs, credit cards, index funds, and the rise of venture capital.  Positive financial innovations have increased convenience for customers, improved access to credit, better allocated risk, and contributed to economic growth.

On the flip side, Litan identifies socially destructive inventions like the misuse of adjustable rate mortgages (ARMs) with ludicrous interest rates; collateral debt obligations (CDOs) reliant on artifically inflated housing prices; and structured investment vehicles (SIVs) which were held off of a bank's balance sheet--thus circumventing regulation on minimum capital requirements--and reliant on the ability to rollover short-term debts.

Litan explains finance and the roots of the financial crisis very well, and his paper is full of interesting history and citations.  For example, despite the popular reputation of private equity (PE) firms' as ruthlessly buying up companies, slashing jobs, and then selling the parts, research indicates that the majority of PE acquisitions are held long-term, that they maintain normal employment growth over time, and they contribute positively to economic growth.

In concluding, Litan argues that regulation shouldn't become so cautious as to stifle the creation of new financial innovation that could be socially useful--but that reactions to threats should be quicker.  I agree.  Check out his whole paper here.

Time to Step Our Game Up

Much of the coverage of President Obama's visit to China this week has reminded me that many in this country still view China through an outdated prism.  Americans see China as many things: a burgeoning economic titan, a source of cheap labor and manufacturing, a communist dictatorship with a bleak human rights record and a zeal for censorship.

But what is often ignored is how the Chinese people see China.  The majority see their country doing very well, with an economic transformation providing opportunities unthinkable a generation ago.  David Brooks noted this week that "eighty-six percent of Chinese believe their country is headed in the right direction"!  They see that China has a legitimate claim to deserving its traditional name as the "Middle Kingdom", or center of the world.

This is even though China's Communist Party has only provided incremental political liberalization for its people despite an embrace of modernization and globalization.  Far from being a problem, the country's economic success has only emboldened its rulers and entrenched them in their positions.

Anyone who's been hoping since the end of the Cold War that Western-style democracy would come to China should realize that China will continue to go its own way.  To me it's a silly question of semantics whether to drop the prefixes "potential" or "future" in front of "superpower" to describe China.  Just note that the one undisputed superpower, the United States, is a debtor to China.

Anecdotally too, I've walked around the Pudong area of Shanghai and thought to myself "this is what the future looks like".  That assessment, back in 2004, seemed primitive when I spent a week in Hong Kong last year, and was positively staggered at the cleanliness and efficiency of the city, their impressive new airport, the beautiful new bridges, and the sleek, intuitive MTR subway system that blows away the creaky NYC subway and even my beloved DC Metro.  (If there's one pressing need I wish was the top of our country's priority list, it's the infrastructure, stupid!)

Of course, the U.S.'s major economic strengths--the fostering of innovation, commitment to free markets, and the best higher education system in the world--continue to make it the key player on the world stage.  Nonetheless, data about income inequality or our country's struggling public schools, to name just a couple examples, should convince anyone of the need to step our game up.

How to do so is worthy of discussion in a future post.  For now, I'd recommend reading Michael Porter--famous to business school students and consultants everywhere for, among other things, developing the "Porter's Five Forces" framework--who has the best succinct analysis of what we need to do that I've come across: "Why America Needs an Economic Strategy".

Defending "Goldmine" Sachs?

Earlier this week, The Times of London published a much-read article on Goldman Sachs that featured an extensive interview with the company's CEO, Lloyd Blankfein.  Blankfein drew much attention for a quote in the article, said light-heartedly, in which he claimed to be "doing God's work".

Predictably, many people didn't see or care for the humor there--elsewhere in the article, an unnamed Goldman employee wryly notes, "We don't club baby seals.  We club babies."  Across the blogosphere and throughout the media, criticism of Goldman has continued to grow in recent months.

Because Goldman is indisputably the king of Wall Street, and because much attention has been placed on prominent ex-Goldman leaders in key government positions, the firm is a lightning rod for criticism during the current financial crisis.  Yet, bombastic quotes aside, the main impression I came away with after reading the article was a sense of reinforcement in my belief that Goldman is simply smarter and better at what they do than anyone else out there.

Truth is, even before the financial system's implosion, Goldman was more successful and more competent than its competitors.  Its acumen at realizing the severity of the sub-prime mortgage crisis early on is just one example--the article notes "When the credit crunch hit, [Goldman's] losses in the mortgage sector were only $1.7 billion, lower than any other big investment bank. UBS lost $58 billion."  It should also be pointed out that Goldman never underwrote anywhere near the amount of bad mortgage debt as did competitors like Citigroup and Merrill Lynch, and Goldman still hedged its risk in order to limit its losses and avoid catastrophe.

Charges against Goldman of illegal market manipulation or of having sinister influence over government policy are pure paranoia.  Yes, Goldman has benefited handsomely as a result of the banking industry bailout.  But, as Blankfein points out, Main Street needs Wall Street in order to generate economic growth.  Huge paychecks and bonuses?  Well, Goldman makes gigantic profits, and the bonuses make up only a small percentage of those.  Hey, Tiger Woods also makes a boatload of money.

Well, it's on that issue of compensation that I'm sympathetic to the critics, not just of Goldman, but of the entire banking industry.  On the one hand, I believe that that these companies should be allowed to determine their own compensation plans and reward success as they see fit.  On the other hand, the Wall Street banks make their huge profits (which enable their huge bonuses) by placing enormously risky bets--bets which they know are covered by the government if they bet poorly.  Since the government can't afford to lose Wall Street, Wall Street can play fast and loose.

I think the issue at the heart of the matter is how we view our economy.  We are comfortable with the idea of business offering tangible goods and straightforward services, relatively easy to quantify and categorize and explain.  We are far less comfortable with the idea of money made on paper, from the endless buying and selling and re-shuffling of assets and debt and commodities and securities.  To the casual observer, it's just money being created out of thin air.  Forget slamming the mighty Goldman Sachs for being the best player at this game, the real question at hand is whether it's sound to have an economy so dependent on this type of operation.

I don't know the answer to that, but unfortunately I think there won't be serious discussion on this topic, or it will be drowned out by typical class-warfare sentiments.

Int'l Microfinancier update

Last year, I wrote about becoming a "couch potato humanitarian"--getting involved with a website called Kiva that allows you to use your PayPal account to make loans of as little as $25 to entrepreneurs around the world.

A year after I made my first loan, to an Azerbaijani butcher named Ilham Adbdulov, I was repaid my amount in full. His business appears to be doing well, and Kiva's field partner in Agsu writes:

Ilham is a young, friendly butcher who operates his business from a station in the Agsu bazaar meat hall. He’s one of about ten butchers who sell meat to the residents of this central Azerbaijani town. Early each morning he meets the rural animal breeders at the bazaar and bargains for his sheep. He can generally purchase a live sheep for about 100 Azerbaijani New Manat (~ 120 US$). He brings the sheep to his stand, butchers them, and has the meat prepared for sale by the time the bazaar opens to customers.

Ilham earns between 4 and 10 AZN (~ 5-12 US$) from each sheep. He used his Kiva-funded loan to purchase sheep, enabling him to offer more meat to the many customers that pass through the bazaar. Azerbaijanis eat a good deal of mutton year-round, so demand remains consistently high. Ilham enjoys his business, and would like to further increase the volume of his sales with future assistance from micro loans.

After my successful experience, I took the money I got back and contributed to a group loan for 15 Peruvian villagers from Yanapampa, ~115 miles northeast of Lima. The loan recipients are "involved in agriculture; care of livestock; sale of tara tree agricultural products, pigs, sheep, goats and cattle; and carpentry service." They plan on using the money to buy "fertilizer, sheep, goats, piglets, and tara trees."



The loan is for six months. I will report back with any interesting updates.

Engagement, Not Isolationism

There are a number of reasons one could be excited about the upcoming U.S. presidential elections. The remaining applicants competing for the job are a politically battle-tested former first lady; a charismatic fresh face who has inspired many across generational and racial lines; and a former war hero with a history of political independence.

Each of these candidates has many positive attributes. Yet I remain dismayed that they represent political parties with many adherents who have profoundly incorrect worldviews. In both the Democratic and Republican parties, there is a general lack of confidence in our country’s abilities and a mistrust of those outside our borders.

Among Democrats, this view is manifest chiefly in its opposition to free trade. Hillary Clinton, whose husband’s advocacy of the passage of NAFTA was among his administration’s top achievements, has transformed herself into a champion of protectionism. Barack Obama, no less eager to appeal to heartland voters, sings a similar tune.

A New York Times editorial chastised both earlier this month, reminding them that “trade is good for the economy, providing cheap imports and markets for exports, spurring productivity and raising living standards.” The Times urged the candidates to “offer policies that will help American workers embrace rather than fear a globalized world”, such as increased investments in education and physical capital.

While in Hong Kong last week, I read an excellent column in the Wall Street Journal Asia by Rupert Murdoch in which he spoke out against the protectionist sentiment. Never mind the blathering idiots on his Fox News Channel, Murdoch rightly points out that refusing a trade deal with countries like Colombia sends the message that America does not see them as partners. Murdoch argues that we must help developing countries which share our values of democracy and capitalism achieve prosperity, which will enable us to benefit from their valuable alliance in the future.

Turning to foreign policy, I generally agree with John McCain about the U.S.’s two most important engagements abroad. I am an advocate of a continued U.S. military presence in Iraq and a sustained effort in Afghanistan. Yet I have come to detest the segment of the Republican Party that tosses around nonsensical phrases like “Islamofascism” and obsesses over a “war on terror” while ignoring the important economic and political challenges this country faces.

September 11, 2001, will forever be a day impossible for any American to forget. The fear and uncertainty we felt then were very real. It seemed as if that attack had ushered in a new world order. But it didn’t really—terrorism is just a tactic, not an ideology like communism which directly threatened our values of freedom and democracy. Thankfully we have avoided catastrophe since 9/11, and though it’s probably inevitable that we will be hit again, Americans go about their lives today feeling relatively secure.

Accordingly, I wish that certain Republican politicians and pundits would abandon their xenophobic impulses and look toward forging stronger alliances around the world. One thought Murdoch emphasized in his column was the importance of common values in a globalized era in which geography’s importance is diminished. So, for example, acknowledge the value of good relations with major European powers, and don’t dismiss the Muslim world as a breeding ground of anti-Americanism (it’s simply not true).

I think the U.S. can remain the leader of a global community, but to do so, we must embrace an optimistic mindset. We should be confident in our own abilities and we should believe that we can lead through engagement. That attitude, though tested at times, has served us best since 1776.

Say No to Fuzzy Economics

Heartland voters in Iowa rewarded the populist candidacies of Mike Huckabee (R) and John Edwards (D) this past week, giving the former a commanding win on the Republican side and the latter a solid 2nd-place finish among the Democrats.

In a devastating column in today's Washington Post, George Will assails both men for "encouraging self-pity and economic hypochondria", and counters many of the beliefs that form the bedrock of the candidates' arguments. For example, concerning the much-bemoaned plight of the shrinking middle class, Will busts out this interesting fact:

Economist Stephen Rose, defining the middle class as households with annual incomes between $30,000 and $100,000, says a smaller percentage of Americans are in that category than in 1979 -- because the percentage of Americans earning more than $100,000 has doubled, from 12 to 24, while the percentage earning less than $30,000 is unchanged. "So," Rose says, "the entire 'decline' of the middle class came from people moving up the income ladder."

Thus far, John Edwards' campaign storyline has fixedly been about economic inequality, and it should be treated with skepticism. Whereas at least Mike Huckabee's message is largely about social and moral responsibility, I have been increasingly dismayed by Edwards' one-track focus on "corporate greed". I fear his message, divisive at the least, incitation to class warfare at its worst, is reflective of an incorrect understanding of economics and an underestimate of America.

David Brooks, writing in the NY Times a couple months ago, had an excellent column decrying what he dubbed "Dobbsianism"--a view that holds the rest of the world as a threat to our economy. It is a view that has manifest itself as a growing backlash against liberal immigration policies and free trade, one that sees the rest of the world only as responsible for "lead-painted toys, manipulated currencies and stolen jobs." It is a dangerous, wrong, pessimistic, backward attitude.

Our economy is not under siege from the rest of the world. China and India are getting plenty of headlines in the news, but there is plenty we are doing right (as I first mentioned about two years ago). The U.S. leads the world "in a range of categories: higher education and training, labor market flexibility, the ability to attract global talent, the availability of venture capital, the quality of corporate management, and the capacity to innovate." Furthermore, the U.S. is the productivity leader in almost every industry. America has a high standard of living, high birth rates, a younger population than much of Europe and Asia, and low unemployment.

Brooks goes on to counter the outsourcing Chicken Littles:

90 percent of manufacturing job losses are due to domestic forces. As companies become more technologically advanced, they shed workers (the Chinese shed 25 million manufacturing jobs between 1994 and 2004). Meanwhile, the number of jobs actually lost to outsourcing is small, and recent reports suggest the outsourcing trend is slowing down.

He concludes, correctly, that "The U.S. still has much more to gain than to lose from openness, trade and globalization."

With regards to the upcoming election, here's my take: The anti-capitalist, anti-free market views that are gaining in traction are in the economic interest of a very narrow segment of voters. Everyone else should be looking for a sober, non-alarmist candidate who understands current economic realities.

Couch Potato Humanitarian

From my D'back column today:

Most college students, myself included, often think that we as individuals can't do much when it comes to tackling a big problem such as world poverty. It's the kind of issue where creating Facebook groups, wearing colored wristbands, attending rallies on McKeldin Mall and yes, writing in The Diamondback don't have much of a real-world impact.

Time and money are generally what it takes to make a difference, and college students are short on both. Bill Gates and Warren Buffet don't have to worry about paying for tuition, housing and drinks at Cornerstone. And students don't have much time to think about changing the world in between classes, internships, homework, parties, the gym and so forth.

That's why it was with great interest that I read New York Times writer Nick Kristof's recent column, "You, Too, Can Be a Banker to the Poor." He wrote about a website called Kiva (www.kiva.org), which allows anyone to make direct loans through PayPal to specific entrepreneurs in Third World countries.

...

My first loan went to an Azerbaijani man named Ilham Abdulov, who owns a small butcher shop in a bazaar in the city of Agsu. He's a young, portly, jovial-looking guy who has run his shop for four years. Ilham needs money to buy more animals so that he can expand his business. He has agreed to pay me and the other lenders (several from across the U.S., but also one from Spain and another from Japan) back in 12 to 16 months.

...

If a lack of time and money aren't an excuse, then what are you waiting for?

Click to read the entire column.

Support "Sweatshops"

For my column in the Diamondback this Wednesday, I was going to tackle the issue of the third-world factory labor, something I touched on last year on the blog. Unfortunately for me though, another staff columnist drew the assignment and his column will run in tomorrow's newspaper, so I'm out of luck. I've reproduced my version below.

* * *

Last week the Diamondback reported a campus group’s effort to ban sweatshop labor used for school apparel and other gear. Never mind that no Terp merchandise has specifically been traced to factories with abusive labor conditions. It’s time to set the record straight. If you really care about helping third-world workers, you should be pro-sweatshops.

That’s not just me being irreverent. Jeffrey Sachs, the influential economist, says “My concern is not that there are too many sweatshops, but that there are too few.” He means that international trade makes everyone better off over the long-run. Developing countries get to use their comparative advantage of cheaper labor to gain access to factories, jobs, and skills they could not otherwise get. Meanwhile developed countries get to specialize in other areas and receive lower prices at home.

You might expect liberals to have bleeding hearts over the plight of third-world workers, and conservatives to coldly favor Big Business. But this is not your typical liberal-conservative issue. Sachs is a liberal anti-poverty crusader who works with the U.N. and teams up with rock star Bono on Africa aid.

In fact, my first introduction to this subject came from reading a 2001 column by Paul Krugman, the well-known economist and dependable lefty. He wrote: “Third-world countries aren't poor because their export workers earn low wages; it's the other way around. Because the countries are poor, even what look to us like bad jobs at bad wages are almost always much better than the alternatives.”

Those alternatives that he speaks of are lower-wage jobs such as subsistence farming, menial labor, and prostitution. In 1997, UNICEF discovered that 5,000 to 7,000 Nepalese children turned to prostitution after the U.S. banned carpet exports from that country in the name of labor standards. Worse yet was the infamous Child Labor Deterrence Act of 1995, which UNICEF, Oxfam, and others have said led to tens of thousands homeless and forced into jobs like “stone-crushing, street hustling, and prostitution.” Yes, that’s a worse outcome.

Keep in mind next time you hear someone lay into Wal-Mart or Nike for paying $1.50 an hour, in most cases, that worker is glad for it. Not to mention it's probably a buck more than they'd be getting working a local job. NY Times columnist John Tierney wrote last year that third world factory jobs “may sound like hell to American college students” but that they “provide enough to lift a worker above the poverty level, and often far above it.”

Tierney cited a recent study of 10 Asian and Latin American countries, which had many insightful revelations. In Honduras, for example, the average apparel worker makes $13 a day, while nearly half the country’s population makes less than $2 a day.

Obviously I am not in favor of labor conditions that are actually abusive. There are several all-too-true examples of factories where workers are subjected to threats and beatings, prevented from going to the bathroom, required to be on birth control, etc. Those are abhorrent practices and we should wholeheartedly oppose them. However, those instances are in the minority.

Third world workers take factory jobs because it is their first step toward integrating into the modern industrialized world. They get away from their rural villages and into the cities. They support their families and provided a better upbringing and education for their children. Later on their children can take advantage of the more advanced jobs that have come to the country after the success of the initial low-level factory work.

If you really are serious about wanting to help third-world countries, think twice before you protest third-world factory labor. You could be doing more harm than good.

On Grameen & Helping the World's Poor

Last week, the Nobel Peace Prize was announced to a most deserving candidate, Muhammad Yunus and the Grameen Bank, for their pioneering use of "micro-loans" to help villagers in third world countries. In a year where the finalists for the prize reportedly included Cindy Sheehan and Bono of U2, it was nice to see a great cause receive world attention. Apparently Yunus had long been championed by his friend, former president Bill Clinton.

I read about Yunus, the founder of Grameen, in an international economics class I took last year. His simple but powerful idea--that even a very small amount of money could make a disproportionate difference to a poor person--sprung from the need to give villagers access to capital. After all, banks will loan to the middle- and upper-classes, but not the poor, because there is a great risk they will not be able to repay the loan.

Since Yunus gave out his first loan--$27 of his own money in Bangladesh in 1974--Grameen has been giving out small loans (typically less than $150) at reasonable interest rates to poor villagers. To help ensure repayment, the bank lends money not to individuals but "solidarity groups" of villagers, who apply for the loan together, act as co-guarantors together, and work together to make proper use of the funds. The idea has proved surprisingly effective--the bank reports a repayment rate of over 98%.

Another important feature of Grameen is that they predominantly lend to groups of women, helping empower them in a society where they are traditionally repressed. Over 6.5 million people have borrowed from the Grameen Bank, with over $5.7 billion given out in loans. It has enabled social transformation from the bottom up.

Congratulations to Yunus and the Grameen bank.

* * *

One observation I haven't seen in the news is the significance of another Muslim winning the Nobel Peace Prize. With all the contemporary tension between the Muslim world and the West (for example, recall recent Muslim anger at comments by Pope Benedict XVI), Yunus proves that there are real idols to look up into in the Muslim world (read: not Osama bin Laden) who are affecting positive change on their societies.

For the record, the past two winners of the Peace Prize have been Muslim: Yunus this year, and Mohammed ElBaradei in 2005. Don't forget three out of the past four have been Muslim--human rights activist Shirin Ebadi won in 2003.

* * *

In today's New York Times, John Tierney commends the selection of Yunus for the award before cheekily suggesting that Wal-Mart is even more deserving of recognition for its role in alleviating world poverty. Tierney points out that the thousands of third world villagers who gain jobs in factories make more than the prevailing labor rate in their home country.

"Making toys or shoes for Wal-Mart in a Chinese or Latin American factory may sound like hell to American college students — and some factories should treat their workers much better... But there are good reasons that villagers will move hundreds of miles for a job.

Most 'sweatshop' jobs — even ones paying just $2 per day — provide enough to lift a worker above the poverty level, and often far above it, according to a study of 10 Asian and Latin American countries by Benjamin Powell and David Skarbek. In Honduras, the economists note, the average apparel worker makes $13 a day, while nearly half the population makes less than $2 a day."

That distinction is one many people don't seem to grasp. Especially on a liberal campus here at the University of Maryland, it is common to see various student groups demanding "appropriate" pay for these workers, or for me to see a fellow student in one of my business classes go off and rip Wal-Mart (happened this evening, in fact).

Rest assured, I abhor sweatshops and abusive labor practices, but it's important to note what the facts are. This is not a liberal-conservative issue either; my first real introduction to the subject came from reading a Paul Krugman column in 2001 entitled "Hearts and Heads." Anyone familiar with Krugman knows he's a dependable lefty, so try this on for size:

"[T]hird-world countries aren't poor because their export workers earn low wages; it's the other way around. Because the countries are poor, even what look to us like bad jobs at bad wages are almost always much better than the alternatives."

Keep that in mind next time you hear someone lay into a Wal-Mart or Nike for paying a buck fifty an hour, remember that in most cases, that worker is glad for it. Not to mention it's probably a buck more an hour than they'd be getting working a local job.

More importantly, many people have shown (and I think I've read this either from Thomas Friedman or Jeffrey Sachs) that these type of factory jobs are the first step in the advancement of the poor in third world countries. As I recall, it works like this: rural villagers move to the cities and work in aforementioned factories, where they make more money than ever before.

They are able to better support their families and provided a better upbringing for their children, which includes a better education. Their children then can take advantage of the more advanced jobs that have come to the country after the success of the initial lower-level factory-type work.

Anyone see a problem with that, let me know.

File under: current affairs, economics, globalization

Basketball Sabermetrics

In honor of those who are more fixated on the NBA Finals than the World Cup, I continue my spate of recent basketball-related commentary. Be sure to read The NBA's Secret Superstars, an article by David J. Berri, an economist who has brought the field of sabermetrics, traditionally associated with baseball, to basketball. Berri and his colleagues developed an algorithm which incorporates every facet of an individual player's performance as a contribution, positive or negative, toward a victory. His resulting model calculates the "wins produced" by every player in the league.

Thusly he determines a player's real value to his team, and in doing so, finds out which players he says are overrated and underrated. Furthermore, by adding up the wins produced by each player on a team, Berri has a forecast for that team's performance in the standings. His model has been validated as a pretty accurate predictor, with an average difference of only 2.3 wins (for 82-game seasons) for a team in the 10 seasons he has been doing this.

Berri's conclusions match up with empirical observations. Multi-dimensional players like Michael Jordan and LeBron James have high numbers of "wins produced" under his algorithm, while overrated shooters like Allen Iverson and Carmelo Anthony have low scores. Tellingly, vital role players like rebounding extraordinaire Ben Wallace also produce a high number of wins in Berri's model, proving what most fans know at heart: winning teams excel at all aspects of the game, not just scoring. Taking this a step further, Berri concludes of Game 1:

...why do I think [Dallas center Eric] Dampier and [Miami forward Antoine] Walker were vital to Thursday's outcome? Dampier scored only eight points, but he was efficient: making three of four shots and adding seven rebounds. Walker, on the other hand, scored an impressive-seeming 17 points, but he took 19 shots and turned the ball over an astounding six times in the loss.

Relatively straight-forward observations aside, I think Berri's model could be an effective way of evaluating the contributions of lesser-profile players to their teams. Maybe it's time for a Bill James-like analysis of strategy and statistics in basketball?

Not Business as Usual

(Click to enlarge.)

Bummed out by layoffs, corporate scandals, and outsourcing? Chin up, there's good news too. Readers of this blog will recognize a combination of ideas from a couple of previous posts last month in my newest Diamondback column, "Finish Your Homework". Here I acknowledge the threat of international competition in the "flat world" but point out why the U.S. needn't be too worried. Space restrictions required my magnum opus to be trimmed a bit, but I think it still gets the point across. An excerpt:

...several factors stand in the way of either China or India knocking the U.S. off its preeminent perch. Let us not forget the world’s most important and admired businesses today — companies such as Apple, Starbucks, Google, eBay and Goldman Sachs, to name a few — are distinctly American. I would tell my fellow Robert H. Smith School students it is probably unnecessary to bone up on Mandarin (though it couldn’t hurt) and we should not worry about spending our careers chasing after jobs in New Delhi or Shanghai. Nonetheless, one thing is clear: There are a lot of people on other continents out-hustling us Americans. While for now they might only represent a minority of their populations, more of them are springing up daily to take advantage of increased opportunities.

Click here to read the rest.

The Bright Side of American Business

Last week, I talked about foreign competition to U.S. business, citing reasons why countries like China and India are succeeding in the New Economy. But in closing, I also provided reasoning for why the U.S.'s strengths will allow it to maintain its superiority. For example, I offered that our "service-oriented economy" was equipped for the globalization era and pointed out that "our country is second to none at fostering an innovative and entrepreneurial environment."

In today's Washington Post, Sebastian Mallaby picks up where I left off to argue that "the heyday of American business may actually be now." Among the factors he lists are worker productivity, companies' return on equity, American management techniques, and better business practices. The "X factor", he says, is that we can meet contemporary challenges.

American business excels at managing service workers and knowledge workers: at equipping these people with technology, empowering them with the right level of independence and paying for performance. So the era of decentralized "network" businesses is the American era.

Moreover, America's business culture is perfectly matched to globalization. American executive suites and MBA courses are full of talented immigrants, so American managers think nothing of working in multicultural firms. The immigrants have links to their home countries, so Americans have an advantage in establishing global supply chains. The elites of Asia and Latin America compete to attend U.S. universities; when they return to their countries, they are keener to join the local operation of a U.S. company than of a German or Japanese one.

So the shift from manufacturing to services; the gallop of globalization; and the rise of information technology that flattens corporate hierarchies: All these forces come together to create an American moment.

Read the whole article; it's an interesting counter to the popular notion that America's competitive edge is in decline. And, if you're discouraged by news stories about companies like Enron and GM, check out the newly released BusinessWeek 50. Apple, Halliburton, Amgen, Goldman Sachs, Starbucks, and a plethora of energy companies, among others, highlight the best that American business has to offer today. For now, it appears Uncle Sam is doing A-OK.

Finish Your Homework!

The popularity of the "flat world" idea and the notion that China and India will be eating our lunches in the not-too-distant future rank among the reigning themes discussed over the past few years. During this time, Thomas Friedman's book, Bill Gates' analysis of the American brain drain, and worries about outsourcing have permeated the popular consciousness. On the flip-side, counter-arguments have emerged in recent months which claim that America's preeminent status is not in jeopardy. See, for example, David Brooks ["The Nation of the Future" ($), 2/2/06] and Robert Samuelson ["A Phony Science Gap?", 2/22/06].

While I'm not one to turn alarmist from a few anecdotes about Beijing or Bangalore entrepreneurs, I do think that there is something to be concerned about here. The most important lesson on this subject that I have taken away comes from a story that Friedman relates:

"When I was growing up, my parents would tell me 'Finish your food, people in China and India are starving.'

I tell my kids 'Finish your homework, people in China and India are starving for your job.'"

Innumerable factors currently stand in the way of either China or India outstripping us, but one thing is clear: there are a lot of people in both of those countries that are out-hustling us Americans. While for now they may only represent a minority of their population, more of them are springing up daily to take advantage of increased opportunities.

For a taste of the radically different work culture in those countries, check out this recent Fortune article on Infosys, the Indian software services company. The talent pool is staggering--1.3 million applicants for full-time positions last year, and only 1% of those were hired. The new hires receive rigorous training in state-of-the-art educational centers which house rooms like the "Gordon Moore Room" or "Jeff Bezos Room". Captains of industry, it appears, are to the outsourcing industry what Kelly Clarkson is to the American public--the real Idols.

For now, the lure of higher salaries and brand-name jobs in the U.S. may draw a lot of the immigrant talent pool, as it did with my parents 25 years ago. But with increased prosperity and the prospects of "boundless growth" back in their native countries, how much longer will those smart foreigners keep coming here?

I'm willing to believe that the American optimists are correct when they assure us that we still do produce enough engineers and scientists, that because our country is second to none at fostering an innovative and entrepreneurial environment, and because we are a service-oriented economy anyway, that we can remain successful in the New Economy. But does that mean we should nevertheless continue with business as usual, not worrying about the fact that the rest of the world is working night and day to whittle away at our lead? I don't think so.

Better finish that homework.