What I've Been Reading Lately
I’ll excerpt quotes from some of these books below.
The Bottom Billion, by Paul Collier. This book has been highly recommended by other bloggers affiliated with George Mason, and I agree. His thesis is that economic development is taking place at a tolerable place in 5/6th of the world, but one billion people live in failed states. He thinks we know enough about what works and does not work to be able to adopt constructive policies toward the bottom billion. I’ll put some quotes below the fold.
NOTE: See also Nick Schulz’s interview with author Paul Collier.
Let Their People Come, by Lant Pritchett. His thesis is that limitations on international labor mobility do increasing economic damage and are becoming more costly to enforce as cross-country wage differentials grow.
From my point of view, the first-best world is one with (i) open borders and (ii) limited government. One argument against (i) is that it would eventually undermine (ii). Although Pritchett addresses many objections to allowing increased immigration, he does not address this one.
However, I can think of a number of reasons that the correlation between (i) and (ii) could be positive rather than negative. For tyrants, open borders would offer a powerful check on power. Robert Mugabe would have a harder time exploiting his people if they all just got up and left. Our own government would be smaller if we said that its job did not include interfering with peaceful transactions between American employers and non-American-born employees. Also, there is some evidence that support for a welfare state goes down as ethnic homogeneity goes down. I would rather that we channel our xenophobia into lower welfare benefits for “them” than into a larger state to try to keep “them” out of the country.
Our First Revolution, by Michael Barone. Reading the book helped remind me that in the 17th century Parliament was needed to vote the taxes to finance a war, but otherwise the legislature played little role. Nowadays, the legislature plays a role in just about everything but voting for taxes to finance a war. How did we get to this point? We tend to talk about governmental institutions as if they were drawn up on a blank slate. Instead, it is is interesting to look at how they evolved. This sort of history book can help, although for that purpose Barone’s book is thinner on institutional evolution and thicker on day-to-day political maneuvering than I would have preferred.
The Warhol Economy, by Elizabeth Currid. Combines some statistical analysis that demonstrates the concentration of artistic activity in New York with name-dropping and journalistic accounts of the New York “scene.” For my taste, too much beauty, not enough geek. But I don’t think I was the target audience.
Catalyst Code, by David S. Evans and Richard Schmalensee. Their thesis is that some companies are middlemen who need to have many sellers in order to have buyers and also need to have many buyers in order to have sellers. Think of eBay, for example. Or a credit card (until merchants will accept the card, consumers won’t want it, and vice-versa). The authors emphasize that catalysts cannot use textbook microeconomics to make their pricing decisions. Instead, such firms need to deal strategically with the balance between the two sides of the market. An interesting phenomenon is the fact that when there are dominant catalysts in a market, a new catalyst can come along and maneuver itself into position by breaking down the walls between the incumbent catalysts. (Imagine a web site that could act as an interface to both eBay and Craigslist.)From The Bottom Billion, p. 46:
If there are effective checks and balances on power, the society is saved from patronage politics…this is reinforced by the selection of politicians according to their intrinsic motivation to serve the public. Where patronage politics is not feasible, the people attracted to politics are more likely to be interested in issues of public services provision…But where patronage politics is feasible, electoral competition leaves the corrupt as the winners.
In 2004 a survey tracked money released by the Ministry of Finance in Chad intended for rural health clinics…Amazingly, less than 1 percent of it reached the clinics.
the most dramatic transformation of the size and composition of trade has been during the past twenty-five years. For the first time in history, developing countries have broken into global markets for goods and services other than just primary commodities…Now, 80 percent of developing countries’ exports are manufactures…The production of primary commodities is basically land-using, and exporting them is most likely to benefit the people who own the land…manufactures and services offer much better prospects of equitable and rapid development.
For the bottom billion to break into [manufacturing] markets they need protection from Asia…Even with high Asian growth, it will take several decades to open up a wage gap that is wide enough to spur firms to relocate.
From Let Their People Come, p. 64:
the ultimate reason that there is not massively more mobility across national borders is that the citizens of the rich industrial world do not want it.
From The Catalyst Code “What is a Catalyst?” (p.3):
An entity that has (a) two or more groups of customers; (b) who need each other in some way; but (c) who can’t capture the value from their mutual attraction on their own; and (d) rely on the catalyst to facilitate value-creating reactions between them.
Does that definition help you distinguish a firm that is a catalyst from a firm that is something other than a catalyst? It doesn’t help me. From their definition, it is easier to describe Wal-Mart as a catalyst than Facebook. But I know that Facebook is a catalyst, and Wal-Mart not so much.