EL LADINO GLOBAL IX

Ya está el tiro. Vayan a su casa de apuestas más cercana, weno pronósticos deportivos, pues. "Your favorite forecaster" tiene al próximo campeón del pámbol nacional. ¿Cuál equipo? Hay que demostrar que se es recíproco en el amor, ¿no?, 'tonz les voy a dar la clave. La vuelta olímpica en "topless" nos la va a brindar de manera altruista, la emula (soulmate del emulo, of course) de Caroline* Kennedy, perdón, Jackie Kennedy. ¿Doble o nada? ¿Quién da más?

¡Como México no hay dos! Este debe ser de los pocos países en los que uno puede "cashear" ad infinitum a partir de un logro o dos, no más. Y nada epítomiza (espero que ustedes no hayan salido, como mis colegas, corriendo tras el diccionario más cercano) tanto esta condición como el "Risitas Lili Ledy", que le sacateó al Reto IQ; terminando con otra familia real de petatiux, a la que le dimos la welta con todo y su "full expertise" en informática, o el writer wannabe, que apenas y puede hilar dos frases coherentes al hablar.

"Hay tipos que se montan a un... ladrillo y se marean" -en una entrevista nos recordó un intelectual, de polémica carrera política, al principio del sexenio anterior. He's back in our land. El año pasado apenas resurgiendo, en parte gracias a la balona ("si no creyera en lo que creo..."; ¿porqué habría de lapidar yo?) que le hicimos los (otrora) tercermundistas, creo yo; el arquetipo del flemático (*btw, como el inmenso Cortázar, en otra relajada plática, en alguna ocasión señaló: "me fascina el ácido humor de esa sociedad...", pero después en mi estancia yo noté que, 'los ladinos' de siempre lo han aprovechado recientemente para desactivar su utilidad como herramienta para afrontar este perro mundo e intentar cambiar esta cruda realidad), me confesó: "yo nunca lo pedí, Marco; nunca pensé llegar hasta aquí" (eso incluye el circo -así lo bautizó él, no yo- de la ceremonia inaugural); para matizar y ahondarlo este año en la meritita tierra del ahijado del Mossad: "mi abuelo fue minero, mi padre estuvo en la 2da. Guerra Mundial, fue ademásprisionero, logró escapar y casarse otra vez; de toda mi familia yo fui el primero en llegar a la universidad". The same old story of overcoming a troubled childhood to succeed in life (whatever that means), huh?

Refiriéndose a uno de esos inmensos poetas que perciben el mundo de manera diferente, cuenta -más o menos así- Chavela Vargas: "Fingía no saber qué estaba pasando, se dejaba llevar pero, hasta el desenlace sabía de antemano él". En una de las ediciones de "Los Presidentes" de Scherer se describe (de memoria también, porque yo tengo otra versión en la que ya no aparece tal) la siguiente anécdota de Daniel "El Travieso" (áquel que siempre anheló ser titular del ejecutivo, según el texto en cuestión): "...al periodista le solicitó unos minutos un norteamericano. Esperó a que se acomodara, y en el momento oportuno, Don Daniel sacó de su bolsillo y desdobló un pasquín al tiempo en que le soltó: 'this is coming from your office, right?'...". Después del "pitazo" de uno de mis colegas, me lancé a visitar el cubículo del viejito again. Regularmente no sucede así, por lo que me sorprendió encontrar a un par de chavillas (weno, ya no tan nenitas, I must say). Gentilmente me invitaron a una mesa de discusión sobre temas ambientales, campo en el que al parecer andan muy moviditas las dos. Después de escuchar sus inquietudes, las despido con un: "ya saben, atención con el mercado de créditos de carbono, porque esa burbuja no va a tardar demasiado en explotar, ¿eh?". Unos cuantos días más tarde me entero que "el candil de la calle" (a) México, se convierte en vanguardia mundial al inaugurar el (de forma voluntaria, sí, sí, cómo no) intercambio de estos "instrumentos bursátiles". ¡Cheetos, queso! Imagínense, la insoportable levedad del asunto, cuando el "chairman" de nuestro stock exchange es uno de los muchos engendros del chupacabras, quienes estelarizaron un pleito de comadres, tan subido de tono, que hasta las medias salieron rasgadas, ver para creer, comp@s. Nevermind, we predicted just that since 2010ish (I rather bet it was since 2008), and repeated over and over to the youngsters in UNAM and beyond. Well, while we were busy finishing all this year's pending cases, they have baked another perfect constitutional amendment, lidereados por el saco de plomo (a) cangrejito playero (btw, qué fácil se puede perder el... sentido del humor, cuando se trata de pesos y centavos -rather us dollars, I would say-, ¿verdad?; creo que de pronto escuchó una voz no tan interior que le sugirió: "stop the 'danm' bull s-h-i-t, and just 'speed it up'"). A propósito, rásquenle compadres, que algo todavía queda: ¿qué tal el agua, buddies? En lo que respecta a México: Is This It? Well, sólo nos queda honrar a quienes veneramos (en el sentido terrenal, y que los libros de historia nacional desdeñan, porque su descomunal peso específico no pueden soportar), porque somos parte del raquítico porcentaje de "indie observers" que continuamos vaticinando que, debido a las ocultas condiciones de su economía real, 'the falling empire' no está pa' dominar ni a los 'miaus' de su backyard. Si ustedes aguantan el 2014 apelmazados con sus servilletas, we certainly will survive, brodys. Al tiempo.

Mission impossible? 

Can financial prudence go too far?

"When developing countries get into the balance of payment crisis, as they often do, signing an agreement with the IMF is crucial. The money that the IMF itself lends is only a minor part of the story, for the IMF does not have much money of its own. More important is the agreement itself. It is seen as a guarantee that the country will mend its "profligate" ways to adopt a set of good policies that will ensure its future ability to repay its debts. Only when such agreement is made to other potential lenders -the World Bank, rich country governments and private sector lenders- agree to continue their supplies of finance to the country concerned. The agreement with the IMF involves accepting conditions on a wide range of economic policies from trade liberalization to the adoption of new company law. But the most important and feared of IMF conditions concern macroeconomic policies.

"Macroeconomic policies -monetary policy and fiscal policy- are intended to change the behaviour of the whole economy (as distinct from the sum total of the behaviours of the individual economic actors that make it up). The counter-intuitive idea that the whole economy may behave differently from the sum total of its parts comes from the famous Cambridge economist John Maynard Keynes. Keynes argued that what is rational for individual actors may not be rational for the entire economy... Keynes argued, the government, whose job is to manage the whole economy, cannot simply use scaled-up versions of the action plans that are rational for individual economic agents. It should always deliberately do the opposite of what other economic actors do. In an economic downturn, therefore, it should increase its spending to counter the tendency of the private sector firms and workers to reduce their spending. In an economic upturn, it should reduce its expenditure and increase taxes, so that it can prevent demand from outstripping supply.

"...since the rise of neo-liberalism, and its 'monetarist' approach to macroeconomics, in the 1980s, the focus of macroeconomic policies has radically changed. The 'monetarists' are called as such because they believe that prices rise when too much money is chasing after a given quantity of goods and services. They also argue that the price stability (i.e., keeping inflation low) is the foundation of prosperity and, therefore, that monetary discipline (that is required for price stability) should be the paramount goal of macroeconomic policy.

'Mugger, armed robber and hit man'

"Neo-liberals see inflation as public enemy number one... They believe that the lower the rate of inflation is, the better it is.Ideally, they want zero inflation. At most, they would accept a very low single-digit rate of inflation..."

"...it is argued that inflation is a form of stealth tax that unjustly robs people of their hard-earned income. The late Milton Friedman, the guru of monetarism, argued that 'inflation is the one form of taxation that can be imposed without legislation'.

"Neo-liberals argue that inflation is bad for economic growth as well. Most of them would hold that the lower a country's rate of inflation, the higher its economic growth is likely to be. The thinking behind this is as follows: investment is essential for growth; investors do not like uncertainty; so we must keep the economy stable, which means keeping prices flat; thus low inflation is a prerequisite of investment and growth. This argument has had a particularly strong appeal in those Latin American countries, where memories of disastrous hyperinflation in the 1980s combined with the collapse in economic growth were strong (especially Argentina, Bolivia, Brazil, Nicaragua and Peru).

"Neo-liberals economists argue that two things are essential in achieving low inflation. First, there should be monetary discipline -the central bank should not increase the money supply over and above what is absolutely necessary to support real growth in the economy. Second, there should be financial prudence- no government should live beyond its means.

"... Stanley Fischer argues: 'A central bank given multiple and general goals may choose among them and will certainly be subject to political pressures to shift among its goals depending on the state of the electoral cycle'. The best way to prevent this from happening is to 'protect'the central bank from politicians (who do not understand economics very well and, more importantly, have short-time horizons) by making it 'politically independent'.

"In addition to monetary discipline, neo-liberals have traditionally emphasized the importance of government prudence -unless the government lives with its means, the resulting budget deficits would cause inflation by creating more demands than the economy can meet... an increasing emphasis has been put on the 'prudential regulations' of the banks and other financial-sector firms. the most important among these is the so-called capital adequacy ratio for banks, recommended by the BIS (Bank for International Settlements), the club of central banks based in the Swiss city of Bassel.

"Inflation is bad for growth -this has become one of the most widely accepted economic nostrums of our age.

"During the 1960s and the 1970s, Brazil's average inflation rate was 42% a year. Despite this, Brazil was one of the fastest growing economies in the world for those two decades -its per capita income grew at 4.5% a year during this period. In contrast, between 1996 and 2005, during which time Brazil embraced the neo-liberal orthodoxy, especially in relation to macroeconomic policy, its inflation rate averaged a much lower 7.1% a year. But during this period, per capita income in Brazil grew at only 1.3% a year.

"If you are not entirely persuaded by the Brazilian case -understandable, given that hyperinflation went side by side with low growth in the 1980s and the early 1990s -how about this? During its 'miracle' years, when its economy was growing at 7% a year in per capita terms, Korea had rate inflation rates close to 20%-17.4% in the 1960s and 19.8% in the 1970s. These were rates high than those found in several Latin American countries, and totally contrary to the cultural stereotypes of the hyper-saving prudent East Asian versus fun-loving, profligate Latinos. In the 1960s, Korea's inflation rates 'was much higher' than that of five Latin American countries (Venezuela, Bolivia, Mexico, Peru and Colombia) and not much lower than that infamous 'rebel teenager' Argentina. In the 1970s, the Korean inflation rate was higher than that found in Venezuela, Ecuador and Mexico, and much lower than that of Colombia and Bolivia. Are you still convinced that inflation is incompatible with economic success?

"... there is a big logical jump between acknowledging the destructive nature of hyperinflation and arguing that the lower the rate of inflation, the better... even many neo-liberal economists admit that, below 10%, inflation does not seem to have any adverse affect on economic growth.

"... a tough control on inflation is a two-edged sword for workers -it protects their existing incomes better, but it reduces their future incomes. It is only the pensioners and others (including significantly, the financial industry) whose incomes derive from financial assets with fixed returns for whom lower inflation is a pure blessing. Since they are outside the labor market, tough macroeconomic policies that lower inflation, cannot adversely affect their future employment opportunities and wages, while the incomes they already have are better protected.


The price of price stability

"In most countries, firms outside the financial sector make a 3-7% profit. Therefore, if real interest is above that level, it makes more sense for potential investors to put their money in the bank, or buy bonds, rather than invest it in a productive firm. Also taking into account all the trouble involved in managing productive enterprises -labour problems, problems with delivery of parts, trouble with payments by costumers, etc.- the threshold rate may be even lower. Given that firms in developing countries have little capital accumulated internally, making borrowing more difficult means that firms cannot invest much. This results in low investment, which, in turn, means low growth and scarce jobs. This is what happened in Brazil, South Africa and numerous other developing countries when they followed the Bad Samaritans' advice and pursued a very low rate of inflation.

"... the rich Bad Samaritan countries, which are so keen to preach to developing countries the importance of high real interest rates as a key to monetary discipline, themselves have resorted to lax monetary policies when they have needed to generate income and jobs.

"Monetary policy that is too tight lowers investment. Lower investment slown down growth and job creation... (that) is a disaster for developing countries that desperately need more income and jobs and often are trying to deal with a high degree of income inequality without resorting to a large-scale redistribution programme that, anyway, may create more problems than it solves.

When prudence isn't prudent

"Emphasis on fiscal prudence has been a central theme in the neoliberal macroeconomics promoted by the Bad Samaritans. They argue that government should not live beyond its means and must always balance its budget. Deficit spending, they argue, only leads to inflation and undermines economic stability, which, in turn, reduces growth and diminishes the living standards of people on fixed income.

"... The government budget may have to be balanced but this needs to be achieved over a business cycle, rather than every year. This year is an extremely artificial unit of time in economic terms, and there is nothing sacred about it... As Keynes central message had it, what is important is that, over the business cycle, the government acts as a counterweight to the behaviour of the private sector, engages in deficit spending during economic downturns and generates a budget surplus during economic upturns.

"...the IMF is obsessed with developing country governments balancing the books every year, regardless of business cycles or longer-term development strategy. So it imposes budget balancing conditions, or even the requirement to run a surplus on countries in macroeconomic crisis that could actually benefit from deficit spending by the government.

"... the rich Bad Samaritans countries would never do what they tell to the poor countries to do. Instead they would cut interest rates and increase government deficit spending in order to boost demand.

"... a big increase in government spending during an economic downturn makes it more likely that the spending goes into ill-prepared projects. On the other hand, making large cuts in government spending during an economic upturn is difficult due to political resistance.

Keynesianism for the rich, monetarism for the poor

"Gore Vidal, the american writer, once famously described the American system as 'free entreprise for the poor and socialism for the rich'. Macroeconomic policy on the global scale is a bit like that. It is Keynesianism for the rich countries and monetarism for the poor.

"When the rich countries get into recession they usually relax monetary policy and increase budget deficits. When the same thing happens in developing countries, the Bad Samaritans, through the IMF, force them to raise interest rates to absurd levels and balance their budgets, or even generate budget surplus -even if these actions treble unemployment and spark riots in the street.

"Ironically, when the citizen of developing countries voluntarily tighten their belts, they are derided for not understanding basic Keynesian economics.

"The Bad Samaritans have imposed macroeconomic policies on developing countries that seriously hamper their ability to invest, grow and create jobs in the long run. The categorical -and simplistic- denunciation of 'living beyond one's means' has made it impossible for them to 'borrow to invest' in order to accelerate economic growth. If we categorically denounce people for living beyond their means, we should, among other things, condemn youg people for borrowing to invest in their career development on their children's education. This cannot be right. Living beyond one's means may or may not be right; it all depends on the stage of the development that the country is in and the use ti which the borrowed money is put."

http://marcosalas.blogspot.mx/2013/11/el-ladino-global-ix.html

EL LADINO GLOBAL VII

At that time Merodachbaladan, the son of Baladan, king of Babylon, sent letters and a present to Hezekiah: for he had heard that he had been sick, and was recovered.

And Hezekiah was glad of them, and shewed them the house of his precious things, the silver, and the gold, and the spices, and the precious ointment, and all the house of his armour, and all that was found in his treasures: there was nothing in his house, nor in all his dominion, that Hezekiah shewed them not.

Isaiah 39:1-2. (KJV)

"El diablo está en los detalles." Es el exclusivo "pipi's room" para profesores, el meeting point donde me vuelvo a topar con uno de los miembros de nuestro original grupo multidisciplinario del proyecto en proceso de terminación. "¡Quiúbole! ¿Cómo va el doctorado? -me suelta a modo de saludo. "Posdoctorado" -le recuerdo, just in case he's forgotten what the hell I am doing around. "Ya en el reporte final". "Ah, sí. Con fulano, ¿verdad? Ni modos, así es esto: 'En un momento estamos arriba y abajo en otro'". Lo dice con tal énfasis, que me deja dudando si su intención real haya sido tal vez citar al "Kama Sutra".


Más tarde he de averiguar que es así. Habiendo dejado satisfecha a una de las divas de la universidad (que de hecho es más suavecita, y hasta cierto punto más sincera que las demás), me suelta un valioso 'tip': "¿No te han avisado tus cuates que hubo cambios en el Olimpo del 'Centro'?". A la distancia, creo que un poco me aceleré. Anyway, bastó una llamada y compartir 'el lunch', para enterarme que, aquella que tres veces me rechazó, ha obtenido uno de los puestos por el que suspiraban más de una de 'las vacas sagradas' de nuestro círculo de iniciados. Después desvelarme de sus polacas conexiones, el pedigrí, entiendo -según esto- el motivo de su elección: "El valor no cuenta sin las influencias..."; alcanzando a expresar: "ya te dije una vez que a mí es al que menos conviene por ahora hablar, pero es ella en quien menos hubiera pensado para ocuparlo, 'Nadie sabe para quien trabaja', en verdad".


En territorio pérfido, un galo alguna vez me vaticinó: 'either you succeed because you are good enough or got the proper networking, mate', ¿recuerdan? Esto es precisamente lo que el fin de semana mi mujer experimentó. Sin embargo, "instead of trusting in the prophetic capacities of my heart, and relying exclusively in the deductions of my head", le adelanté: "ya que la otra está 'pastel', ya verás que su puesto te van a ofrecer". Por supuesto, en ese momento no me creyó. Unas horas después recibe una aparentemente inofensiva invitación, tiempo oportunísimo pa' recordarle: "among some of your friends, nothing is for free, I am afraid, my dear".Lo demás, ...historia es. So, how do we know the process of knowing, then? Oh!, that's an easy one: "En 1949 el psicólogo Donald Hebb de la Universidad Mc Gill de Montreal, Canadá, publicó un libro en el que sugirió que el cerebro puede comportarse de ambas maneras (de manera altamente especializada en funciones específicas; y como un todo a los estímulos): por regiones especializadas en las primeras etapas de la vida y de una forma holística principalmente en la edad adulta" (Las ciencias de la mente. ¿Cómo ves? No. 179). No es la habilidad de conocer la respuesta a cada pregunta aislada, compa -le digo a un atrabancado jovencito, sino de resolver los problemas más complejos (without oversimplified them) en ese justo momento sintetizando, con los elementos más importantes (aquí sí que es válido despreciar a los más débiles), la realidad (teoría de la que por cierto no poseo el copyright, los rojillos de a devis know that from long time ago). Dos hechos que prueban nuestro performance, más allá de la errada idea (según yo) de que nomás ando divagando por ahí, quedarán casi seguramente enlatados: la hipótesis de la transición climática en nuestro república, tal como lo podrán atestiguar los agricultores en el 'norti' de nuestro país; y el que sólo strong Niño phases have a significant positive impact in the Yucatan Peninsula rainfall, si no me creen, entonces corroborando con los registros lo podríamos fácilmente demostrar, lo otro es distorsionar deliberada y ladinamente la realidad. A veces, I might look like a stranger among you all, pero no soy yo el que se ha rendido y se esfumó (aunque ya saben, siempre low-profile, la oligofrenia no se nos da, esa búsquenla entre quienes enmascaran la falsa humildad). Más de uno debe haber tirado la toalla, después de haber visto vilipendiada nuestra brillante estrategia una vez más. Pero, si no tuviéramos como faro a un grupo históricamente excepcional (no sólo en México, sino en el mundo entero), no estaríamos seguros de que al final la razón ha de trinfar. Poco a poco, como la gota que desgasta la roca, hemos evidenciado la fragilidad de sus gurús. A cada obstáculo lo hemos confrontado con una evolución, y aunque en harapos nos quedemos, con ustedes vamos a caminar hasta nuestro glorioso destino alcanzar. In the meantime, cultivemos nuestro intelecto con lo mejor, bros.

Windows 98 in 1997

Is it wrong to ' borrow' ideas
"...The entertainment industry and the pharmaceutical industry... are exceptionally aggressive in promoting the strong protection of intellectual property rights (IPRs), such as patents, copyrights and trademarks.
"Unfortunately, this handful of industries has been driving the whole international agenda on IPRs over the past two decades They led the campaign to introduce the so-called TRIPS (Trade-Related Intellectual Property Rights) agreement in the World Trade Organisation. This agreement has widened the scope, extended the duration and hightened the degree of protection for IPRs to an unprecedented extent, making it much more difficult for developing countries to acquire the new knowledge they need for economic development."


'The fuel of interest to the fire of genius'

"During the debate surrounding the HIV/AIDS drugs, the pharmaceutical companies argued that, without patents, there will be no more new drugs - if anyone can 'steal' their inventions, they would have no reason to invest in inventing new drugs... those who are criticizing the patent system (and other IPRs) are threatening the future supply of new ideas (not just drugs), undermining the very productivity of the capital system.

"...Material incentives, while important are not only things that motivate people to invest in producing new ideas. At the height of the HIV/AIDS debate, 13 fellows of the Royal Society, the highest scientific society of the UK, put this point powerfully in an open letter to the 'Financial Times': 'Patents are only means for promoting discovery and invention. Scientific curiosity, coupled with the desire to benefit humanity, has been of far greater importance throughout history'. Countless researchers all over the world come up with new ideas all the time, even when they do not directly profit from them. Government research institutes or universities often explicitly to take out patents on their inventions. All these show that a lot of research is not motivated by the profit from patent monopoly.

"This is not a fringe phenomenon. A lot of research is conducted by non-profit-seeking organizations - even in the US. For example, in the year 2000, only 43% of US drugs research funding came from the pharmaceutical industry itself, 29% came from the US government and the remaining 28% from the private charities and universities.

"... In other industries, copying new technology is not easy, and innovation automatically gives the inventor a temporary technological monopoly, even in the absence of the patent law. The monopoly is due to the natural advantages accorded to the innovator such as limitation lag (due to the time it takes for other to absorb new knowledge); reputational advantage (of being the first and so best-known producer); and the head start in 'racing down learning curves' (i.e., the natural increase in productivity through experience). The resulting temporary monopoly profit is reward enough for the innovative activity in most industries.

"...patents, by definition, create monopolies, which impose costs on the rest of society...Monopoly also creates net social loss by allowing the producer to maximize its profit by producing at a less than socially desirable quantity, creating net social loss...

"The unstated presumption in the pro-patent argument is that such costs will be more than offset by the benefits that flow from increased innovation (that is, higher productivity), but this is not guaranteed. Indeed, in mid-19th-century Europe, the influential anti-patent movement, famously championed by the British free-market magazine, 'The Economist', objected to the patent system on the grounds that its costs would be higher than its benefits.

"... we advocate the protection of patents and other intellectual property rights, despite their potential to create inefficiency and waste, because we believe they will more than compensate for those costs in the long run by generating new ideas that raise productivity. But accepting the potential benefits of the patent system is different from saying that there is no cost involved.

"... Economic is all about absorbing advanced foreign technologies. Anything that makes it more difficult, be it the patent system or a ban on the export of advanced technologies, is not good for economic development. It is as simple as that. In the past, the Bad Samaritan rich countries themselves understood this clearly and did everything to prevent this from happening."

John Law and the first technological arms race

"...Those countries that are better at absorbing the knowledge inflow have been more successful in catching up with the more economically advanced nations... The techonological 'arms race', between backward countries trying to acquire advanced foreign knowledge and the advanced countries trying to prevent its outflow has always been at the heart of the game of economic development.

"...The leader in this new technological race was Britain... reluctant to part with its advanced technologies. It even set up legal barries to technology outflows. The other industralising countries in europe and the US had to violate those laws in order to acquire superior British technologies.

"This new technological arms race was started in full spate by John Law (1671-1729)... a moneymaker in more than one sense. He was an extremely successful financer, making huge killings on currency speculation, setting up and merging large banks and trading companies, getting royal monopolies for them and selling their shares at huge profits...was also known as a great gambler with an incredible ability to calculate the odds. As an economist, he advocated the use of paper money backed by a central bank. The idea that we can make wothless paper into money through government fiat was a radical notion then. At the time, most people believed that only things that have a value of their own, like gold and silver, could serve as money.

"John Law... understood the importance of technology in building a strong economy... he also recruited hundreds of skilled workers from Britain in an attempt to upgrade France's technology.

"...What workers know and can do matters greatly in determining a firm's productivity. In earlier times, though, their importance was even more pronounced, since they themselves embo5tdied a lot of technologies. Machines were still rather primitive, so productivity depended very much on how skilled the workers who operated them were. The scientific principles behind industrial operations were poorly understood, so technical instructions could not be written down easily in universal terms. Once again, the skilled worker had to be there to run the operation smoothly.

"Other countries intent on catching up with Britain knew that they had to get hold of these advanced technologies, whether the method used to do so was 'legal'or 'illegal'from the British point of view. The 'legal' means included apprenticeships and factory tours. The 'illegal'means involved the governments of continental Europe and the US luring skilled workers contrary to British law. These governments also routinely employed industrial spies.

"...But by the end of the century, the nature of the game had changed fundamentally with the increasing importance of 'disembodied' knowledge - that is, knowledge that can be separated from the workers and the machines that used to hold them. The development of science meant that a lot -although not all- knowledge could be written down in a (scientific) language that could be understood by anyone with appropiate training.

"Disembodied knowledge is more difficult to protect than knowledge embodied in skill workers or actual machines. Once an idea is written down in a general scientific and engineering language, it becomes much easier to copy it... As the importance of disembodied knowledge grew, it became more important to protect the ideas themselves than the workers or machines that embody them... In their place, the patent law became the key instruments in managing the flow of ideas.

"The first patent system is supposed to have been used by Venice in 1474, when it granted ten years' privileges to inventors of 'new arts and machines'... copyright law (first introduced in Britain in 1709) and trademark (first introduced in Britain in 1862) were adopted by most of today's rich countries in the second half of the 19th century."

The lawyers get involved


"...throughout much of the 19th century, the IPR regimes in today's rich countries were all very bad at protecting 'foreigners' intellectual property rights. This was partly the consequence of the general laxity of early patent laws in checking the originality of an invention. For example, in the US, before the 1836 overhaul of its patent law, patents were granted without any proof of originality; this encouraged racketeers to patent devices already in use ('phony patents') and then to demand money from their users under threat of suit for infringement. But the absence of protection for foreigners' intellectual property rights was often deliberate. In most countries, including Britain, the Netherlands, Austria, France and the US, patenting of 'imported invention' was explicitly allowed.


"...Counterfeiting was not invented in Modern Asia. When they were backward themselves in terms of knowledge, all of today's rich countries blithely violated other people's patents, trademarks and copyrights. The Swiss 'borrowed' German chemical inventions, while the Germans 'borrowed' English trademarks and the Americans 'borrowed'British copyrighted materials - all without paying what would today be considered 'just'compensation.

"Despite this history, the Bad Samaritan rich countries are now forcing developing countries to strengthen the protection of intellectual property rights to a historically unprecedented degree through the TRIPS agreement and a raft of bilateral free-trade agreements. They argue that stronger protection of intellectual property will encourage the production of new knowledge and benefit everyone, including the developing countries. But is this true?"

Making Mickey Mouse live longer

"In 1998, the US copyright Term Extension Act extended the period of copyright protection... to 'life of the author plus 70 years, or 95 years of corporate authorship.

"...As should be immediately obvious to anyone, extending the term protection for existing work can never create new knowledge.

"...In the third quarter of the 19th century (1850-75), the average patent life in a sample of 60 countries was around 13 years. Between 1900 and 1975, this was extended to 16 or 17 years. But recently the US has played the leading role in accelerating and consolidating this upward trend. It has now made its 20-year term for patent protection a 'global standard' through enshrining in the World Trade Organisation's TRIPS agreement -the 60-country average stood at 19 years as of 2004. Anything that goes beyond TRIPS, such as the 'de facto'extension of drug patents, the US government has been spreading through bilateral free-trade agreements."

Sealed crustless sandwiches and turmeric

"One basic assumption behind IPR laws is that the new idea that is awarded protection is worth protecting. This is why all such laws demand the idea to be original (to possess 'novelty'and 'non-obviousness' in the technical jargon). This may sound incontrovertible in abstract terms, but it is more difficult to put in practice, not least because investors have an incentive to lobby for lowering the originality bar.

"...Before the TRIPS agreement, most developing countries did not give the pharmaceutical product patents. Most countries had never given them; others such as India and Brazil, had abolished the pharmaceutical product patents (process patents as well, in the case of Brazil) that they once had.

"...the general trend that 'the tests for novelty and non-obviousness, which are supposed to ensure that the patent monopoly is granted only to truly original ideas, have become largely non-operative'. The result of this has been what Jaffe and Lerner call a 'patent explosion'. They document how the number of patents granted in the US grew by 1% a year between 1930 and 1982, the year when the American patent system was loosened, but grew by 5.7% a year during 1982-2002, when patents were more liberally granted. This increase is definitely not due to some sudden explosion in American creativity!

"But why should the rest of the world care if the Americans are issuing silly patents? They should care because the new American system has encouraged the 'theft' of ideas that are well-known in other countries, especially developing countries, but are not legally protected precisely because they have been so well known for such a long time. This is known as the theft of 'traditional knowledge'. The best example in this regard is the patent granted in 1995 to two Indian researchers at the University of Mississippi for the medicinal use of turmeric, whose wound-healing properties have been known in India for thousands of years. The patent was only cancelled thanks to the challenge mounted in the American courts by the New Delhi-based Council for Agricultural Research. This patent might be still there if the wronged country had been some small and very poor developing country that lacked India's human and financial resources to fight such battles."

"...Ideas are the most important inputs in producing new ideas. But if other people own the ideas you need in order to develop your own new ideas, you cannot use them without paying for them. This can make producing new ideas expensive. Worse, you run the danger of being sued for patent infringement by your competitors, who may own patents closely related to yours. Such a lawsuit would not only waste your money but also keep you from further developing the technology in dispute. In this sense, patents can become an obstacle, rather than a spur, to technological development.

"...The days are over when technology can be advanced in laboratories by individual scientists alone. Now you need an army of lawyers to negotiate the hazardours terrain of interlocking patents, the patent system may actually become a major obstacle, rather than a spur, to technological progress."

Harsh rules and developing countries

"The recent changes in the system of intellectual property rights have magnified its costs, while reducing the benefits. Lowering the originality bar and the extension of patent (and other IPR) life have meant that we are, in effect, paying more for each patent, whose average quality, however, is lower than before. Changes in the attitudes of rich country governments and corporations have also made it more difficult to override the commercial interests of patent holders for the sake of the public interest, as we saw in the HIV/AIDS case. And making increasingly minute pieces of knowledge patentable has worsened the problem of interlocking patents, slowing down the technological progress.

"...the biggest problem is, to put it bluntly, that the new IPR system has made economic development more difficult. When 97% of all patents and the vast majority of copyrights and trademarks are held by rich countries, the strengthening of the rights of IPR-holders means that acquiring knowledge has become more expensive for developing countries.

"If the are to comply with the TRIPS agreement each developing country needs to spend a lot of money building up and implementing a new IPR system. The system does not run itself. Enforcement of copyright and trademarks requires an army of inspectors.

"...the foundation of economic development is the acquisition of more productive knowledge. The stronger the international protection of IPRs is, the more difficult it is for the follower countries to acquire new knowledge. This is why, historically countries did not protect foreigners' intellectual property very well (or at all) when they needed to import knowledge."

Getting the balance right

"...Protection of intellectual property rights is like this. Some minimum amount of it may be essential in creating incentives for knowledge creation. Some more of it may bring more benefits than costs. But too much of it may create more costs than benefits so that it ends up harming the economy.

"So the real question is not whether IPR protection is good or bad in abstract. It is how we get the balance right between the need to encourage people to produce knowledge and the need to ensure that the costs from the resulting monopoly do not exceed the benefits that the new knowledge brings about. In order to do that, we need to weaken the degree of IPR protection prevailing today - by shortening the period of protection by raising the originality bar, and by marking compulsory licensing and parallel imports easier.

"If a weaker protection leads to insufficient incentives for potential inventors, which may or may not be the case, the public sector can step in. This may involve the direct conduct of research by public bodies...

"...the international IPR system should be reformed in a way that helps developing countries become more productive by allowing them to acquire new technical knowledge at reasonable costs. Developing countries should be allowed to grant weaker IPRs -shorter patent life, lower licensing royalty rates (probably graduated according to their abilities to pay) or easier compulsory licensing and parallel imports.

"...we should not only make technology acquisition easier for developing countries but also help them develop "the capabilities to use and develop" more productive technologies. For this purpose, we could institute an international tax to patent royalties and use it to provide technological support for developing countries. The cause may also be promoted by a modification to the international copyright system, which makes access to academic books easier."*

* Access to academic books is crucial in enhancing the productives capabilities of developing countries, as my own experience with pirate-copied books, described in the Prologue, suggests. Rich countries publishers should be encouraged to allow cheap reproduction of academic books in developing countries -they are not going to lose much by this, because their books are too expensive for developing countries consumers anyway. We could also set up a special international fund to subsidize the purchase of academic books by developing countries libraries, academics and students. A similar argument can put the current hysteria in the rich countries about counterfeit products from developing countries into perspective. As I pointed out in the Prologue, it is not as if those people who buy counterfeit products in developing countries (including many tourists who buy them there) can afford the genuine articles. So, as long as they are not smuggled into the rich countries and sold as the genuine articles (which rarely happens), the original manufacturers lose little actual revenue from the counterfeit goods. One could even argue that the developing country consumers are, in effect, doing free advertising for the original manufacturers. Especially in high growth economies, today's counterfeit consumers are going to be tomorrow's consumers of the genuine articles. Many Koreans who used to buy fake luxury goods in the 1970s are now buying the real things.

EL LADINO GLOBAL VI

Sobrevivir a un contexto generalizado de incertidumbre, no es algo que a cualquier hijo de vecino se le dé. Sin embargo, múltiples mañas se dan aquellos que carecen de esta habilidad, y también de la empatía mínima para formar una red de cuadernos que sea capaz de protegerlos cuando sea absolutamente necesario. Con el fin de lograr sus innombrables objetivos, estos tipos no sólo son capaces de inventar sino además repetir hasta el hastío sus incomprobables teorías (long time ago, I told you, it is only one, among many other reasons, that the economy cannot be upgraded to the status of science; everybody there can be just right without any rigorous assessment confronted with the real world as other fields do everyday; well, to be sincere some of my peer$ on our topic are so keen to follow that path too, they pretend not to know that: "... apparently science and business just don't mix..."). ¿Quién de esos gurúes puede hoy explicarles porqué estaban a la baja simultáneamente el USD, el precio del barril de petróleo, y los metales preciosos, por ejemplo? Nosotros sí, pero hay algo muy pesado de por medio para dejarlo ir nomás porque sí, ¿verdad? Remember: I know the name of the game (it would take me 15 min. flat to learn the elusive rules) but, sorry I don't like to play it, honestly. Continuemos mejor "sobre hombros de gigantes" en la materia.

Man exploits man

Private enterprise good, public enterprise bad?

... "Since its rise in the 19th century the key goal of the communist movement had been the abolition of private ownership of the 'means of production' (factories and machines). It is easy to understand why the communists saw private ownership as the ultimate source of the distributive injustice of capitalism. But they also saw private ownership as a cause of economic inefficiency. They believed that it was the reason for the 'wasteful' anarchy of the market. Too many capitalists routinely invest in producing the same things, they argued, because they do not know the investment plans of their competitors. Eventually, there is over-production and some of the enterprises involved go bankrupt, condemning some machines to scrap heap and laying perfectly employable workers idle. The waste caused by this process, it was argued, would disappear if the decisions of different capitalists could be co-ordinated in advanced through rational, centralized planning -after all, capitalists firms are islands of planning in the surrounding anarchic sea of the market, as Karl Marx, the leading communist theorist, once put it. Therefore, if private property were abolished, the economy could be run as if it were a single firm and thus managed more efficiently.

"Few would now dispute that communism failed as an economic system. But it is a huge leap of logic to go from that conclusion to the proposition that state-owned enterprises (SOEs), or public enterprises, do not work... Privatization of SOEs has also been a centrepiece of the neo-liberal agenda that Bad Samaritans have imposed on most developing countries in the past quarter of a century."

State ownership in the dock

"... At the heart of the argument against SOEs lies a simple but very powerful idea . The idea is that people do not fully take care of things that are not theirs.

"Ownership gives the owner two important rights in relation to this property. The first is the right to dispose of it. The second is the right to claim the profits from its use.

"By definition, state-owned enterprises are properties collectively owned by all the citizens, who hire professional managers on fixed salaries to run them. Given that it is the citizenry that has the residual claim as the owner of the enterprise, the hired managers do not care about the profitability of their enterprises. Of course, the citizenry as the 'principal', can make it 'agents' of the hired managers, interested in the profitability of the SOEs by linking their pay to it. But such incentive systems are notoriously difficult to design. This is because there is a fundamental gap in the information between the principals and their agents. For example, when the hired manager says that she has done her best and that the poor performance is due to factors beyond her control, the principal will find it very difficult to prove that she is lying. The difficulty of the principal controlling the agent's behaviour is known as the 'principal agent problem' and the resulting costs (that is, the reduction in profits due to the poor management) the 'agency cost'. The principal-agent problem is at the centre of the neo-liberal argument against SOEs.

"...Individual citizens, even if they theoretically own public enterprises, do not have any incentives to take care of their properties (the enterprises in question) by adequately monitoring the hired managers. The problem is that any increase in profit resulting from extra monitoring of the SOEs managers by some citizens will be shared by every citizen, while only those citizens who do the monitoring pay the costs (e.g., time and energy spent in going through company accounts or alerting the relevant government agencies to any problems.

"...Being part of the government, the argument goes, SOEs are often able to secure additional finances from the government if they make losses or are threatened with bankruptcy. In this way, it is argued, enterprises can act as if the limits on their budgets are malleable, or 'soft', and get away with tax management."

State vs private

"... The citizens, despite being the legal owners of public enterprises, have neither the ability nor the incentive to monitor their agents, who have been hired to run the enterprises. The agents (managers) do not maximize enterprise profits, while it is impossible for the principals (citizens) to make them do so, because the inherent deficiency in information they possess about the agents' behaviour and the free-rider problem amongst the principal themselves.

"... All the agreements against state ownership of enterprises actually apply to a large private-sector firms as well. The principal-agent problem and the free-rider problem affect many large private-sector firms... The hired managers (like their SOE counterparts) will also have no incentive to put in more than sub-optimal levels of effort (the principal-agent problem), while individual shareholders will not have enough incentive to monitor the hired managers (the free-rider problem).

"...If they are politically important (e.g., large employers or enterprises operating in politically sensitive industries, such as armaments or healthcare), private firms can also expect subsidies or even government bail-outs... Conversely, state-owned enterprises are 'not totally' immune to market forces. Many public enterprises across the world have been shut down and their managers sacked because of bad performance - these are equivalent to corporate bankruptcies and corporate takeovers in the private sector.

"...In the early 1980s, the troubled US car maker Chrysler was rescued by the Republican administration under Ronald Reagan, which was in the vanguard of neo-liberal market reforms at the time."

State-owned success stories

"...Korea also provides another dramatic example of a successful public enterprise in the form of the (now privatized) steel maker, POSCO (Pohang Iron and Steel Company). The Korean government made an application to the World Bank in the late 1960s for a loan to build its first modern steel mill. The bank rejected it on the grounds that the project was not viable. Not an unreasonable decision. The country's biggest export items at the time were fish, cheap apparel, wigs and plywood. Korea didn't possess deposits of either of the two key raw materials - iron ore and coking coal. Furthermore, the Cold War meant it could not even import them from nearby communist China. They had to be brought all the way from Australia. And to cap it all, the Korean government proposed to run the venture as an SOE. What more perfect for disaster? Yet within ten years of starting production in 1973 (the project was financed by japanese banks), the company became one of the most efficient steel-producers on the planet and is now the world's third largest.

"...Well-performing state-owned enterprises are also found in Latin America. The Brazilian state-owned oil company Petrobras is a world class firm with leading-edge technologies. EMBRAER (Empresa Brasileira de Aeronáutica), the Brazilian manufacturer of 'regional jets'(short-range jet planes), also became a world class firm under state ownership. EMBRAER is now the world's biggest producer of regional jets and the world's third largest aircraft manufacturer of any kind, after Airbus and Boeing. It was privatized in 1994, but the Brazilian government still owns the 'golden share'(1% of the capital), which allows it to veto certain deals regarding military aircraft sales and technology transfers to foreign countries.

"...The rise of neoliberalism during the past couple of decades has made state ownership so unpopular in the public mind that successful SOEs themselves want to underplay their connection with the state... there is nothing 'inevitable' about poor performance by public enterprises and that improving their performance does not necessarily require privatization.

The case of state ownership

"...The Korean steel maker POSCO is a more modern and more dramatic case of an SOE set up due to capital market failure. The general lesson is clear: public enterprises have often been set up in order to kick-start capitalism, not to supersede it, as it is commonly believed.

"State-owned enterprises can also be ideal where there exists 'natural monopoly'. This refers to the situation where technological conditions dictate that having only one supplier is the most efficient way to serve the market. Electricity, water, gas, railways and (landline) telephones are examples of natural monopoly. In these industries, the main cost of production is the building of the distribution network and, therefore, the unit cost of production will down if the number of customers that use the network serves is increased. In contrast, having multiple suppliers with his own networks, of, say, water pipes, increases the unit cost of supplying each household. Historically, such industries in the developed countries often started out with many small competing producers but were then consolidated into large regional or national monopolies (and then often nationalized).

"The third reason for the government to set up state-owned enterprises is equity among citizens... If the service in question is a vital one that every citizen should be entitled to, the government, may decide to run the activity itself through a public enterprise, even if it means losing money in the process.

"...Subsidies require tax revenues in the first place. Collecting tax may seem straightforward, but it is not easy. It requires capabilities to collect and process information, calculate the taxes, owed, and detect and punish evaders... Developing countries have only limited abilities to collect taxes and, consequently, to use subsidies to address the limitations of the markets.

"State-owned enterprises are often more practical solutions than a system of subsidies and regulations for privete-sector providers, especially in developing countries that lack tax and regulatory capabilities. Not only can they do (and, in many cases, have done) well, under certain circumstances they may be superior to private-sector firms."

The pifalls of privatization

"The first challenge is selling 'the right enterprises'. It would be a bad idea to sell public enterprises with natural monopolies or those providing essential services, especially if the regulatory capability of the state is weak. But even when it comes to selling off enterprises for which public ownership is not necessary, there is a dilemma. The government usually wants to sell the worst performing enterprises precisely those that least interest potential buyers. Therefore, in order to generate private sector interest in a poorly performing SOE, the government often has to invest heavily in it and/or restructure it. But it is performance can be improved under state ownership, why then privatize it all? Therefore, unless it is 'politically' impossible to restructure a public enterprise without a strong government commitment to privatization, a lot of problems in public enterprises may be solved without privatization.

"...the privatized firm should be sold at 'the right price'.Selling at the right price is the duty of the government, as the trustee of the citizen's assets.

"In order to get the right price, the privatization programme must be done at the 'right scale' and with the 'right timing'... What is more, given fluctuations in the stock market, it is important to privatize only when the stock market conditions are good. In this sense, it is a bad idea to set a rigid deadline for privatization, which the IMF often insits on and which some governments have also voluntarily adopted. Such a deadline will force the government to privatize regardless of market conditions.

"Even more important is selling the public enterprises to the 'right buyers'. If privatization is going to help a country's economic future, the public enterprises need to be sold to people who have the ability to improve their long-term productivity

"More importantly, SOEs are often sold off corruptly to people who have no competence to run them well -massive state-owned assets were transferred in a corrupt way to the new 'oligarchy' in Russia after the fall of comunism.

"Privatization of natural monopolies or essential services will also fail if they are not subject to the 'right regulatory regime' afterwards. When the SOEs concerned are natural monopolies, privatization without the appropiate regulatory capability on the part of the government may replace inefficient but (politically) restrained public monopolies, with unefficient and unrestrained private monopolies.

"...Commenting on the privatization of the Mexican state owned telephone company, Telmex, in 1989, even a World Bank study concluded that 'the provatization' of Telmex, along with its attendant price-tax regulatory regime, has the result of 'taxing'consumers -a rather diffuse, unorganized group- and then distributing the gains among more well-defined groups; (foreign) shareholders, employees and the government.

State ownership in the dock

Black cat, white cat

"...Privatization sometimes works well, but can be a recipe for disaster, especially in developing countries that lack the necessary regulatory capabilities.

"...there is a great need for SOEs in the developing countries than in the developed countries, as they have underdeveloped capital markets and weak regulatory and taxation capabilities.

"...One important thing to do is to review critically the goals of the enterprises and establish clear priorities among them. Very often, public enterprises are charged with serving too many goals - for example, social goals (e.g. affirmative action for women and minorities), employment generation and industrialization.

"Increase in competition can also be important in improving SOE performance. More competition is 'not always' better, but competition is often the best way to improve enterprise performance.

"... when it comes to SOE management, we need a pragmatic attitude in the spirit of the famous remark by China's former leader Deng Xiao-ping: 'it does not matter whether the cat is white or black as it catches mice'.

EL LADINO GLOBAL V

Simplification is a mind trick in order to understand (not to drive us crazy) the world, not the world itself. Is that so difficult to accept, caramba? "A veces, para tener una idea aproximada de que cierta cantidad de lluvia pueda rebasar un umbral, normalmente hacemos un ajuste a una fdp, en lugar de echárnosla a pie y tardar más" -le digo; but I don't think this buddy did really believe that. There is a point of shattered dreams, that once reached, I don't believe, they do believe themselves. Have we escalated to that 'unusual' level, yet?: "Un fanático siempre tiene una duda oculta". I honestly dunno that for sure, but they just pretend that we are facing 'business as usual' in this land, and calmly are waiting for times of better productivity (Btw, OMG! What efficient u r, indeed; 'Mr. ten per cent') to arrive. Mientras tanto, apuestan a que 'Los Supermachos', berrinche chipilón de por medio, habrán de aguantar todo ...una vez más y, llegado el momento apropiado, por amarga que ella sea, su medicina borregamente habrán de tomar, ¿verdad?

Weno, les tengo una excelente noticia (ya ven que actualmente no se cotizan muy alto por aquí) debido a que faltaba un importante factorn dentro de la ecuación(que arrogantemente yo desestimé), el cual ya hemos definido e insertado, vamos a cambiar (ya ven que la victoria tiene varias asepsiones espurias, hoy) esta contaminada atmósfera nacional. Así que, pa'no seguir "despotricando" innecesariamente, continuemos con nuestro "book review".

Should we regulate foreign investment?

... "...after gaining independence from Russia in 1918, Finland tried its best to keep foreigners out. The country introduced a series of laws in the 1930s that officially classified all the enterprises with more than 20% foreign ownership - hold your breath - 'dangerous'.

Is foreign capital essential?

... "Foreign capital flows into developing countries consist of three main elements - grants, debts and investments. Grants are money given away (but often with strings attached) by another country and are called foreign aid or official development assistance (ODA). Debts consist of bank loans and bonds (government bonds and corporate bonds). Investments are made up of 'portfolio equity investment', which is equity (share) ownership seeking finalcial returns rather than managerial influence, and foreign direct investment (FDI), which involves the purchase of equity with a view to influence the management of the firm on a regular basis

... "Of course, this kind of behavior - known, as 'pro-cyclical' behavior -also exists among domestic investors. Indeed, when things go bad, these investors, using their insider information, often leave the country 'before'the foreigners do. But the impact of the herd behaviour by foreigner investors is much greater for the simple reason that developing country financial markets are tiny relative to the amounts of money sloshing around the international financial system. The Indian stock market, the largest stock market in the developing world, is less than one-thirtieth the size of the US stock market. The Nigerian stock market, the second largest in Sub-Saharan Africa, is worth less than one five-thousand of the US stock market. Ghana's stock market is worth only 0.006% of the US stock market. What is a mere drop in the ocean of rich country assets will be a flood that can sweep away financial markets in developing countries."

The Mother Teresa of foreign capital

... "The case for welcoming foreign direct investment, then, seems overwhelming. FDI is stable, unlike other forms of capital inflows. Moreover, it brings not just money but also enhances the host country's productive capabilities by bringing in more advanced organization, skills and technology.

... "...FDI can be made 'liquid'and shipped out rather quickly. As even an IMF publication points out, the foreign subsidiary can use its assets to borrow from domestic banks, change the money into foreign currency and send the money out; or the parent company may recall the intracompany loan it has lent to the subsidiary (this counts as FDI).

... "Not only is FDI not necessary a stable source of foreign currency, it may have negative impacts on the foreign exchange position of the host country. FDI may bring in foreign currency, but it can also generate additional demands for it (e.g. importing inputs, contracting foreign loans).

... "In some cases, brownfield FDI is made with an explicit intention of not doing much to improve the productive capabilities of the company bought - a foreign direct investor might buy a company that he thinks is undervaluated by the market, especially in times of financial crisis, and run it as it used to be until he finds a suitable buyer. Sometimes the foreign direct investor may even actively 'destroy'the existing productive capabilities of the company bought by engaging in 'asset stripping'. For example, when the Spanish airline Iberia bought some Latin American airlines in the 1990s, it swapped its own old planes for the new ones owned by the Latin American airlines, eventually driving some of the latter into bankruptcy due to a poor service record and high maintenance costs.

... "... a developing country may reasonably decide to forego short-term benefits from the FDI in order to increase the chance for its domestic firms to engage in higher-level activities in the long run, by banning FDI in certain sectors or regulating it. This is exactly the same logic as that of infant industry protection... a country gives up the short-run benefits of free trade in order to create higher productive capabilities in the long run. And it is why, historically, most economic success stories have resorted to regulation of FDI, often in a draconian manner."

'More dangerous than military power'

"'It will be a happy day for us when not a single good American security is owned abroad and when the United States shall cease to be an exploiting ground for European bankers and money lenders'. Thus wrote the 'US Banker's Magazine' in 1884.

... "... Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence, it would be far more formidable and dangerous than the naval and military power of the enemy. If we must have a bank... it should be a 'purely American'. If the president of a developing country said something like this today, he would be branded a xenophobic dinosaur and blackballed in the international community.

"From the earliest days of its economic development right up to the First World War, the US was the world's largest importer of foreign capital.

"... the US federal government strongly regulated foreign investment. Non-resident shareholders could not vote and only American citizens could become directors in a national (as opposed to state-level) bank... A navigation monopoly for US ships in coastal shipping was imposed in 1817 by Congress and continued until the First World War. There was also strict regulations on foreign investment in natural resource industries. Many state governments barred or restricted investment by non-resident foreigners in land. The 1887 federal Alien Property Act prohibited the ownership of land by aliens - or by companies more than 20% owned by aliens - in the 'territories' (as opposed to the fully fledged states), where land speculation was particularly rampant.

"Some state (as opposed to federal) laws were even more hostile to foreign investment. A number of states taxed foreign companies more heavily than the American ones. There was a notorious Indian law of 1887 that withdrew court protection from foreign firms altogether. In the late 19th century, the New York state government took a particularly hostile towards FDI in the financial sector, an area where it was rapidly developing a world-class position (a clear case of infant industry protection). It instituted a law in the 1880s that banned foreign banks from engaging in 'banking business' (such as taking deposits and discounting notes or bills). The 1914 banking law banned the establishment of foreign bank branches. For example, the London City and Midland Bank (then the world's third largest bank, measured by deposits) could not open a New York branch, even though it had 867 branches worldwide and 45 correspondent banks in the US alone.

... "... the belief by the Bad Samaritans that foreign investment regulation is bound to reduce investment flows, or conversely, that the liberalization of foreign investment regulation will increase foreign investment flows. Moreover, despite - or, I would argue, partly because of - its strict regulation of foreign investment (as well as having in place manufacturing tariffs that were the highest in the world), the US was the world's fastest-growing economy throughout the 19th century and up until 1920s.

... "Even in cases like Singapore and Ireland, countries that have succeeded by extensively relying on FDI, are not the proof that host country governments should let TNCs do whatever they want. While welcoming foreign companies, their governments used selected policies to attract foreign investment into areas that they considered strategic for the future development of their economies."

Boderless World?

"Forget history, say the Bad Samaritans in defending such actions. Even if it did have some merits in the past, they argue, regulation of foreign investment has become 'unnecessary and futile', thanks to globalization, which has created a new 'borderless world'.

"...the nationality of the firm still matters very much. Who owns the firm determines how far its different subsidiaries will be allowed to move into higher-level activities. It would be very naive, especially on the part of developing countries, to design economic policies on the assumption that capital does not have national roots anymore.

... "Surveys reveal that corporations are most interested in the market potential of the host country (market size and growth), and then in things like the quality of the labour force and infrastructure, with regulation being only a matter of minor interest. Even the World Bank, a well-known supporter of FDI liberalization, once admitted that 'the specific incentives and regulations governing direct investment have less effect on how much investment a country receives than has its general economic and political climate, and its financial and exchange rate policies'.

"... foreign investment follows, rather than causes, economic growth. The brutal truth is that however liberal the regulatory regime, foreign firms won't come into a country unless its economy offers an attractive market and high-quality productive resources (labour, infrastructure)."

'The only thing worse than being exploited by capital...'

"Foreign financial investment brings more danger than benefits, as even the neo-liberals acknowledge these days. While foreign direct investment is no Mother Teresa, it often does bring benefits to the host country 'in the short run'. But it is the long run that counts when it comes to economic development. Accepting FDI unconditionally may actually make economic development in the long run more difficult. Despite the hyperbole about a 'borderless world, TNCs remain national firms with international operations and, therefore, are unlikely to let their subsidiaries engage in higher-level activities; at the same time their presence can prevent the emergence of national firms that might start them in the long run. This situation is likely to damage the long-run development potential of the host country. Moreover, the long-run benefits of the FDI depend partly on the magnitude and quality of the spill-over effects that Transnational Corporations (TNCs) create, whose maximization requires appropriate policy interventions. Unfortunately, many key tools of such intervention have already been outlawed by the Bad Samaritans (e.g., local content requirements).

"Foreign direct investment may help economic development, but only when introduced as part of a long-term-oriented development strategy. Policies should be designed so that foreign direct investment does not kill off domestic producers, which may hold out great potential in the long run, while also ensuring that the advanced technologies and managerial skills foreign corporations possess are transferred to domestic business to the maximum possible extent... more countries will succeed, and have succeeded, when they more actively regulate foreign investment, including FDI."