Tag Archives: infrastructure

04.10.2013 | An Emerging Market: Cambodia

Our story starts in Russia with McDonald’s French Fry problem. Planning to open the first Moscow McDonald’s in 1990, they realized Russian potatoes were too little. Yes, they tasted good. But the fries would be tiny–not like a McDonald’s French Fry. So, they had to import the seeds and grow their own potatoes in Russia. Similarly, McDonald’s built McComplex to make the buns, the hamburgers and virtually all else. They also needed to install new phone lines and vastly expand the local electric lines.

In other words, in an emerging market with an inadequate infrastructure, McDonald’s had a lot to do themselves.

Reading about manufacturers moving to Cambodia instead of China, I thought of the Russian McDonald’s. Wages in China are rising, the single child policy is creating a slower growing labor force, and the Chinese government can be unpredictable. So, why not hedge and go to a developing country like Cambodia?

The problem is that Cambodia has infrastructure challenges. Described as a “patchy power grid,” electricical outages are typical. One story in a Cambodia news daily told of a utility that had to cut power to a pumping station. As a result, for days, thousands of people in Sihanoukville had no water. Or, in Phnom Penh, too much demand has been causing rolling blackouts.

Consequently, when we read about factories going to Cambodia, about the Hard Rock café opening 2 restaurants and Burger King planning a second outlet and a Tiffany subsidiary building a large facility to polish small diamonds, we should remember that so much more needs to happen in an emerging market.

Sources and Resources: For $1, I got a day’s subscription to the Cambodia Daily and enjoyed a wealth of articles. Providing more of an academic perspective, this 2012 analysis of Cambodian electricity markets was enlightening. My starting point, though, was a NY Times article on businesses moving to Cambodia. Finally, I always show my class the story of the first Moscow McDonald’s in a CD, “A Taste of the West,” that is briefly excerpted here.

Posted by: adminEcon
Tags: Cambodia, electric power grid, emerging market, infrastructure, McDonald's Moscow
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10.15.2012 | Election Economics: Too Much or Not Enough Stimulus Spending?

For the first quarter of 2009, GDP declined at a 5.5% rate and, at 7.6% during January, unemployment was rising. With the economy in a tailspin, policy makers wanted to act quickly. Primarily split along party lines, the Congress responded with the $825 billion American Recovery and Reinvestment Act (ARRA).

Was it too much or not enough?

Let’s start with Michael Grabell’s description of the 3 parts of the stimulus in Money Well Spent?

“First, a flood of money in tax cuts, food stamps, and unemployment checks would get consumers spending.
An even greater deluge of education and health care money would stop the bleeding in state budgets.
Then, a wave of “shovel-ready” infrastructure projects would kick in, creating new jobs repaving roads and making homes more efficient. As the economy got churning again, new investments in wind farms, solar panel factories, electric cars…” would follow. (pp. x-xi)

For example, the plan for airport spending said projects had to be ready to start in 30 days, they could cost no more than $15 million, and the cap for any airport board was $20 million (105). That meant the NY/NJ Port Authority, with oversight for LaGuardia, JFK and Newark could get no more money than a South Dakota airstrip with 200 landings a year.

One expert called it the “peanut butter approach.” Because every state had to get something, they had to spread the resources thinly.

You can imagine the tradeoffs.

Politics or need? Huge money to be spent in countless towns and cities. Where was the money really needed? Would a politician say, “It’s okay, you need it more than my constituency?”
Shovel ready or deserving projects? Road and bridge projects that were ready to move forward were not necessarily the ones in severe disrepair.
All 50 states or only those that were recession devastated? The 50 states would all get funds. South Dakota, with an unemployment rate near 5% got twice as much per person ($1952) as Florida, unemployment, 12%.

It’s tough to judge whether the plan worked because econometric models that say “yes” or “no” reflect their creator’s bias. Instead, each of us has to decide.

And that returns us to the candidates. With the economy sluggish, unemployment still high and GDP growth sluggish, do we need more stimulus spending? The President tends toward more government assistance while Governor Romney says no.

Sources and Resources: For excellent detail and an overview, the Michael Grabell book, Money Well Spent? is ideal. Also, from this Mitt Romney policy paper and his website, you can see his philosophy while President Obama’s approach is reflected by the legislation he has supported.

Election Economics Topics:

My apologies to Mr. Grabell. I just discovered I gave his name an “i” and corrected my error.

Posted by: adminEcon
Tags: airports, American Recovery and Reinvestment Act (ARRA), Glenn Hubbard, Governor Romney, infrastructure, Keynesian economics, Michael Grabelli, Money Well Spent?, Paul Krugman, President Obama, roads and bridges, stimulus spending, tradeoffs
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08.16.2012 | Plane Train Competition

Should government subsidize a railroad?

Our story starts during the 1970s when you could fly from New York to Washington, D.C. on the Eastern shuttle. Eastern left hourly (!) and guaranteed a seat to everyone who showed up for the flight. Imagine, coffee cup in hand, business people rushing to the gate at the last minute knowing they would be in Washington D.C. soon. A full plane meant that Eastern had to use its back-up, even for just one seat.

The Eastern shuttle couldn’t exist after airline deregulation in 1978. Not only had the government given Eastern a monopoly but also it ensured its profits by coordinating fare hikes and cost increases. Labor was well-paid, passengers were coddled, and interstate routes were mandated by the federal government. Frequently almost empty, the direct nonstop flight between Peoria, Illinois and LaGuardia in NYC was ideal for me to visit my husband’s family. The downside? Passengers paid a lot more and land, labor and capital were inefficiently used.

Fast forward to 2012.

Moving along the Northeast Corridor between NY and Washington, D.C., travelers look for value and speed. Before 2001, Delta and US Air were favored. Afterwards though, with minimal security delays, Amtrak’s trains became preferable. As one person said, “It’s easier. I don’t have to take my shoes off…” and travel time equalizes between the train and the plane after airport security, wait times and delays. Finally, we shouldn’t forget the bargain buses with fares ranging from $1 to $40 a ticket that are making the market even more interesting.

So yes, Amtrak is a formidable competitor in the Northeast Corridor. However, even with a $1.3 billion subsidy from government, Amtrak loses money. With the airlines and bus companies privately owned, should Amtrak get this boost from government? As an Economist blogger suggests, shouldn’t we be debating “the right balance of public- and private-sector involvement in these sorts of enterprises?”

Thanks to the NY Times for many of my facts in its article on the competition among planes, trains and buses.For anyone who want to engage in a funding Amtrak debate, this lengthy Freakonomics post is ideal for facts and ideas. And additional facts about Amtrak are here.

Posted by: adminEcon
Tags: air traffic, airline deregulation, Alfred Kahn, Amtrak, Congress, federal deficit, federal subsidies, infrastructure, Northeast Corridor, Republicans
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12.20.2011 | What Can An N-Gram Tell Us?

For laughing and learning this TED talk is wonderful.

Having digitized 15 million books, Google enabled us to access a mammoth body of knowledge. However, just reading the entries from the year 2000, without eating or sleeping, absorbing 200 words a minute, would take someone 80 years. How then to learn from an information avalanche that could easily bury you?

Culturomics.

A new discipline focusing on the frequency of selected words and phrases, culturomics conveys trends and I suspect much more. The TED researchers told us, for example, that the word “women” appears much more frequently than “men” after 1970. They also compared the date that that an innovation appeared to when its name became common usage. As you might expect, since 1800, the time span has narrowed considerably. Even censorship in Nazi Germany can be displayed through their database.

You can see why their website is addictive. Entering apple, for example, I observed when its usage skyrocketed. Then I compared it to PC to see how their trajectories differed. I also tried stock market, 1929 and Adam Smith.

What is an n-gram? It is the word(s) that their database tracks. For example, “the United States of America” is a 5-gram and 1929 is a 1-gram.

The Economic Lesson

As the U.S. economy grew, so too did the “infrastructures” that facilitated its expansion. A transportation infrastructure of roads, canals, and railroads moved people and goods. Our financial infrastructure moves money and credit. Google’s accomplishments and n-grams relate to our information infrastructure.

An economic question: What might compose a financial and information infrastructure?

Posted by: adminEcon
Tags: culturomics, E.L. Eiden, information, infrastructure, J.B. Michel, n-gram, TED talks, transportation
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04.30.2011 | Doha Deadlock

Can you convince a Lubbock, Texas cotton farmer (or his Congressman) to forgo his (maybe $150,000) cotton subsidy? Probably not. After all, these U.S. government payments let him profitably compete in world markets.

Correspondingly, would China say yes to a tariff free supply chain for the iPhone? Doubtful. After all, multinationals are providing a steady government revenue stream.

Through the Doha (Qatar) Round of talks, 153 countries are negotiating hundreds of trade-related issues. The sponsor, the World Trade Organization (WTO), is concerned that the Doha Round could fail.

So, instead of trying to get the US to eliminate payments to US farmers or to ask China to agree to lower tariffs, Plan B has been proposed. The new focus involves a basic trade infrastructure that includes road building in developing nations and sanitary standards.

The Economic Lesson

As Professor Timothy Taylor tells us, the World Trade Organization (previously known as GATT), has been immensely successful in lowering trade barriers. Since 1948, through 8 rounds of trade talks, they gradually achieved their goals.

Now though, the Doha Round of talks has met resistance. Scheduled to conclude no later than January 1, 2005 and still continuing, the Doha goal of reducing agricultural tariffs and subsidies has been unsuccessful.

What to do when you no longer have “low hanging fruit?” Look for different trees.

An Economic Question: With “encourage comparative advantage and world trade” located at one side of a scale and “protect home industry” as the other end, what do you prefer?

Posted by: adminEcon
Tags: comparative advantage, Doha, infrastructure, tariffs, trade barriers, World Trade Organization, WTO
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