Wednesday, November 30, 2005

Creative Destruction and Sustained Growth

Established blue-chip companies are posting major losses - $1.3 billion for a quarter for both GM and Ford and $1 billion for Kodak. Airlines are going bankrupt. There are losses a plenty. But there are gains too. Irwin Seltzer reports in the Weekly Standard
That destruction of the value of existing assets and businesses is, fortunately, only half the story. The other half was long ago pointed out by Joseph Schumpeter. Schumpeter is said to have remarked, "Early in life I had three ambitions. I wanted to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna. Well, I never became the greatest horseman in Austria." Not having access to the historical records in Vienna, I have no way of knowing whether Schumpeter achieved the final of his three goals. But he has a valid claim to having achieved the first, or at least to ranking right behind Adam Smith. Over 60 years ago, when the American economy was still in the early phase of a war-induced recovery from a decade of stagnation and depression, and the future of capitalism was in doubt, Schumpeter wrote, "Capitalism . . . is by nature a form or method of economic change and not only never is but never can be stationary. . . . . The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumer goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates." This process "incessantly" destroys the old economic structure, and creates a new one. Schumpeter concluded : "This process of Creative Destruction is the essential fact about capitalism. . . . Every piece of business strategy acquires its true significance only against the background of that . . . perennial gale of creative destruction . . . " That is the process that is now accelerating in the U.S. economy. The future of newspapers is threatened by new technologies that multiply the methods of delivering news and advertising to consumers. Hardest hit are those, like Knight Ridder, that relied for their profits on monopolies of local advertising. If Google, its share price soaring as media companies' shares languish, succeeds in creating a jobs market that replaces classified advertising, which accounts for over half of the revenue of local newspapers, the old method of spreading ink on dead trees will face an even greater threat.
Today's giants are trying to adapt. But the changes required are fundamental.... Telecoms... Blockbuster....
As for airlines, deregulation freed innovators to negotiate more reasonable contracts with employees, develop point-to-point service as an alternative to the hub-and-spoke business model of the traditional, legacy carriers, and offer low, load-increasing fares. Whether the old-line carriers, several in or emerging from bankruptcy, can adapt is uncertain (although United says there is black ink in its future). What is certain is that creative and profitable newcomers Southwest and Ryanair know something that busted Delta, US Air, and others have to learn if they are not to join Pan Am, Eastern, and other once-mighty carriers in the dustbin of history.... Which brings us to General Motors, which is in the process of being destroyed by a combination of what Schumpeter called "new consumer goods" (higher-quality and more attractive imports), "new methods of production" (the lower-cost plants of Toyota and others), and "new type[s] of organization" (shorter drawing-board-to-production-line times)--not to mention inept management and the cost of benefits lavished on workers when those costs could be passed on to consumers. Investors responded to the company's survival plan by selling off its shares, already down 42 percent in the past year. Fortunately, it is not the case that what is bad for General Motors is bad for the country. Competition of this sort, wrote the man who never succeeded in becoming Austria's greatest horseman, "strikes not at the margins of the profits . . . of the existing firms but at their foundations and very lives." Good news for creative destroyers and consumers, bad news for hidebound managers and their shareholders.

Tuesday, November 29, 2005

France is in very bad shape says philosopher

Paul Belien, one of about 20 contributors to the blog The Brussels Journal, quotes news sources and concludes:
The Soviet Union suddenly collapsed in 1989, when owing to the inability of communism to create wealth, the state went bankrupt, was unable to maintain its army and hold its empire together. In France, the same thing might be happening. The socialist welfare state is no longer able to maintain law and order and is abandoning entire neighbourhoods to anarchy. Is there a way out? If one is to believe the French philosopher Alain Finkielkraut there is not. In an interview in the Parisian conservative newspaper Le Figaro last Tuesday (November 15), he said that it is not the French Republic that is failing. “The school of the Republic died a long time ago. It’s the post-Republic model of super-sympathetic educative community immersed in social activism that’s sinking.
The story at Le Figaro is in French. Read Belien's post at The Brussels Journal. I am not happy about this at all. But I think we can learn from the French - to avoid what they did!!

Specter too busy to do his job

Senator Arlen Specter of Pennsylvania was entrusted by President Bush and the Republicans to lead the Senate Judiciary committee and oversee the confirmation of judges. Specter is too busy meddling where powerful senators have no business to do his job. He is defending football player Terrell Owens. Who else will?
PHILADELPHIA - Sen. Arlen Specter accused the National Football League and the Philadelphia Eagles of treating Terrell Owens unfairly and said he might refer the matter to the antitrust subcommittee of the Senate Judiciary Committee, which he chairs. Specter said at a news conference Monday in Harrisburg it was "vindictive and inappropriate" for the league and the Eagles to forbid the all-pro wide receiver from playing and prevent other teams from talking to him. "It's a restraint of trade for them to do that, and the thought crosses my mind, it might be a violation of antitrust laws," Specter said, though some other legal experts disagreed.
"Other legal experts"? Like he is one? But what is he doing with his resonsiblities with "his" Judiciary committee? His schedule was too busy to have confirmation hearings for Judge Samuel Alito for Supreme Court before Christmas. He has allowed the Democrats plenty of time to test their attack strategy on Alito and to perfect it. How about the judicial nominees that Specter left to hang? Brett Kavanaugh for 28 months and Terrance Boyle since 2001! You have a job to do, Honorable Mr. Specter. It's time to get to it. Stop meddling.

Monday, November 28, 2005

One Hand Clapping - Cindy Sheehan

The national media have given Cindy Sheehan free publicity daily for months. She has attracted a large following as you can see here. This is her book signing. She is waiting for the crowd... Attendance: zero. Source: Yahoo News Update 11/19. Sheehan's handlers are saying that the photo was taken before, not during the book signing. But the photographer disagrees.
"Photographer Evan Vucci, queried about the incident today said that he was present at the book signing from about 10 a.m. to about 11 a.m. During that time, he said, people were coming in to have their books signed in small groups of a few at a time.
"At the time the photos were taken 'maybe 5 people had come in,' Vucci says, and Sheehan was waiting for more to stop by, which they did individually as well as in very small groups. Therefore the wording of the caption is accurate in that Sheehan was waiting for people to show up at her signing."

Sunday, November 27, 2005

Progess in Iraq - James Q. Wilson

Another day and a half offline at the beach. James Q. Wilson is one of the most respected researcher/commentators in the US. I wish he would write more. But his output is low because he doesn't just comment on what other people come up with. He researches stories himself. He is kind to President Bush. He wrote a speech for him in Monday's Wall Street Journal; this link is free, but might require registration. Instead of fighting the battle of who know what and when, let's look to the future, Wilson suggests. The American people want to know that our present day efforts have value for the future. So let's see what the present situation in Iraq tells us about its future prospects.
"My fellow Americans: We are winning, and winning decisively, in Iraq and the Middle East. We defeated Saddam Hussein's army in just a few weeks. None of the disasters that many feared would follow our invasion occurred. Our troops did not have to fight door to door to take Baghdad. The Iraqi oil fields were not set on fire. There was no civil war between the Sunnis and the Shiites. There was no grave humanitarian crisis. Saddam Hussein was captured and is awaiting trial. His two murderous sons are dead. Most of the leading members of Saddam's regime have been captured or killed. After our easy military victory, we found ourselves inadequately prepared to defeat the terrorist insurgents, but now we are prevailing. Iraq has held free elections in which millions of people voted. A new, democratic constitution has been adopted that contains an extensive bill of rights. Discrimination on the basis of gender, religion, or politics is banned. Soon the Iraqis will be electing their first parliament. An independent judiciary exists, almost all public schools are open, every hospital is functioning, and oil sales have increased sharply. In most parts of the country, people move about freely and safely. According to surveys, Iraqis are overwhelmingly opposed to the use of violence to achieve political ends, and the great majority believe that their lives will improve in the future. The Iraqi economy is growing very rapidly, much more rapidly than the inflation rate. In some places, the terrorists who lost the war are now fighting back by killing Iraqi civilians. Some brave American soldiers have also been killed, but most of the attacks are directed at decent, honest Iraqis. This is not a civil war; it is terrorism gone mad. And the terrorists have failed. They could not stop free elections. They could not prevent Iraqi leaders from taking office. They could not close the schools or hospitals. They could not prevent the emergence of a vigorous free press that now involves over 170 newspapers that represent every shade of opinion. Terrorist leaders such as Zarqawi have lost. Most Sunni leaders, whom Zarqawi was hoping to mobilize, have rejected his call to defeat any constitution. The Muslims in his hometown in Jordan have denounced him. Despite his murderous efforts, candidates representing every legitimate point of view and every ethnic background are competing for office in the new Iraqi government. The progress of democracy and reconstruction has occurred faster in Iraq than it did in Germany 60 years ago, even though we have far fewer troops in the Middle East than we had in Germany after Hitler was defeated. We grieve deeply over every lost American and coalition soldier, but we also recognize what those deaths have accomplished. A nation the size of California, with 25 million inhabitants, has been freed from tyranny, equipped with a new democratic constitution, and provided with a growing new infrastructure that will help every Iraqi and not just the privileged members of a brutal regime. For every American soldier who died, 12,000 Iraqi voters were made into effective citizens. Virtually every American soldier who writes home or comes back to visit his or her family tells the same story: We have won, Iraqis have won, and life in most of Iraq goes on without violence and with obvious affection between the Iraqi people and our troops. These soldiers have not just restored order in most places, they have built schools, aided businesses, distributed aid, and made friends.
And ...
Our success is not confined to Iraq. Libya has renounced its search for nuclear weapons. Syria has pulled out of Lebanon. Afghanistan has produced a democratic government and economic progress for its people. Egypt has had the beginnings of a democratic vote. In an area once dominated by dictatorships, the few remaining ones are either changing or worrying deeply about those that have changed. We know now that some of our information about the existence of weapons of mass destruction in Iraq was wrong. But we also know now what we have always believed: That Saddam Hussein, who had already invaded both Iran and Kuwait, had the money, authority and determination to build up his stock of such weapons. When he did, he would have become the colossus of the Middle East, able to overwhelm other countries and rain rockets down on Israel. We have created a balance of power in the Middle East in which no regime can easily threaten any other. In doing this, we and our allies have followed a long tradition: We worked to prevent Imperial Germany from dominating Europe in 1914, Hitler from doing the same in 1940, and the Soviet Union from doing this in 1945. Now we are doing it in the Middle East. And we are winning. Soon Iraqi forces will be able to maintain order in the few hot spots that still exist in Iraq. We will stay the course until they are ready. We made no mistake ending Saddam's rule. We have brought not only freedom to Iraq, but progress to most of the Middle East. America should be proud of what it has accomplished. America will not cut and run until the Iraqis can manage their own security, and that will happen soon.

Thursday, November 24, 2005

Mayor Nagin is still spinning

Mayor Ray Nagin, who made a mess of his own city by not following his own plans for a category 3 hurricane, is in Jamaica this week blaming President Bush and racism. The record shows that Nagin was not prepared for what everyone knew was coming and did not provide the needed leadership when he was needed. The Jamaica Observer showcases his sorry performance:
"I think that if this (New Orleans) was Orange County, California or South Beach in Miami, I do think the response would have been different," Nagin said. "I think it's a combination of racial issues and a combination of class," the mayor added.
So I wrote the following letter to the newspaper:
Jamaica Observer, 11/24/05 Mayor Ray Nagin is making a transparent attempt to defend his lack of preparation and performance when hurricane Katrina hit New Orleans. 11/22/05 "Mayor Nagin blames racism, class bias for slow Katrina response" FEMA responded in the following days because that's what it's supposed to do, not due to racism. Everyone but him knows that FEMA is not the first responder. FEMA is intended to provide back-up support the day after and subsequent days. FEMA can't provide first response because people from Washington, DC or any other place in the US don't know the streets, alleys, power lines, sewers and levees of New Orleans. Mayor Nagin knows his city and has staff who know it inside out. He can plan for his city's unique needs that don't fit Cincinatti or Buffalo or Sacramento. FEMA can't do that. So FEMA sees what unfolds and responds after. Nagin was supposed to have plans in place. He had nice plans - we saw them online a week later - but he didn't follow his own plans. His plans called for using all school buses to evacuate people. You can see the satellite photos of hundreds of those buses marooned by flood waters. The lesson that Nagin just learned about being prepared was there for him to learn years before Katrina hit. In fact his web site said that the city was prepared. But he was not. And Governor Blanco did no better. Nagin should stop looking for someone else to blame. He should look in the mirror. I spent 15 days in Spanish Town and Kingston in 2001 and 2003 and look forward to returning. Ron Hebron, Seattle, WA
Hat tip to Sweetness & Light who says that his Nagin's host Butch Steward is a casino operator who wants to expand his operations in New Orleans. And to The American Thinker.

Wednesday, November 23, 2005

Progress in Iraq - Rep. Mark Kennedy

Congressman Mark Kennedy of Minnesota has visited Iraq 3 years in a row and has seen huge progress there. Rep. Kennedy reports via Powerline Blog:
In August, 2004, we landed at a military-controlled Baghdad International Airport controlled in a cork screw pattern to avoid being fired at. This time we landed straight on at that same airport, which is now under civilian control, and has not experienced an attack for a year. As we flew on Blackhawk helicopters over Baghdad this year, I saw school yards filled with young students and streets throughout the city choked with traffic. Last visit, General Petraeus introduced us to the first Iraq battalion to graduate from the then new Iraqi Military Academy the day after they engaged the enemy for the first time. Today, 40 Iraqi battalions (750 men each) can take the lead and Lt. General Dempsey said that nearly 100,000 more Iraqi Security Forces will be on hand for December’s elections than were on hand for January’s election. Since August 2004, the Iraqi people gave the terrorists an ink stained finger as they voted in January with a high turnout among all voters, including Sunnis, and approved a constitution last month. On December 15, they elect a permanent government under that constitution. In August 2004, we had to fly in and out of Iraq every day, this year we spent the evening in Baghdad. General Casey said that day by day, progress is not always easy to see. I told him that year by year, thanks to the great work of America’s military and Foreign Service, it is evident and remarkable.
Skipping details about training security forces...
Al Qaeda in Retreat American commanders say that we have never been better positioned against Al Qaeda in Iraq, not just because of the victories we are achieving cutting off their supply lines along the Euphrates River with Operation Steel Curtain, but because of their recent attacks turning the Iraqi people against them. Recent Al Qaeda attacks against everyday Iraqis – Sunni and Shia alike, the Zawahiri letter to Zarqawi, capped off with the Amman, Jordan bombing have undermined their support. Saddam on Trial U.S. liaison to the trial of Saddam said that it was important for the Iraqi people to create a record of the atrocities that Saddam inflicted on his people and to ensure justice is done by holding the perpetrators to account. He said that if you asked an Iraqi, who in their family was one of the 300,000 still missing, or was held without trial, tortured or killed by Saddam, “a cousin would be as far away as they get.” One of the cases brought against Saddam was 135 women and children holding their toys, each with a small arms bullet to their head, lying side by side in a mass grave. It is inconceivable to me that some would say that we should not have overthrown this brutal tyrant and have let this suffering go on.

Tuesday, November 22, 2005

Good News - Strong Economy

Last year our economy grew by 4.2%. That is a great number for any mature economy. Only developing nations do better. The 3d quarter of 2005 our economy grew by 3.8%. That is strong growth and it's good for everyone. (Blame Bush.) And it is the period where we suffered through major hurricanes that greatly reduced our oil production, transportation, and refining. That had the double cost - the direct costs of damage and huge costs of the disruptions to our economy, includuding oil above $70 a barrel. The generic Open Source Media has the story:
Despite turbulence from hurricanes and high energy prices, the economy is expected to log respectable growth this year and next, business economists say. The economy, as measured by gross domestic product, is projected to grow by 3.6 percent for all of 2005 and 3.3 percent in 2006, according to the National Association for Business Economics.
And this growth is also despite the Fed raising interest rates, which tend to slow things down.
To tamp down inflation fears, the Fed in early November raised a key interest rate by one-quarter percentage point to 4 percent, the 12th increase of that size since June 2004. Another quarter-point bump-up is expected on Dec. 13, the Fed's last scheduled meeting of this year. Economists expect more rate increases to follow in 2006. The still-solid economic growth expected for this year and next should help the national employment climate, which was rocked by the hurricanes. The nation's unemployment rate, which stood at 5.5 percent in 2004, should drop to 5.1 percent this year and then dip to 5 percent next year, according to the group's projections.

Sunday, November 20, 2005

Progress in Iraq

Al-Zarqawi has been our primary nemesis in Irag - the organizer of foreign insurgents attacking Iraq's institutions and people and Americans. But his sins are coming back on him. PowerlineBlog reports:
..the war in Iraq is steadily being won. And, since the terrorists in general and al Qaeda in particular have chosen to make conquering Iraq their number one priority, the victory is far more important than the original ousting of Saddam and his Baathists. The latest evidence that things are going our way appeared today in the form of advertisements in three Jordanian newspapers, paid for by 57 of al-Zarqawi's relatives, including his brother:
The family of al-Zarqawi, whose real name is Ahmed Fadheel Nazzal al-Khalayleh, reiterated their strong allegiance to Jordan's King Abdullah II in half-page advertisements in the kingdom's three main newspapers. Al-Zarqawi threatened to kill the king in an audiotape released Friday. "A Jordanian doesn't stab himself with his own spear," said the statement by 57 members of the al-Khalayleh family, including al-Zarqawi's brother and cousin. "We sever links with him until doomsday." The statement is a serious blow to al-Zarqawi, who no longer will enjoy the protection of his tribe and whose family members may seek to kill him. "As we pledge to maintain homage to your throne and to our precious Jordan ... we denounce in the clearest terms all the terrorist actions claimed by the so-called Ahmed Fadheel Nazzal al-Khalayleh, who calls himself Abu Musab al-Zarqawi," the family members said. "We announce, and all the people are our witnesses, that we - the sons of the al-Khalayleh tribe - are innocent of him and all that emanates from him, whether action, assertion or decision. The statement said anyone who carried out such violence in the kingdom does not enjoy its protection.
Time is on our side in Iraq, if the American people have the patience to see the job through to the end. A big "if."

Saturday, November 19, 2005

A Tiny Bite of Spending Control

Congratulations to the Republican leadership in the House of Representatives and Majority Leader Roy blunt, in particular. The US House of Representatives in the middle of the night Thursday made a small reduction in the increase of spending. It was a bold step and vigorously opposed. It passed by one vote. A new source Pajamas Media has the story from Friday morning. These were not reductions in spending, only a slow-down in the increase in spending.
The broader budget bill would slice almost $50 billion from the deficit by the end of the decade by curbing rapidly growing benefit programs such as Medicaid, food stamps and student loan subsidies. Republicans said reining in such programs whose costs spiral upward each year automatically s the first step to restoring fiscal discipline. "This unchecked spending is growing faster than our economy, faster than inflation, and far beyond our means to sustain it," said Budget Committee Chairman Jim Nussle, R-Iowa. Both bills are part of a campaign by Republican leaders to burnish their party's budget-cutting credentials as they try to reduce a deficit swelled by spending on the Iraq war and Hurricane Katrina.
A dastardly attempt to increase the copay for doctor visits by Medicaid from $3 to $5 was beaten back. That is not a misprint - $3 copay because $5 is too high. A provision denying Medicaid nursing home benefits to people with home equity of $500,000 was modified by raising the cap to $750,000. We are trimming 6-foot weeds here, not cutting them. But it is progress. Update. Here is the honor roll of Democrats who voted for this spending restraint. You didn't see it? Mathematicians call it The Null Set. The set with length zero.

Thursday, November 17, 2005

Bergeson "We gave diplomas to kids who couldn't read"

Terry Bergeson, our Washington Superintendent of Public Instruction, said it herself. KIRO TV reports from Olympia
"We can't hide the fact that we gave diplomas last year to kids who couldn't read," Bergeson said.
She has lead our public school system since 1996, as I recall. How did we get into such a mess? Should we continue doing what got us here? According to KIRO:
Superintendent of Public Instruction Terry Bergeson hopes to give those students an opportunity to spend five weeks of their summer break in the classroom, trying to learn the reading, math and writing skills they will need to graduate from high school in 2008. At the top of her 2006 Legislative agenda is money to pay for her voluntary statewide summer school program. "I want to make sure that any kid who needs help that we can supply an extended learning opportunity for those kids," Bergeson told The Associated Press in an interview previewing her State of Education speech on Thursday. The part-day summer program she's proposing would carry over into the school year as a class for students who need extra WASL support.
Ms. Bergeson could have done that last year or the year before. And why did she give diplomas to kids who couldn't read?

A Different War

Another Viet Nam? Not by a long shot. Our enemy is much less organized. Our army is volunteers, not draftees. There are alternate news channels to bypass the stranglehold the big 3 TV networks had on information flow in the 1960s and 70s. Michael Medved was an anti-war protester during the Viet Nam war. He wrote the summary at his web site. He highlights 9 differences. But there is one huge similarity - the American people want stability in the world and know it's not free and support the war effort.

Monday, November 14, 2005

Honoring Peter Drucker

Peter Drucker, the dean of all management consultants and professors, was active nearly until his death last week at age 95. Drucker had incredible impact. If there were a Nobel prize for business thinking he would have won it long ago. He best articulated the value of people to the organization. And not just business organizations, but nonprofits, as well.
Management is about human beings. Its task is to make people capable ofjoint performance, to make their strengths effective and their weaknesses irrelevant.
Two of my favorites: - You should never promote an employee on the basis of his or her potential, but based only on performance. - Managers should make a decision "no later than you need it, but as late as possible, because you always have more information." And he asked more questions than he answered, since his students had to act on their own. Here is Claremont Graduate University's statement. This Wall Street Journal link should work for 7 days: Peter Drucker's Legacy Includes Simple Advice: It's All About the People

Saturday, November 12, 2005

Caribbean and back

I took off for a cruise of the Eastern Caribbean the past week. On Holland America Line's ship Zuiderdam. First, Half Moon Cay is Holland America's private island in the Bahamas. Pretty nice. Mediocre snorkeling with dead-looking coral, but very safe for beginners and we had one with us. Holland America doesn't have a decent web page about it; only one selling land tours, which you don't need. But someone built this page. St. Thomas in the US Virgin Islands. We loved the VIs - both US and British. The town of St. Thomas was crowded and voracious for tourist dollars. Then we got away by boat to St. John - the next island - to snorkel at Trunk Bay. Outstanding fish, coral and seeing conditions. Tortola is the main island of the British Virgin Islands. We took off to Virgin Gorda (yes, it means "fat virgin") to see the unique Baths - a beach area of huge boulders. More excellent snorkeling. Wow. Nassau, Bahamas was the lower point, not "low," but lower. Commercial times 3. We visited a unique small zoo - Ardastra Gardens - that features marching flamingos; that's right, marching flamingos. And the first Starbucks that we found in four ports. (Funny moment: We saw the Starbucks sign and went inside... a liquor store. Back outside and checked the sign... the standard green circle with the strange mermaid. Went inside... a liquore store. Strange city, this Nassau. Not until we went across town and back did we discover the Starbucks was upstairs.) Others complained of poor beaches and poor snorkeling at Nassau.

Friday, November 11, 2005

Sailing Away

I have been gone for 6 days now. I wouldn't pay 75 cents per minute to get internet access courtesy of Holland America Line. An Eastern Caribbean cruise for 7 days. We loved the Virgin Islands - both US and British. And get this - in the US they drive on the wrong side. In the British they use the US dollar for their currency!! Back posting on Sunday or Monday.

Wednesday, November 02, 2005

Zimbabwe Confession

I have been following the suffering of the people of Zimbabwe under cruel Robert Mugabe for over 5 years. President-for-life Mugabe kicked out the farmers who were feeding the people. His country was a net exporter of maize mainly to neighboring countries, except during the drought years of 1984, 1992 and 1993, when large quantities of maize were imported. The maize exports peaked at 731 000 tonnes in 1990 and averaged around 250 000 tonnes per year from 1993 to 1998. Source: UN FAO Mugabe kicked the productive farmers off their land because they were white. And he gave the land first to his friends and those he favored. Did his friends intend to farm? No. They wanted to have country estates on free land. We have watched this develop over the past five years or so. We knew that the food production would drop because huge areas of farming were being taken out of production. And the inevitable result is people are starving. reports:
International aid agencies estimate that some 4.3 million people out of Zimbabwe's population of 13 million require food assistance.
'Zim black farmers to blame' News reports says that a government agricultural official is finally speaking the truth. At least the most important part of it - the deputy minister for Agriculture, Sylvester Nguni.
Zimbabwe launched its strongest criticism of black farmers who benefited from its controversial land reforms, saying their apathy was responsible for a serious food crisis. "We have a few people that are really committed to production while many others are doing nothing on the farms," deputy minister for Agriculture, Sylvester Nguni was quoted as saying by the state-owned Herald newspaper. "The problem is that we gave land to people lacking the passion for farming and this is why every year production has been declining." Nguni's remarks at a congress of the Zimbabwe Farmers' Union came on the heels of warnings by the country's two vice-presidents that the government would reclaim under-utilised farms.
And they are talking about doing something about it.
"We will not hesitate to reclaim all the under-utilised farms and allocate (them) to other farmers," Vice President Joseph Msika was quoted as saying two weeks ago. "We do not want people who simply build homes at their new farms without using the land for productive purposes and we want people to work the land to avoid chronic food shortages."
Thank God something is happening.

Tuesday, November 01, 2005

The bad old days of airline regulation - now in Europe

Bill Virgin of the Seattle Post-Intelligencer gives reader feedback to the question "Was it really better in the good old days of airline regulation?" He does a journeyman's job of reciting what readers wrote. But he lets some light-weight analysis stand without comment. In the good old days the airlines could print money: the fares were high; service was limited; the Civil Aeronautics Board set the fares. They treated their customers pretty well, because there were few of them. But look at how high fares were then. When I was doing job-interview trips in 1968 a round-trip ticket from Seattle to New York City was $300. That was a lot more money in 1968 than the fare now. The job I got that year with a BS in mathematics paid me $9,000. A similar graduate today would get at least $35,000 and pay $450 for that trip. He makes 4 times more but pays only 50% more. That means the fare is 3/8 now compared to 1968. That's 37%. Because deregulation allowed competition and fares to drop to less than half, the number of people traveling sky rocketed. I haven't seen an informed calculation of how many more people travel how many more miles. But it's at least a doubling or tripling due to deregulation. That is a lot more of us going on more trips every year. He gives [his readers give] short shrift to this huge advantage. Oh, one reader likes that everyone paid the same. Monopolies are so nice; everything is so ordered. Ignore the fact that they stifle competition and cause all the airlines to provide the same service. And different people pay different fares because the trip has different values to them. Of course the airlines found a way to take advantage and make some money from it. The gas station would charge the Mercedes E500 driver more if they could. But, again, he is giving reader feedback. He covers some of the very real problems of bankruptcy giving airlines huge advantages: they can walk away from lease commitments (Northwest has permission to return 210 leased aircraft!!); they can abrogate employment contracts. The competition is hugely unfair when a few players can violate their commitments to their huge advantage. This is a case of government interference causing problems. Now it is his column, so I assume the conclusion is his own, even though he puts the words in a reader's pen.
And this closing thought sums up the thorniness of the issue: "The U.S. airline industry has been allowed to mortgage its future through destructive competition and unrealistically low fares. Reregulation isn't the answer, but finding a competitive model that protects the consumer and allows the industry to achieve growth sustaining profits must be found. Otherwise, the U.S. domestic industry will die."
Come on! It is naive to assume that all the airlines will respond to the structural problem of bankruptcy undercutting competition by all dying! One or two will close or merge; they should. This will reduce the overcapacity we now have and cause fares to rise. But not to triple! More like 15 to 25% And the stronger lines will survive and thrive. American Airlines has controlled its costs. Continental has done pretty well. And we will travel almost as much as we do today. Europe If you want regulation go to Europe. Aviation Week's October 17, 2005 issue "Agenda Acrimony" covers one new regulation and several proposed ones that make the industry sick and angry: - Required compensation for denied boarding, long delays or cancellations is already in place. The airlines have to compensate their customers for these inconvenience. But if the air traffic controllers cause the very same problems by going on strike they don't have to provide compensation. - The airports, not the airlines will be in charge of provisions for handicapped passengers. I have seen airlines give good and poor service. But I've never seen an airport provide any service that I noticed. - The EC is proposing an emissions-trading scheme that is not described. But the low fare carriers claim it would cost 4 billions Euros per year and 60,000 jobs. - And the best for last: Both European nations and the EC are proposing to tax airline fares to provide poverty relief to Africa. Michael O'Leary, CEO of Ryan Air, proposes that, instead, France should tax cheese. Instead, the airlines want the European governments to concentrate on getting a new "Open Skies" agreement with the United States - a deregulation the will increase flexibility for the airlines and lead to more travel. (I don't know an on-line source for this article.)