November 20, 2005

Remittances and their cost of transfer is only the tip of the tip of the tip of the iceberg.

Sir, in your weekend editorial about computers being no silicon panacea for developing countries, you make a comment with respect of the remittances to the developing countries saying they “are weakened by the crippling cost of transfers that cost as much as $30 per transaction.” This is truly looking at the tip of the tip of the tip of the iceberg.

For many immigrants having to pay thousands of dollars to get smuggled to an opportunity in life just because no functional temporary immigration programs have been enacted; being easily cheated in their new surroundings because no one cared about teaching them a foreign language; paying fortunes in phone calls to communicate with their families; having to live in cramped quarters paying exorbitant rentals; incurring many costs just because they are not allowed a drivers license; and making all type of other sacrifices in order to send some help home, the fees they pay for that might indeed be high, but, frankly, they are among the least of their problems.

Trying to understand the economic effect of immigration by looking at the remittances is a bit like trying to understand the world’s economy by looking only at the cash dividends paid out by corporation.

Development banks have looked more than enough at the issue of remittances fees and it will be solved, in due time, with competition among service providers. It is now high time to move on.

Sent to FT, November 20, 2005

November 18, 2005

Careful with the growth of the market for illegal and illicit products

Sir, let us hope that Moises Naim’s book Illicit: How smugglers, traffickers, and copycats are hijacking the global economy, Doubleday, 2005, and discussed by Martin Wolf, November 16, opens up a long overdue debate on some issues that have been considered almost sacrosanct.

For instance, when society awards intellectual property rights and is thereby expected to invest scarce resources enforcing them, there is an implicit assumption that these rights are to be reasonably exploited. When then one of these manmade properties rights is violated, like through pirated CDs, this might be the market answer to a lack of regulatory control over the monopoly. In this respect, under some circumstances, pirates and counterfeits could indeed perform a useful regulatory service to the society, like when vultures do the cleaning.

As the temptation-ratio to use a pirated good, defined as the potential savings in relation to the income per capita, is obviously larger in poor developing countries than in the rich developed countries, does this fact mean that the poor countries should have to invest relatively much more in fighting piracy?

Also though you need an original to create a fake parasite, who is to tell us that the original is not sometimes well served by the existence of its fakes? Might not the value and the number of buyers of truly original Louis Vuitton in fact be larger because all the rest of the world has to settle for fakes? Should then the pirates get a fee?

Another related issue and that needs much discussion is whether society is well served by criminalizing behaviors that are the subject of any significant social sanction, as in these Intellectual Property Right matters hypocrisy is truly rampant.

Finally, every time something is declared illegal or illicit by society an economic feasibility study should be required, not only to see if we can afford the enforcement, or if the protected should have to pay for the protection, but also, mucho more important, that we do not stimulate those markets to grow faster than our legal economies, as they could then turn into the more powerful.

Sent to FT November 18, 2005

November 13, 2005

Does going local outperform going global?

Sir, recently, November 9, The Lex Column presented a very interesting value adding exercise with respect to the shares of Altria. It was easy to understand how two such different businesses as Philip Morris (tobacco) and Kraft (food) could benefit from splitting out and being able to play to each of its market but, to hear about value creation from separating PM-USA from PM-International, truly stopped us in our tracks. Is it really so that going local these days outperforms going global?

November 08, 2005

Disasters in waiting with banks playing hide and seek

Ivar Simensen in his report on November 4, "CDS leveraged loan hits the market" describes the appeal of the product as follows. “Many [bank portfolios] have exposure to names they may not be entirely comfortable with but hold in order to maintain business relationships. Now this exposure can be hedged out”.

Sir, I ask, if the banks with their credit analysts and their direct business relationship do not feel entirely comfortable with the risk, who should? This is exactly what is wrong in the current development were markets are allowed to play hide and seek with risks, with big disasters just waiting to occur. On the contrary, it could be much healthier for the financial system if the banks were simply not allowed to hedge at all their direct lending risks, except perhaps by the sale of participations to other banks.

November 06, 2005

Chavez 21st-Century social vision! My oh my!

Sir, if Mugabe’s Zimbabwe had Venezuela's oil, would he perhaps also be associated with a “vision” of “21st-century socialism”? When writing about Chavez promoting his vision, don’t forget that we Venezuelan citizens would all be much happier if indeed Chavez really had a vision, of any sort? Then we would at least know where we were heading, and what to do about it. What we now have is just plain confusion, ineptitude and corruption financed by the mother of all oil curses, and that is as far away from a vision as you could possibly be. To really understand the Chavez phenomenon you need to think of him as the most fabulous stand-up improvisators ever; performing in front of an audience with an immense and justifiable appetite for hopes about a better future; and finally drawing most of his material from the traditional anti-Americanism tree, and which as you know has lately been able to provide unusually much energy for its parasites to munch on. Under such favorable conditions, can you doubt Chavez’s success?

Outside “objective” observers though, like FT, would also do good to also reflect upon the media’s huge capacity of inadvertently advancing the voice of figures like Chance Gardiner in Jerzy Kosiński’s Being There. Chavez is a haunted man, running ever faster forward and, any day now, the majority of his followers are going to suffer an immense deception. Honestly, they don’t need or deserve that.

November 04, 2005

China does not take away anything in the World Bank from sub-Saharan Africa

Sir, Desmond Lachman, November 3, asks for the World Bank to withdraw from lending the majority of its resources to a handful of middle-income countries, e.g. China, instead than to the really poor, like those in sub-Saharan Africa. It all sounds very reasonable but perhaps he should ask himself whether his proposed change of strategy would result in more effective assistance to the very poor. Indeed, it could mean less. As is, China and Mexico and other middle income countries do not take away anything from the World Bank and on the contrary they provide the volume of operations that allows the bank to keep in place an impressive cadre of development professionals, able to generate that type of technical assistance capability that as he correctly implies should perhaps also benefit the victims of the Hurricane Katrina. Finally since in calling for his reforms Lachman argues that this would result in more “bang for its taxpayers’ buck”, it might be timely to remind him that in reality there is unfortunately an immense lack of taxpayers’ bucks going for development.