Quotulatiousness

May 23, 2015

Debunking the “GM killed the streetcars” conspiracy theory

Filed under: Business, Railways, USA — Tags: , , , — Nicholas @ 03:00

There are many railfans who still believe, strongly and passionately, that General Motors was involved in a devious plot to kill off the streetcars across North America in order to sell more buses. At Vox.com, Joseph Stromberg explains that this wasn’t the case — in fact, the killer of the streetcar/interurban/radial railway systems was their willingness to lock in to long-term uneconomic agreements with local governments in exchange for monopoly privileges:

Back in the 1920s, most American city-dwellers took public transportation to work every day.

There were 17,000 miles of streetcar lines across the country, running through virtually every major American city. That included cities we don’t think of as hubs for mass transit today: Atlanta, Raleigh, and Los Angeles.

Nowadays, by contrast, just 5 percent or so of workers commute via public transit, and they’re disproportionately clustered in a handful of dense cities like New York, Boston, and Chicago. Just a handful of cities still have extensive streetcar systems — and several others are now spending millions trying to build new, smaller ones.

So whatever happened to all those streetcars?

“There’s this widespread conspiracy theory that the streetcars were bought up by a company National City Lines, which was effectively controlled by GM, so that they could be torn up and converted into bus lines,” says Peter Norton, a historian at the University of Virginia and author of Fighting Traffic: The Dawn of the Motor Age in the American City.

But that’s not actually the full story, he says. “By the time National City Lines was buying up these streetcar companies, they were already in bankruptcy.”

Surprisingly, though, streetcars didn’t solely go bankrupt because people chose cars over rail. The real reasons for the streetcar’s demise are much less nefarious than a GM-driven conspiracy — they include gridlock and city rules that kept fares artificially low — but they’re fascinating in their own right, and if you’re a transit fan, they’re even more frustrating.

This is one of the reasons I’m generally against new plans to re-introduce streetcars (or their modern incarnations generally grouped under the term “light rail”), because they fail to address one of the key reasons that the old street railway/interurban/radial systems died: they were sharing road space with private vehicles. Light rail can provide a useful urban transportation option if they have their own right-of-way, but not if they are merely adding to the gridlock of already overcrowded city streets.

And once again, I’m not anti-rail … I founded a railway historical society and I commute most work days on a heavy rail commuter network. I don’t hold this position due to some anti-rail animus. If anything, I regret the passing of railway systems more than most people do, but I recognize that they have to be self-supporting (or close to self-supporting) to have a chance to survive. Being both more expensive and less convenient than alternative transportation options is a sure-fire path to extinction.

February 22, 2015

The forgotten history of the game of Monopoly

Filed under: Business, Economics, Gaming — Tags: , — Nicholas @ 05:00

At Open Culture, Dan Colman looks at how Monopoly evolved and changed before it became a fixture in children’s games, despite the intent of the original designer:

The Landlords Game board based on 1924 patent

The great capitalist game of Monopoly was first marketed by Parker Brothers back in February 1935, right in the middle of the Great Depression. Even during hard times, Americans could still imagine amassing a fortune and securing a monopoly on the real estate market. When it comes to making money, Americans never run out of optimism and hope.

Monopoly didn’t really begin, however, in 1935. And if you trace back the origins of the game, you’ll encounter an ironic, curious tale. The story goes like this: Elizabeth (Lizzie) J. Magie Phillips (1866–1948), a disciple of the progressive era economist Henry George, created the prototype for Monopoly in 1903. And she did so with the goal of illustrating the problems associated with concentrating land in private monopolies. As Mary Pilon, the author of the new book The Monopolists: Obsession, Fury, and the Scandal Behind the World’s Favorite Board Game, recently explained in The New York Times, the original game — The Landlord’s Game — came with two sets of rules: “an anti-monopolist set in which all were rewarded when wealth was created, and a monopolist set in which the goal was to create monopolies and crush opponents.” Phillips’ approach, Pilon adds, “was a teaching tool meant to demonstrate that the first set of rules was morally superior.” In other words, the original game of Monopoly was created as a critique of monopolies — something the trust- and monopoly-busting president, Theodore Roosevelt, could relate to.

For more on the modern game, here’s the Wikipedia page.

Monopoly board

February 18, 2015

QotD: The Honourable East India Company

Filed under: Business, India, Quotations — Tags: , — Nicholas @ 01:00

“John Company” — the Honourable East India Company, described by Macaulay as “the strangest of all governments … for the strangest of all empires”, was Britain’s presence in India, with its own armed forces, civil service, and judiciary, until after the Indian Mutiny of 1857, when it was replaced by direct rule of the Crown. Flashman’s definition of its boundaries in 1845 is roughly correct, and although at this period it controlled less than half of the sub-continent, his expression ‘lord of the land” is well chosen: the Company was easily the strongest force in Asia, and at its height had a revenue greater than Britain’s and governed almost one-fifth of the world’s population. (See The East India Company by Brian Gardner (1971).)

George MacDonald Fraser, Flashman and the Mountain of Light, 1990.

January 23, 2015

QotD: Taxicab cartels

Filed under: Government, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

Around the world, the government-charted monopolies and cartels that run the taxi business responded with protests and violence to the emergence of technology-empowered competitors such as Uber, which does not undercut traditional taxis on cost — in New York, its drivers earn about three times what a traditional cabbie makes — but is much more convenient for those who do not live or work in areas that are generally well-served by traditional taxis. As in most cities, New York law imposes price uniformity on taxis and long protected them from most competition, with the entirely predictable result that consumers are the worst-served parties in the taxi business. (It does not help matters that, unlike their London counterparts, famously steeped in “the Knowledge,” the typical New York cabbie cannot find the Brooklyn Bridge without GPS or turn-by-turn instructions from the passenger.) The lack of consumer focus has some perverse consequences here in New York: The taxi fleet schedules its shift change from 4 p.m. to 5 p.m., meaning that taxis all but vanish from the streets during the hours when they are most needed. The New York Times calls this an “apparent violation of the laws of supply and demand,” which, New York Times geniuses, is exactly what happens when you use regulation to take supply and demand effectively out of the equation. A platform that combined Uber’s on-demand service with Google-style driverless cars would probably put the traditional taxi out of business — assuming that the cartels are not able to use government to strangle innovation in its cradle.

Kevin D. Williamson, “Race On, for Driverless Cars: On the beauty of putting the consumer in the driver’s seat”, National Review, 2014-06-01.

November 26, 2014

Michael Geist – Uber’s privacy problem

Filed under: Business, Cancon — Tags: , , , — Nicholas @ 07:36

Michael Geist looks at one of the less obvious issues in the Uber dispute with Canadian regulators:

The mounting battle between Uber, the popular app-based car service, and the incumbent taxi industry has featured court dates in Toronto, undercover sting operations in Ottawa, and a marketing campaign designed to stoke fear among potential Uber customers. As Uber enters a growing number of Canadian cities, the ensuing regulatory fight is typically pitched as a contest between a popular, disruptive online service and a staid taxi industry intent on keeping new competitors out of the market.

My weekly technology law column (Toronto Star version, homepage version) notes that if the issue was only a question of choosing between a longstanding regulated industry and a disruptive technology, the outcome would not be in doubt. The popularity of a convenient, well-priced alternative, when contrasted with frustration over a regulated market that artificially limits competition to maintain pricing, is unsurprisingly going to generate enormous public support and will not be regulated out of existence.

While the Uber regulatory battles have focused on whether it constitutes a taxi service subject to local rules, last week a new concern attracted attention: privacy. Regardless of whether it is a taxi service or a technological intermediary, it is clear that Uber collects an enormous amount of sensitive, geo-locational information about its users. In addition to payment data, the company accumulates a record of where its customers travel, how long they stay at their destinations, and even where they are located in real-time when using the Uber service.

Reports indicate that the company has coined the term “God View” for its ability to track user movements. The God View enables it to simultaneously view all Uber cars and all customers waiting for a ride in an entire city. When those mesh – the Uber customer enters an Uber car – they company can track movements along city streets. Uber says that use of the information is strictly limited, yet it would appear that company executives have accessed the data to develop portfolios on some of its users.

November 19, 2014

Net Neutrality is a good thing, right?

Net Neutrality is back in the news thanks to President Obama making a PR push to the regulators who may (or may not) be crafting regulations to bring the internet under government supervision:

Because this issue is still in the FCC’s hands, no one can know for sure what rules the agency will adopt. One important question, though, is: will neutrality apply to wireless services or only to cable-based ISPs, such as Comcast, Time Warner, and AT&T? In addition, will failure to preserve the status quo slow down the speed at which Internet connections and broadband capacity expand (because ISPs won’t be able to shift more of the expansion costs onto the “hogs”)? And what exactly is wrong with ISPs wanting to charge content providers higher prices for more bandwidth and faster, more reliable downloads?

More certain, however, is that regulations requiring “net neutrality” will end up benefiting the large, established ISPs. Incumbent firms have gained from “common carrier” regulation throughout U.S. history. As a matter of fact, the FCC predictably will be captured (if it has not already been) by the very companies President Obama wants to regulate “in the public interest.”

The president’s call to action sounds eerily similar to demands for federal railroad regulation that ultimately led to the creation of the Interstate Commerce Commission in 1887. Until it was put out of business in the early 1980s by President Jimmy Carter, the ICC allowed the railroads and, later, motor carriers and pipelines to charge prices exceeding competitive levels, thereby trying its best to protect the carriers’ profits at consumers’ expense.

William Shugart follows up on his original post:

The source of today’s online bottleneck can be traced back to local and regional government authorities, who quickly recognized the benefits (to them personally) of creating and granting exclusive franchises to one ISP that would, for the term of the contract, be a monopolist. (Government officials can extract more rents if they negotiate with only a handful of contestants.) Given that only one ISP would “win” the right to provide online content to local customers, the local monopolists also recognized a benefit of exclusive franchises: They would have the freedom to discriminate against some content suppliers by adding extra fees for privileged access.

So, a simple solution to the absence of net neutrality is readily available: Foster competition between ISPs.

Some people might raise the objection that, in this realm, robust competition for consumer dollars is unlikely because the suppliers of connections to the Internet are “natural monopolists”. In fact, ISPs are not “natural monopolists” as some commentators would have us believe. They are local government-granted monopolies. (Even Frederic Scherer, the author of the influential textbook Industrial Market Structure and Economic Performance, wrote that such claims of “natural monopoly” are “trumped up.”) Competition between ISPs nowadays is a contest for the favors of mayors and city councils who ultimately will determine who will win the exclusive franchise; it is not competition for the business of paying customers.

November 17, 2014

QotD: The Amazon-Hachette dispute

Filed under: Business, Media, Quotations — Tags: , , , — Nicholas @ 00:01

The first thing to remember about the Amazon/Hachette Book Group dispute is that this sort of thing happens all the time in business. When two big companies negotiate, it’s like Mothra and Godzilla: Each party can throw around a lot of weight, which means some collateral damage. It’s not exactly unheard of for a company that doesn’t like a supplier’s price to stop carrying the product, or to deny the supplier valuable end-cap space, or otherwise deprioritize the sales of the contested items.

The second thing to remember about the Amazon/Hachette dispute is that writers are categorically unable to see what they do as in any way akin to, say, selling potato chips. Writing is special and sacred! The sight of our product being treated like Chef Boyardee spaghetti is more than our tender souls can bear. And unlike grocery suppliers, writers have access to column space in which to pour out our anguish. That’s why so much ink has been spilled over this contretemps.

The third thing to remember is that publisher interests are not the same as author interests. Neither are Amazon’s. Amazon would like to sell books as cheaply as possible because this enhances the market value of their economies of scale. Publishers would like to keep prices high not just to enhance their profits, but also to keep multiple channels open for their books; it is not in their interest for Amazon to succeed in killing off the competition.

Megan McArdle, “Does Amazon’s Monopoly Really Matter?”, Bloomberg View, 2014-10-24.

November 9, 2014

Rent-seekers and crony capitalists love big government

Filed under: Bureaucracy, Government — Tags: , , , , — Nicholas @ 10:38

One of the reasons I’m a small-government fan is that the less the government tries to do, the less opportunity for rent-seekers and crony capitalists to batten on the inevitable opportunities that big government provides when it controls and regulates far beyond its competence:

A nice little point being made over in the New York Times, that for all of the public rhetoric about free markets and competition it’s not actually true that the Republicans are entirely pro-free market and pro-competition at all levels of governance. There’s an explanation for this too, an explanation that comes from the late economist Mancur Olsen. That explanation being about the level of the system that decides what will happen on a particular matter and thus where the special interests will try to capture governance.

    Republicans have hailed Uber, the smartphone-based car service, as a symbol of entrepreneurial innovation that could be strangled by misplaced government regulation. In August, the Republican National Committee urged supporters to sign a petition in support of the company, warning that “government officials are trying to block Uber from providing services simply because it’s cutting into the taxi unions’ profits.”

Josh Barro then goes on to point out that while the national Republican party might be saying such fine words when we get down to the people who actually regulate taxi rides then local Republicans can be just as pro-taxis and anti-Uber as any group of Democrats.

[…] More likely, to me at least, is that Mancur Olsen had it exactly right. His point being that over time democracy will end up being a competition between special interests for control of that democratic apparatus. The basic background insight is spread costs and concentrated benefits. One analogy is the pig and the chicken deciding what to have for breakfast. If they decide upon bacon and eggs then the chicken is interested but the pig is rather committed there. So it is with the regulation of producers and the competition that they might faced. US consumers of sugar might be paying $50 a year each to protect US sugar producers (that number’s not right but it’s not far off, it’s not $5 each nor $500) but rationally, when there’s so much else for us to think about, it’s sensible enough for us to not get very excited nor angry about this. But the sugar producers are making millions a year out of that same system of restrictions and subsidies. They’re very interested indeed in making sure that it continues.

We who take taxis or Uber are quite interested in Uber (and Lyft and all the others) being able to continue in business. But it’s not the end of our lifestyle if the regulatory apparatus is able to stifle them. But for the people who, for example, own taxi medallions in NYC then the replacement of the traditional taxi market by Uber will mean the potential loss of up to $1 million for each medallion. They’re very much more interested in crimping Uber’s style than we consumers are in expanding it.

Olsen went on to point out that the special interests are obviously more interested than we are in the details of regulation. And they’ll concentrate their efforts at whatever level of the regulatory and democratic system it is that affects their direct interests. Contributing to election campaigns, making their views known and so on, wheeling and dealing to promote their interests.

October 19, 2014

Brace yourselves for Beer Store price hikes

Filed under: Business, Cancon, Government — Tags: , , , , — Nicholas @ 12:38

In the Toronto Star, Rob Ferguson details the provincial government’s new-hatched plans to pry more money out of consumers (by way of the Beer Store monopoly):

Premier Kathleen Wynne says she won’t shrink from a battle with The Beer Store as her government thirsts for a bigger cut of sales despite brewers’ warnings it would mean higher prices for suds lovers.

The comments came Saturday as Wynne commented in detail for the first time on recommendations from a blue-ribbon panel on squeezing more money from publicly owned agencies and the distribution system for beer, wine and spirits.

“They’ve laid out some challenging ideas for us and I’m absolutely willing take those on,” Wynne said of the panel headed by TD Bank chair Ed Clark.

“Will it be easy, will it be a path that is without any challenges? No it won’t be but that’s not a problem from my perspective. That’s exactly why it needs to be taken on,” she added after a 22-minute speech to party members in this border city for a strategy session and victory party after winning a majority in the June 12 election.

Clark’s recommendations Friday were a timely distraction for Wynne with the legislature starting its fall session Monday and her Liberals under fire for a bailout of the mostly vacant MaRS office tower across from Queen’s Park, with taxpayers on the hook for hefty interest payments.

The government already taxes beer at 44%. I guess they think that’s too little.

October 9, 2014

The lightbulb cartel of 1924 and the birth of “planned obsolescence”

Filed under: Business, Technology — Tags: , , , , , — Nicholas @ 00:03

Markus Krajewski writes about the formation of a multinational industrial cartel shortly after the First World War that helped create the very concept of “planned obsolescence” for (no) fun and (their) profit:

On 23 December 1924, a group of leading international businessmen gathered in Geneva for a meeting that would alter the world for decades to come. Present were top representatives from all the major lightbulb manufacturers, including Germany’s Osram, the Netherlands’ Philips, France’s Compagnie des Lampes, and the United States’ General Electric. As revelers hung Christmas lights elsewhere in the city, the group founded the Phoebus cartel, a supervisory body that would carve up the worldwide incandescent lightbulb market, with each national and regional zone assigned its own manufacturers and production quotas. It was the first cartel in history to enjoy a truly global reach.

The cartel’s grip on the lightbulb market lasted only into the 1930s. Its far more enduring legacy was to engineer a shorter life span for the incandescent lightbulb. By early 1925, this became codified at 1,000 hours for a pear-shaped household bulb, a marked reduction from the 1,500 to 2,000 hours that had previously been common. Cartel members rationalized this approach as a trade-off: Their lightbulbs were of a higher quality, more efficient, and brighter burning than other bulbs. They also cost a lot more. Indeed, all evidence points to the cartel’s being motivated by profits and increased sales, not by what was best for the consumer. In carefully crafting a lightbulb with a relatively short life span, the cartel thus hatched the industrial strategy now known as planned obsolescence.

[…]

How exactly did the cartel pull off this engineering feat? It wasn’t just a matter of making an inferior or sloppy product; anybody could have done that. But to create one that reliably failed after an agreed-upon 1,000 hours took some doing over a number of years. The household lightbulb in 1924 was already technologically sophisticated: The light yield was considerable; the burning time was easily 2,500 hours or more. By striving for something less, the cartel would systematically reverse decades of progress.

The details of this effort have been very slow to emerge. Some facts came to light in the 1940s, when the U.S. government investigated GE and a number of its business partners for anticompetitive practices. Others were uncovered more recently, when I and the German journalist Helmut Höge delved into the corporate archives of Osram in Berlin. Jointly founded in 1920 by three German companies, Osram remains one of the world’s leading makers of all kinds of lighting, including state-of-the-art LEDs. In the archives, we found meticulous correspondence between the cartel’s factories and laboratories, which were researching how to modify the filament and other measures to shorten the life span of their bulbs.

The cartel took its business of shortening the lifetime of bulbs every bit as seriously as earlier researchers had approached their job of lengthening it. Each factory bound by the cartel agreement—and there were hundreds, including GE’s numerous licensees throughout the world—had to regularly send samples of its bulbs to a central testing laboratory in Switzerland. There, the bulbs were thoroughly vetted against cartel standards. If any factory submitted bulbs lasting longer or shorter than the regulated life span for its type, the factory was obliged to pay a fine.

Companies were also fined for exceeding their sales quotas, which were constantly being adjusted. In 1927, for example, Tokyo Electric noted in a memo to the cartel that after shortening the lives of its vacuum and gas-filled lightbulbs, sales had jumped fivefold. “But if the increase in our business resulting from such endeavors directly mean[s] a heavy penalty, it must be a thing out of reason and shall quite discourage us,” the memo stated.

The great Adam Smith, of course, saw this coming in 1776: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Some things never change.

August 23, 2014

Pennsylvania police to destroy rare wine collection

Filed under: Law, USA, Wine — Tags: , , , — Nicholas @ 12:14

Michelle Minton tells the sad tale of a rare wine fan who got too greedy (as the state tells it) or a state that got too greedy (as Pennsylvania wine fans tell it):

In the fifth century BCE, famous Greek tragedian Euripides supposedly said, “where this no wine there is no love.” This certainly holds true in present day Pennsylvania, which has one of the nation’s strictest alcohol regulatory regimes. And according to Tom Wark, executive director for the American Wine Consumer Coalition, Pennsylvania is “the worst state to live in if you’re a wine lover.” In Philadelphia, one man surely isn’t feeling the brotherly love after police raided his home and seized 2,426 bottles of rare wine—with an estimated value of more than $125,000—that the police reportedly plan to “destroy.”

Arthur Goldman, a 50-year-old lawyer, alleged ran afoul of Pennsylvania’s archaic wine laws by purchasing and selling through unapproved channels. In Pennsylvania, one of ten states that doesn’t allow direct shipping of wine to consumers, the only place one can purchase wine is through state-owned liquor stores. For wine connoisseurs looking for a bottle unavailable for purchase in state stores, the only other option is to order their wine through one of the sanctioned “direct wine shippers” and have it sent to a state store. Of course, this adds a certain cost to the purchase (shipping charge, plus $4.50 handling, the state’s 18 percent Johnstown Flood tax, 6 percent sales tax, and an addition 2 percent Philadelphia tax). With an average shipping rate of $7 per bottle or $22 per case, this means that a typical $50 bottle of wine would end up costing $74. A case of that wine, which would have cost $600 could cost around $832 after jumping through the Pennsylvania Liquor Control Board’s hoops. Of course, Goldman was likely purchasing much rarer and more expensive wines—the tax and shipping costs, assuming the approved direct shipping companies had the wines he wanted—could have been astronomical.

Cops paint a picture of a sophisticated racket meant to make Goldman a lot of money, but his lawyer asserts it was more like a group of 15-20 wine connoisseurs for whom Goldman would procure bottles unavailable in the state, only charging them for his costs.

August 20, 2014

New report calls for Ontario to break up the LCBO

Filed under: Business, Cancon, Economics, Wine — Tags: , , , , , — Nicholas @ 13:33

In the Toronto Star, Richard Brennan reports on a new study by the C.D. Howe Institute calling for the province to join the modern era:

The “quasi-monopoly” LCBO and The Beer Store have hosed Ontario consumers long enough, a C.D. Howe Institute report says.

The right-wing think tank said the Ontario government should strip them both of their almost exclusive right to sell beer, wine and spirits, suggesting the report proves that opening up to alcohol sales to competition will mean lower prices.

“The lack of competition in Ontario’s system for alcoholic beverage retailing causes higher prices for consumers and foregone government revenue,” states the 30-page report, Uncorking a Strange Brew: The Need for More Competition in Ontario’s Alcoholic Beverage Retailing System, to be released publicly Wednesday.

The report includes tables comparing Ontario beer prices to other provinces with greater private sector involvement, particularly with Quebec, where a case of 24 domestic beers can be as much as $10 cheaper and even more for imported brands.

Since 1927, when the Liquor Control Act was passed, the Liquor Control Board of Ontario and the privately owned Brewers Warehousing Company Limited have had a stranglehold on alcohol sale in the province.

“The Beer Store’s quasi-monopoly of beer retailing is … an anachronism,” the report says, referring to the foreign-owned private retailer that is protected by provincial legislation.

Britain’s railway system under private and public ownership

Filed under: Britain, Economics, Railways — Tags: , — Nicholas @ 08:13

At the Adam Smith Institute blog, Ben Southwood asks the question “What would we consider a successful railway system?”

Under many measures, the railways have performed remarkably since privatisation. It is not surprising that the British public would nevertheless like to renationalise them, given how ignorant we know they are, but it’s at least slightly surprising that large sections of the intelligentsia seem to agree.

Last year I wrote a very short piece on the issue, pointing out the basic facts: the UK has had two eras of private railways, both extremely successful, and a long period of extremely unsuccessful state control. Franchising probably isn’t the ideal way of running the rail system privately, but it seems like even a relatively bad private system outperforms the state.

British railway passengers 1830-2010

Short history: approximately free market in rail until 1913, built mainly with private capital. Government control/direction during the war. Government decides the railways aren’t making enough profit in 1923 and reorganises them into bigger regional monopolies. These aren’t very successful (in a very difficult macro environment) so it nationalises them — along with everything else — in the late 1940s.

By the 1960s the government runs railways into the ground to the point it essentially needs to destroy or mothball half the network. Government re-privatises the railways in 1995 — at this point passenger journeys have reached half the level they were at in 1913. Within 15 years they’ve made back the ground lost in the previous eighty.

July 14, 2014

When unions took over the public sector

Filed under: Bureaucracy, Business, Economics, Government, USA — Tags: , , , , — Nicholas @ 09:09

Dmitri Melhorn says the union movement is missing an opportunity to be more relevant in the private sector, because public sector unions don’t help poorer workers (because public sector union members are middle class professionals, not working class):

Progressive hostility to [Harris v. Quinn], however, is shortsighted. Harris and decisions like it have the potential to revitalize progressive politics by restoring the relevance and political potency that labor held in the early-to-mid-20th century. The great labor leaders of that era — AFL-CIO President George Meany, President Franklin D. Roosevelt, and the like — agreed with the majority in Harris: it was both impractical and inadvisable to afford public employees compulsory collective bargaining rights.

Roosevelt said that collective bargaining and public workers’ right to strike would be “unthinkable and intolerable.” Meany said it would be “impossible.” In the view of these leaders, civil service laws from the Progressive Era of the 1890s to 1920s had made government jobs good and safe. Labor and progressives, therefore, needed to focus on blue-collar workers’ need to fight collectively for basic safety, dignity and living wages. Through this focus, the United States saw historic gains in the well-being of workers and the country’s middle class.

That labor heyday lasted through the 1950s, but starting in the late 1960s labor lost ground. Public-sector unions grew rapidly, but private-sector unions shrank. By 2012, public-sector workers had union membership rates more than five times higher than rates among private-sector workers.

Essentially, the public-sector unions sucked up all the oxygen. Talented labor organizers opted to work with government workers: their members were relatively prosperous and well connected, so they were easy and lucrative to organize. As explained in Jake Rosenfeld’s book What Unions No Longer Do from earlier this year, this shift to public-sector unions meant that unions no longer fought primarily for the working poor. Instead, much of their muscle was devoted to improving the status of middle-class professionals.

June 25, 2014

Mexico’s champion crony capitalist

Filed under: Americas, Economics, Government — Tags: , , , — Nicholas @ 08:31

I don’t read the various financial magazines’ regular fanboi coverage of multi-billionaires, so I wasn’t all that aware of the fabulous wealth of Mexico’s Carlos Slim. Slim is one of the richest men in the world, but he doesn’t owe his success to technical innovation or outstanding business skills … he owns the Mexican telephone market thanks to a sweetheart “privatization” deal he got from his good friend in the Presidential palace back in 1990. In other words, his fortune largely derives from his ability to skim off vast profits from a captive customer base. Steve Sailer rounds up some interesting snippets about Slim, including a bit from French economist and current media darling Thomas Piketty:

Andres Oppenheimer wrote for PBS:

    Mexico in the early nineties was similar to American capitalism in the late 1870s. Azcarraga, Slim, and Hernandez were not much different from railroad and steel magnate Andrew Carnegie or oil trader John D. Rockefeller. Like the American “Robber Barons” of their time, the Mexico Twelve were making a fortune from their close partnership with the government. And to their immense relief, Mexico was not contemplating anything like the 1890 Sherman Anti-Trust Act, which had broken up U.S. monopolies through forced sell-offs.

In return, Salinas demanded at a private dinner party on February 23, 1993 that Slim and Mexico’s other 29 oligarchs donate $25 million each to the ruling party’s campaign war chest, a total of $750 million. Oppenheimer notes:

    Telecommunications magnate Slim … supported the motion, adding only that he wished the funds had been collected privately, rather than at a dinner, because publicity over the banquet could “turn into a political scandal.”

Now, you might think that there is something unseemly about a regular contender for the title of World’s Richest Man making his fortune off the relatively small Mexican economy. We’re constantly told that Mexicans have to be allowed to flock to America to escape starvation in their own land. Yet one well-connected monopolist is permitted to pile up an enormous trove by charging exorbitant fees for the lifeblood of any economy, communications.

A 2006 article in the New York Times pointed out:

    The Organization for Economic Cooperation and Development, an association of wealthy countries based in Paris, reports that Mexicans pay some of the highest phone rates in the world, with calls costing 50 percent more than the group’s average. Forbes reported that the average monthly phone bill for a small business in Mexico is $132, compared with $60 in the United States.

Slim epitomizes the toll taken on the Mexican economy by monopolists:

    As a result, said Mr. Ortiz of the Bank of Mexico, economic growth is one percentage point less than it could be with real competition. There are not enough jobs to keep workers from migrating to the United States …

Piketty, however, is offended by how Slim

    … is often described in the Western press as one who owes his great wealth to monopoly rents obtained through (implicitly corrupt) government favors…

(Slim, himself, has been proactive about improving his press coverage: in 2008 he financially bailed out the New York Times and is now the newspaper of record’s second-biggest owner. Not surprisingly, Slim, who profits lavishly off long distance calls between illegal immigrants in America and their loved ones in Mexico, doesn’t get mentioned much in the Times’ vociferous denunciations of immigration skeptics.)

Piketty, in his inimitable prose style, explains that criticizing Slim is a mistake, if not downright racist:

    Rather than indulge in constructing a moral hierarchy of wealth, which in practice often amounts to an exercise in Western ethnocentrism, I think it is more useful to try to understand the general laws that govern the dynamics of wealth—leaving individuals aside and thinking instead about modes of regulation, and in particular taxation, that apply equally to everyone, regardless of nationality.

In other words, rather than the citizens of Mexico using the rule of law to break up Slim’s monopoly, as Americans did with Rockefeller’s, the important thing is for readers of Capital to take global control.

What could possibly go wrong in Piketty’s planetary empire?

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