Travel Notes for March 2009

Hi from Astana

Capitalism-service

When I first started coming to Kazakhstan in 1992 I was struck by the dramatic difference in the quality of customer service in the post communist country and the standards of the non-communist world. Under capitalism we make money serving others and you can make lots of money serving others better than anyone else. In the communist world, they explained to us, “they (the government) pretend to pay us and we pretend to work.” Service was begrudging and lousy. In fact, Hyatt and other international hotel chains refused to establish hotels in Almaty for a several years because they concluded that it would be too difficult (costly) to train local staff in the service levels expected at four star hotels around the world. Today, the Hyatt Regency I stay in when in Almaty and the Radisson I am staying in now in Astana provide excellent service, which is to say normal service. Impressive progress has been made toward the service orientation of capitalism. You can’t appreciate the transformational nature of this reorientation of incentives unless you have seen both.

Capitalism-standards

Even in the United States we have abdicated standard setting and enforcement in a growing number of areas to the government. I guess we are wealthy enough to afford it (i.e., to absorb the costs and inefficiencies of government rather than private provision of almost anything). But there are limits beyond which we will lose the wealth from which we afford such wastes. I was thinking of this while looking at the water purification facility hidden in the back of the Intercontinental Hotel I stayed in for three weeks in Nairobi a few weeks back. If Western travelers had to rely on third world government standards and enforcement of water purity, food quality, etc. (even electricity), we wouldn’t travel to the third world. What we rely on and trust in is the greedy self interest of international hotels to protect their reputation as clean and safe places to stay anywhere in the world.

International Cooperation

International cooperation is useful if not essential in almost every area of life. The need for different power plugs in different countries and driving on the left some places or on the right in others, stand out as examples of where cooperation on standards falls short. But modern technology overcomes some of these areas of limited standardization. We do manage to send emails and visit the WWW anywhere and from anywhere in the world seamlessly. Making payments anywhere is getting easier. Thus I was struck when leaving Nairobi two weeks ago with a “final” security check point (those at the gates after having passed one to get into the boarding area) at the entrance to the gate waiting room and another one on the other side of the room on the way to the plane. Guessing that the first one was Kenyan and the second one British Air, I ask the Brit at the second one why the guys at the first one didn’t trust him (my way of trying to be nasty). He shrugged and said that their two governments had not yet managed to negotiate an agreement on the matter so they were both required to have check points. More over, if I were arriving by in the U.S. in Atlanta, I would have to take my shoes off and go through it all again before being let back into the country. Fortunately this is not the case when arriving as I am at Dulles in Washington DC. There is more work to be done

Buy American—Dumb and Dangerous

The every thing but the kitchen sink stimulus package bill (I can’t remember its cute name) included Buy American restrictions on where the money could be spent (this particularly upset our Canadian friends whose economy is highly integrated with ours). This is dumb (it reflect ignorance of basis economics) because if we can’t buy cheaper better foreign goods and services, foreigners will not have the dollars with which to buy our relatively cheaper, better goods and services (ever hear of comparative advantage?). Increases in American exports were the one positive factor keeping our economy going last year. No jobs will be saved by “buying American”, they will just be shifted into less productive areas lowering our (and the rest of the world’s) standard of living. Every college student who has taken basic economics knows this. It is dangerous because it could lead to a rise in protectionism around the world (Buy Kazakh, Buy Russian, Buy German, etc) of the sort that was a major cause of the depth and duration of the Great Depression when retaliatory tariffs were raised all over the world in response to high tariffs in the U.S. Do we never learn anything?

The return of Marxism?

This is a dangerous time in many respects. One is the danger of a backlash against capitalism, despite the great wealth it has helped create and the huge increase in the standard of living of hundreds of millions of people around the world that it has made possible. We must address its weaknesses and vulnerabilities very carefully and thoughtfully. The economic Forum I participated in here in Astana, was full of anti-capitalist rhetoric. Ed Phelps, a Nobel Prize winner in economics (Bob Mundell, another Nobel Prize winner in Economics was also participating in the Forum), made the absolutely stupid proposal that the American banking system be restructured with government subsidies to focus on business lending. The chair of my panel, the last of the day, ended by quoting Marx (Karl not Groucho) favorably. Those of us who believe in the virtues and merits of capitalism (and this includes most of Obama’s team despite some very disappointing moves toward bigger government) have a big challenge to defend it in the coming years. This will require some adjustments in the government’s regulatory role and improvements in macro policies that contributed to the current crisis, in the never ending search for the best balance (partnership is the currently popular word) of the public and private sectors.

All the best,

Warren

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About wcoats

Dr. Warren L. Coats specializes in advising central banks on monetary policy, and in the development of their capacity to formulate and implement monetary policy. He is retired from the International Monetary Fund, where, as Assistant Director of the Monetary and Financial Systems Department, he led missions to over twenty countries. Before then, he served as Visiting Economist to the Board of Governors of the Federal Reserve System, and to the World Bank, and was Assistant Prof of Economics at the Univ. of Virginia from 1970-75. Most recently he was Senior Monetary Policy Advisor to the Central Bank of Iraq; an IMF consultant to the central banks of Afghanistan, Kenya and Zimbabwe; and a Deloitte/USAID advisor to the Government of South Sudan. He is currently a member of the Editorial Board of the Cayman Financial Review and until the end of 2013 was a member of the IMF program team for Afghanistan. His most recent book is entitled "One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina."
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