Archive for July 2008
doha trade talks collapse: it matters, and it’s bad for us
It started popping up in the news throughout Tuesday, and got the front-page writeup Wednesday: after 7 years of trying, the Doha round of free trade talks have been declared over with zero agreed on.
The NYTimes and others write in detail about what the US says on one side, and what India and China say on the other, about what went wrong, and who’s the stubborn one that cares more about guarding against risks to their own pocketbook than moving forward the world economy. But, like a lot of news, there’s very little discussion of why anyone should really care much about all this.
I believe the standard position I hear from economists: that the principle of free trade is good, just like free markets in general, but that it causes problems for the people on the losing side of the equation when wealth and jobs are redistributed within a country and throughout the world. Still, it’s not second nature for me to think of what some real ramifications could be of free trade stopping its recent forward march, or of turning around and retreating. But I happen to be reading a book that does a fine job of discussing that. Saving Capitalism from the Capitalists, which generally is about the benefits, causes and curses of free markets, spends some time on free trade, and its importance to free markets and competition within a country, so I thought I’d share a few lines.
First, a huge problem free markets generally run up against is the whims of democracy. To illustrate this, the authors discuss what happens once a country has had a free market for a time–long enough to have some very successful large companies that now dominate their industries.
Those in power–the incumbents–prefer to stay in power. They feel threatened by free markets.
So you’ve got big, successful companies that now dominate their industries and have tons of cash, and these guys are looking to put a bit of a damper on the “free” aspect of markets and competition to maintain their position. The winning firms want to hold onto their power. They’ve got cash. The distressed (to a large extent, the ones who lost their jobs) are numerous, loud, and rally in the name of reversing the damage. In their words,
…incumbent groups ride the coattails of the distressed back into power.
The two groups combine their political influence to enforce regulations on the market. For the dominant companies, the goal is to restrict competition. For the distressed workers, it’s to bring about a system more like the old days, with less risk and less change foreseen. The main defense against regulating away competition, which eventually makes the industry stagnate and under-perform compared to the industry in other more competitive countries, is opening the country’s borders to allow trade with other countries. Competition from the outside prevents our government from regulating markets out of existence in the name of smoothing risks and preventing further damage to the distressed.
Open borders limit the ability of domestic politics to close down competition and retard financial and economic growth.
Why don’t we hear about the effects of closed borders on developed countries more these days? Mainly, the authors believe, because these days it’s quite hard for developed countries to successfully keep out foreign competition, given how open the world as a whole has become.
A country’s borders are porous. When the rest of the world is open, it is difficult for any single country to put up barriers to the flow of goods, capital, and people. … So when the world is open, its borders will perforce be open unless it is a police state. Incumbent interests will be subdued.
But if we allow the world as a whole to drift backwards, we risk those rules of the game changing significantly. Countries have the ability to close their borders en masse and keep out competition to protect incumbents and ailing industries. The Doha Round of talks, at the beginning, was supposed to outline a set of commitments among most of the largest economies in the world to continued opening-up of borders and freeing-up of markets that are currently not very free. In the end, the hope was to at least get everyone to commit to at least keep trade about as open as it currently is. Unfortunately even that failed.
So let’s do what we can to keep from rolling backwards on free trade.
[Update: As I should have expected, the Economist put out a piece in their latest issue, online just a day after my post, with a lot better treatment of specifically what the eventual goal of the Doha talks at the end were, and what that failure specifically means: The Doha round…and round…and round]
some good web finds last week: zembly platform, startup ideas, a postmortem
If you have been following my friendfeed, you may have noticed I decided sharing my delicious links there was overkill, so I stopped. Instead, I’m going to try summing up a few interesting blog posts I’ve read and websites I’ve seen this past week. I may stick to this, I may do it more often, I may stop completely. I’ll try to keep it to things you may not have seen, and I’ll also try to stay away from really timely stuff, since I probably should have already twittered or posted that if I was going to. I’ll also probably pull out and post separately for topics that seem worth discussion beyond just “that’s cool.” So what’s left for this post? Let’s find out…
+ Launched 6 weeks ago, but I just heard about it: zembly. Coming out of Sun Microsystems, zembly is an online social simple software development platform, for creating facebook apps, meebo apps, widgets, and iphone web apps. To explain, you can go to their website (if you can get into the beta, which is somewhere in between private and public I think), see the top apps created so far, copy one over into your account, modify it and publish it to facebook right there, on the spot. They host the apps for you. Its functionality is definitely limited so far, but it seems incredibly promising. We need easier ways for more people to develop and share better software to use all over the place, and the web as a true software platform (level 3 in Marc Andreessen’s world) is a big step in that direction.
+ More VCs, and more people in general, should publish their ideas openly like this: YCombinator: Startup Ideas We’d Like to Fund. Paul Graham, point man and founder at YCombinator, writes essays about startups and whatever else he thinks is important, and they’re almost all phenomenal. A few of my recent favorites:
- Lies we tell kids – unlearning the lies we’re told growing up is hard–are they worth the protection they provide?
- The future of web startups – web startups are easier to get going than any startups ever have been–what does that mean for their future and the future of the internet?
- How to disagree – to-the-point guide to constructive argumentation.
+ Writing a postmortem on a failed startup is incredibly valuable to the community, and I’m sure it takes guts. They often contain excellent insights better shared than kept close, and this is no exception: Monitor110: A Post Mortem. If you follow fred wilson or brad feld, you’ve seen this already. If not, here’s the author’s list of the “7 deadly sins” that he believes together prevented the company’s success:
- The lack of a single, “the buck stops here” leader until too late in the game
- No separation between the technology organization and the product organization
- Too much PR, too early
- Too much money
- Not close enough to the customer
- Slow to adapt to market reality
- Disagreement on strategy both within the Company and with the Board
finally, good statistics: have any mutual fund managers beaten the market?
We’ve all heard it a number of places over the years, I imagine: actively-managed funds basically never beat the market anymore. But a study published about a year ago finally sounds like it used the right statistics to answer the question. It’s covered in this NYT article: The Prescient Are Few.
Here are some excerpts, if you’d rather not click through.
The method:
The statistical test featured in the study is known as the “False Discovery Rate,” and is used in fields as diverse as computational biology and astronomy. In effect, the method is designed to simultaneously avoid false positives and false negatives — in other words, conclusions that something is statistically significant when it is entirely random, and the reverse.
The result:
… when analyzing their entire fund sample, with records through 2006, this proportion was just 0.6 percent — statistically indistinguishable from zero, according to the researchers.
Some likely explanations:
WHY the decline? Professor Wermers says he and his co-authors suspect various causes. One is high fees and expenses. The researchers’ tests found that, on a pre-expense basis, 9.6 percent of mutual fund managers in 2006 showed genuine market-beating ability — far higher than the 0.6 percent after expenses were taken into account. This suggests that one in 10 managers may still have market-beating ability. It’s just that they can’t come out ahead after all their funds’ fees and expenses are paid.
Another possible factor is that many skilled managers have gone to the hedge fund world. Yet a third potential reason is that the market has become more efficient, so it’s harder to identify undervalued or overvalued stocks.
A friendly reminder:
Whatever the causes, the investment implications of the study are the same: buy and hold an index fund benchmarked to the broad stock market.
[thanks to umair haque for including this in ‘Essential Reading‘]
reblog: president bush pardons himself via congress for potential warcrimes
In this video, we learn about some pending legislation to retroactively pardon the entire Bush administration for certain violations of the Geneva Conventions starting 9/11/01.
via blurb.rahmin.com – press the button – President BUSH PARDON’s HIMSELF via congress for…
studies show shorter blog posts are the new hip thing
I’ve initimidated myself out of posting by writing such long posts recently. That’s about to change. I may write a long one occasionally, but generally I’ll be posting more links, videos, and shorter thoughts. I enjoy getting those thoughts from my friends and people I follow through rss from their blogs, and I think I’ll join that party.
I had been planning on using something like tumblr or posterous for that, or just posting that stuff straight to friendfeed, but since it seems like subscribing to people’s blogs is still the easiest way to see what they have to say, I’ll be using this blog to share that sort of stuff.
To start that off, here’s a pretty sweet site you should definitely check out if you use delicious for bookmarks:
It generated a nice looking thumbnail grid, like searchme, for all my bookmarks. I didn’t even have to create an account. I just went to that page, and it pulled up and thumbnailed all my delicious links from delicious.com/blakeweb. Makes it super-easy for me to find something I bookmarked a while ago.
Oh, and I also rethemed this blog.
Blake Borgeson, in blog form 