Thoughts for the road

After three weeks on the road some random observations, quirky thoughts and a thank you or ten.

It doesn't matter if you are at the equator or not, in the summer it is hot. Singapore is just a bit above the equator, certainly as close as I have been. It is in the low 90s there every day all year. It is also as humid as I have ever experienced. But it was even more brutal in Vienna and Prague. Just brutally hot all three weeks. The greatest service invention ever is free laundry at hotels. In the Sheraton in Singapore and the small Hotel Louren in Prague they give you that lovely service. I booked the Louren because it had air conditioning and it was a good choice. Otherwise I would have slept even less. Add in the weather at home before I left and I have seen over 90 ever day for over 6 weeks I think. All this is a long way around to saying that I was silly to bring jeans on this trip as I never wore them.

Public transit is awesome. As someone who has a long commute by car (the only option) and rarely gets to take a subway, tram or bus it has been great fun to have great mass transit at my disposal for three weeks. In all three cities the service ends at midnight, so without giving too much away (really about how boring I am) I think I have only done cab rides to and from airports (3) and two or three late nights. Otherwise I was walking or riding and haven't driven a car since July 12. 

Tourist passes are great inventions and used them in all three places. The quirky thing is where you can buy them. In Singapore they make you travel one station in either direction from where I was to get the pass so you had to waste a fair. Same in Prague except the hotel sold them. Not sure why you can't just get them in the machine. By the way Prague you have to retrofit the machines to take the new 50 karuny coins. 

Street food in Singapore is the best though obviously exists everywhere. Danieli in Vienna is my fav Italian restaurant anywhere as weird as that seems. See above for an example.

I have been making halusky wrong for years. Need sauerkraut not spinach, but might not ever change.

No need for a camera as between my phone and ipad I think I got great photos of the journey.

The Austrians are as proud of their wine as the Czechs are of their beer. Both are right.

The street cafes in Prague close at 10 PM. There are some interior courtyards and beer gardens open late. The beer garden in Vinohrady is a gem.

The coffee everywhere has been universally excellent and I am very picky. The Bakeshop Praha on Kozi is a marvelous institution and I have visited here for many years. The new owner is doing a great job maintaining this gem. The original owner, a wonderful American woman who came here right after the revolution, passed away late last year in London. RIP Anne Feeley.

Too much graffiti in Prague, too little in Singapore.

Happy birthday today to Dennis, Brianna and Barack.

Looking forward to reading Catherine Schine's new novel "Fin and Lady". My friends who already think I am too nerdy will groan that I brought and read so many academic books. I have gotten used to reading on the iPad and appreciated the company from old friends Phillip Kerr (Prague Fatale) and Robert Littell (Young Philby, largely set in Vienna).

There are many thank yous to give. Riley Ohlson and Silvia Romanovich for fitting me into their respective travel plans and introducing me to some super folks in Prague, only sorry they never met. NK KT and Rodney for taking time from their work to show me some of real life in Singapore. The group from CGU including Tim Howard, Ankur Mehta, Carlos, Neim and many students and faculty who made Singapore such a fulfilling experience. Common Ground publishing who hosted the conferenceon social sciences at CharlesUniversity. The folks from the hotels in the three cities and London who kept me clean and sane. All the folks from home who have read and liked my posts. And Meghan whose infinite patience and indulgence made this adventure (and everything else) possible. 

I am listening to a giant thunderstorm in the middle of the night and ready to be home. Soon, but one more stroll before I go.

The familiar far away

I had to take a bit of time from writing here in order to finish the paper that I delivered yesterday at the conference. Very interesting international group of scholars talking about every conceivable topic related to the social sciences. So now my professional responsibilities are over for the trip and I can enjoy three free days in Prague. Last night I had dinner at Cafe Slavia on the banks of the Vltava with a perfect view of the castle. I had the chance to share the dinner and some highlights of the Old Town with two grad students from China who had never visited here before. I am always pleased how much I remember and can find here without getting lost.

Beauty doesn't adequately describe the vista here. Certainly my photos don't do it justice. As you walk and look around it is as if every step has some significance. Here was where the police beat a student leading to the events of fall 1989. A few steps away is the jazz bar where President Clinton played the sax with Havel on stage. Oh look that theatre, not the classic one, but the modern building, the Magic Lantern is where they made plans for the revolution. Here is Slavia where they went to talk nonsense that the secret police could hear and report something to the ancient regime about to fall.

And there is the view, the river and castle and all the eager tourists gasping at the architectural detail of the buildings and the cameras lifted up and up. Now the bridge, the heart of the tourist center, the religious statues ready to come to life agin and haunt Kafka's nightmares once more. The narrow passageways through the old town that lead past the iconic clock and suddenly into a massive open square. There is Hus, patiently waiting and contemplating the irony (very typical Czech) of being a religious martyr that symbolizes Czech nationalism in a nation where next to no one is religiously observant.

Another two blocks and Wenceslas Square where the tanks took position in 1968 and poor, brave Jan Palach self immolated in 69 and hundreds of thousands gathered in 1989 chanting the name of the leader who defied the Soviets and wanted to lead with a human face. I wonder if the younger Czechs understand the importance of the museum they live in here. The 20th century happened here with a vengeance. It would be wonderful if it was some kind of respite from the 21 st but real people live here in this museum. They are dealing with all the challenges typical of the contemporary world. 

The people seem distant on the street but stop and ask something in polite czech and they help, smile and send you on your way. I have been lucky to get to know some folks here over the years and they are very warm and friendly. They know what a special place this is and why so many of us come from abroad and clog their streets all year round. They are still growing as a nation. Small and uneven heir progress in fits and starts another government fell in a bizarre scandal a few weeks ago and there will be elections soon.

I have seen the future and the past on this trip. The precise (Singapore), the regal (Vienna) And the profane (Prague). As always when I leave I hope to keep some of this place with me and to be back soon.

Sleeping on the other side of the world

Walking through Vienna in the late evening hours I paused to hear two very talented young women play a classical piece. I mean Berkeley College top of the class talented, just playing on the street. The sound of music in the center of the city made me think of some of the differences between Singapore and Vienna. Two small places with high standards of living, diverse histories, some striking similarities and stark differences. I have been slow to post as this trip has been long and tiring but exciting intellectually. Too much time awake at 4 AM though in very different time zones.

There was no music on the streets in Singapore, nothing but the sounds from the shops and stalls in the crowded quarters such as Chinatown and Little India. In Vienna street music is everywhere. In the morning you can hear the radios as the restaurants are cleaned from the busy night.

Working people are present in Vienna. You see dusty construction workers on the subway, some neighborhood cafes and the trams after their shifts. While in Singapore, I never did see anything similar. The subway in Singapore is immaculate and filled with young people and office workers. In Vienna there are actually signs that life doesn't end at 30. The subway in Vienna is typical of the way it feels in one of our cities. It looks used but is fast and efficient and like a modern city has a good complement in the trams and buses. I didn't use the bus in Singapore but they were present and the transit network is vast. Remember cars are quite expensive there so they need to heavily invest in public transport.

Most importantly, Vienna and Austria have the political pluralism that Singapore has yet to achieve. In the Straits Times there were discussions during my visit about what political pluralism would mean for the city-state. The opposition holds only 6 seats in the unicameral legislature out of 87. They didn't win one seat until 1984. It is not likely that other parties will have a significant impact on Singapore for many years. 

Austria is another case entirely. Like many European countries its politics are divided between the center-left Social Democrats (including the brilliant Mayor of Vienna, Haupl) and the conservative People's Party and the xenophobic Freedom Party. There are Greens and right wing populists that make for a divided parliament but vibrant political life.

Both are prosperous, small and ethnically rather homogenous. Austria is one of the few EU countries where real estate values are higher today than before the crisis (so too Singapore, can you say bubble in German?) But there is no other choice but messy democracy and all that it implies for developing the full rights of humanity. With the noise and dirt comes the violins that sound like weeping into the warm vibrant summer night.

Singapore and Economic Development

s

s

Safely enjoying a coffee in Vienna and thinking back to the early part of the trip. One of the main questions we discussed during the week was the applicability and sustainability of the model of growth used by Singapore as a strategy for other developing countries. As the following graphic shows, Singapore has experienced a very high rate of growth going back to the early 1960's and its independence. There have been some small blips along the way, yet the nation has withstood the global crisis of 2007-2009 and the Southeast Asian crisis of 1997.

The simple model of growth we discuss in the class includes a modified Hecksher-Ohlin theorem. Nations specialize in those goods which are compatible with their factor endowments. The endowments being labor, land, capital and human capital (or entrepreneurial ability). Some of these are given by nature (how much oil sits under your land) or legal agreement (the size of your country) and are difficult to change over time. Others are subject to policy, meaning that growth can come from the improvement in quality of the factor, not just its quantity.

For a small country like Singapore (pop of 5.4 million today after much growth and immigration) the investment in human capital and education has been critical to its long term success. They provide subsidized tuition to Singaporean students and students from abroad willing to commit to remaining employed in a Singapore registered company for three years after graduation. They have a loan program to make up the difference. While tuitions vary based on discipline, social sciences are about 7500 per year and business 8500, they average about how the full cost. Public education at the primary and secondary level is centralized and built on the British model. The workforce is relatively well educated and wage rates are high. Yet the economy still grows.

source World Bank

s

s

Singapore's early years of growth were fueled by foreign direct investment and controls over labor. They took a path of control in the political and economic realms that would be alien to liberal democratic countries. They engaged in forced savings through a social security scheme that provided additional capital from its residents. The inflection point came in 1985 when the economy shifted to a positive capital account balance and the amount of national savings exceeded investment. Singapore has generated significant internal resources and now does more FDI externally than it receives from abroad (it is still an attractive place for FDI). The sovereign fund has over SGD 1.2 Trillion (not a misprint) under its control.

source World Bank

s

s

Singapore has taken advantage of its physical location to build a major shipping sector. It sits on trade routes between east and west and has a very prosperous deep water port. The economic plan concentrates not on one industry but a range and Singapore has successful sectors in Finance and Insurance as well as technology and other manufacturing. 

They have succeeded in developing labor, capital and land with huge incentives to entrepreneurial efforts (special tax and trade policies) but is transferable? Singapore is small, compact (Indonesia has 6000 inhabited islands), ethnically homogenous (but getting more diverse) and wealthy. For a significantly larger country, could the same type of economic planning work if there are strong ethnic, religious or regional divides that complicates the division of efforts? Would the world participate through loans and FDI for a country not following liberal democratic norms (Singapore ran a persistent current account deficit and had net capital inflows from the early 1960's until mid 1980's)? Some aspects of the experience could be copied such as the concentration on education and training, but it is not likely that the wide range of policies could (for example, everyone can't run a current account trade surplus, someone has to have an offsetting deficit). But what makes Singapore fascinating is the nature of the small controlled experiment and its unique flavor and what we can learn to do and not do to build economic, political and social structures.

Rent seeking behavior and the economics of commodities

I am taking a small break from writing about Singapore to draw attention to a major story that appeared in the NY Times over the past few days. It appears that Goldman Sachs has been operating Metro International, an aluminum warehousing operation in a manner that inflates the price of the commodity in a classic illustration of "rent seeking". The activities described if accurate, account for high profit and low value added activity, shifting costs to customers and consumers.

In Microeconomics, we teach students that there is no profit in the long run. We make this counterintuitive claim because profit is different in an economic sense than it is in an accounting sense. In accounting profit is the net of revenues and costs, But in economics we are concerned not just about those costs but also the opportunity cost. This is the cost of forgoing the next best opportunity. Meaning that if the accepted rate of return in the economy is 5%, then anything below that is a loss. In the long run we assume that firms can't exceed that rate of return because if there are opportunities for higher than normal profits then firms will enter the market and drive down returns (given a lack of barriers to entry, meaning free entry and exit). There is an incentive then for firms to try to create profit by manipulating markets or government to capture higher than normal profits, economic rent.

In the Goldman Sachs example, the Federal Reserve gave permission for banking institutions to speculate in the commodities market in 2003. Goldman subsequently purchased Metro International which offers warehousing services for aluminum. According to sources cited by the Times, Metro has significantly slowed deliveries of the commodity, at the same time they make money charging rent to customers for warehousing space. The amount of material under the control of Metro has skyrocketed from 850,000 tons in 2010 to over 1.5 Million tons today (it was less than 100,000 tons in 2008).

This is rent seeking writ large. The Federal Reserve has to decide over this next year whether it will continue to allow the banks to control commodities. It is obvious that Goldman does not need aluminum for its operations (nor do the banks like JP Morgan Chase which is trying to do the same for copper), yet they have identified a way to capture profit by simple financialization. There is no value added to the customers, there has been no operational or technological improvement by their ownership just more money flowing to the pockets of execs at the banks at the expense of other businesses and consumers. They manipulate markets and regulators to allow them to capture above normal profits, rent seeking.

Multicultural environment of Singapore

Those who know Singapore know it is a relatively small city-state at the tip of a Malaysian peninsula. Singapore won its independence from Malaysia 48 years ago (after previously getting independence from the UK). It is a relatively new country with new cultural, political and economic foundations. You do not have to spend much time here to see the richness of the multicultural environment.

The Asian influence is strong with a Chinese, Malay, Indonesian and Indian components. I have a Japanese friend here and I am certain there are representatives of other Asian ethnicities here as we'll. There is a Chinatown, Little India and an Arab Street. 

There is the great central mosque, the Sultan Mosque. It anchors the Arab Street area (which is really a quarter). In honor of Ramadan there are special food and shop activities in the latter part of the day near the mosque. Yesterday we met with officials from the Singapore Management University which attracts students from around the world and the director of the institute we visited was an Indian national who has lived here for over 30 years.

And it works. While the political elite is largely of Chinese descent there are significant contributions across the ethnicities. Why does this multiculturalism work? Since Singapore is a small place; 287 square miles and 5.4 million people there is a rational basis for the need to make sure everyone has the capability to make a contribution. Since the birth rate is relatively low, there is a big emphasis on immigration. For example, foreign students are invited into Singaporean universities with subsidized tuitions if they are willing to spend three years working for a Singapore registered company. With this policy they combine the support for human capital development and that of openness to people's from other countries. Typical of many policy choices here, it is rational, there is an incentive, so they do it.

By the way there are many Caucasian visitors and residents here.

Infrastructure in Singapore

One of the interesting features of Singapore is the intense capital investment in infrastructure. Everywhere you go there are good roads, access to public transit and sidewalks. This facilitates life in a densely populated area. Not surprisingly, given the market orientation of the system here, there are incentives and disincentives to lessen traffic and consume public transport. To own a car here is quite expensive.

In fact, car ownership requires payment of a fee that is in excess of the open market value of the car. So cars which are expensive to import become even more expensive to operate as you are paying the price of the car again as a one time excise. On the upside they offer lower (basically free) prices for the subway during  early morning hours. The subway system is comprehensive and efficient. It is convenient and comes frequently. Clean and comfortable it is one of the best transit systems I have ever experienced.

The nation invested significant funds in its deep water ports to capitalize on its strategic sea lane position. I had an amazing view of the shipping lanes on my ride in from the airport and I have never seen so many big ships off a coast. All said the smart investments have contributed to Singapore's high rate of economic growth and high quality of life.