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April 21, 2006

"Why Should They Be Allowed to Use My Pipes?"

I came upon this quote while looking up citations from a MoveOn.org e-mail, and it manages to be both stupid beyond measure and immensely frightening all at the same time. This is from a November 2005 Business Week interview with Edward Whitacre, CEO of AT&T (still known as SBC Communications at the time of the interview).

How concerned are you about Internet upstarts like Google, MSN, Vonage, and others?

How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?

The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!

The last time I checked, Mr. Whitacre, your customers pay you for your pipes.

Of course, there's no feasible way for any service provider to collect tariffs from all Website operators. So what Whitacre is leading us to is one of two things:

  1. Disallowing traffic from Websites that don't pay AT&T a tariff, or,
  2. Providing higher levels of service to Websites that do pay AT&T a tariff
It's hard to imagine a major service provider getting away with simply disallowing traffic (though apparently smaller service providers have tried). It would be a customer support and media relations disaster. So this leads us to tiered levels of service, which is what the network neutrality debate is all about. From a New York Times editorial on the subject:
In its current form, Internet service operates in the same nondiscriminatory way as phone service. When someone calls your home, the telephone company puts through the call without regard to who is calling. In the same way, Internet service providers let Web sites operated by eBay, CNN or any other company send information to you on an equal footing. But perhaps not for long. It has occurred to the service providers that the Web sites their users visit could be a rich new revenue source. Why not charge eBay a fee for using the Internet connection to conduct its commerce, or ask Google to pay when customers download a video? A Verizon Communications executive recently sent a scare through cyberspace when he said at a telecommunications conference, as The Washington Post reported, that Google "is enjoying a free lunch" that ought to be going to providers like Verizon.

The solution, as far as the I.S.P.'s are concerned, could be what some critics are calling "access tiering," different levels of access for different sites, based on ability and willingness to pay. Giants like Walmart.com could get very fast connections, while little-guy sites might have to settle for the information superhighway equivalent of a one-lane, pothole-strewn road. Since many companies that own I.S.P.'s, like Time Warner, are also in the business of selling online content, they could give themselves an unfair advantage over their competition.

If access tiering takes hold, the Internet providers, rather than consumers, could become the driving force in how the Internet evolves. Those corporations' profit-driven choices, rather than users' choices, would determine which sites and methodologies succeed and fail. They also might be able to stifle promising innovations, like Internet telephony, that compete with their own business interests.

It's hard to overstate just how bad access tiering could be for innovation. Startups with limited resources could find it difficult or impossible to pay the fees required to provide their customers with levels of service equivalent to those offered by established players. The Internet -- possibly the most level playing field ever created in the history of business -- would be tilted, to the detriment of us all. This includes shareholders in AT&T and other service providers, because if access tiering becomes reality, and the Internet is tilted to favor some over others, reducing innovation, then the Internet's amazing run as a driving force in the economy could be damaged.

Those politicians who don't see a problem with access tiering because they see how it could benefit certain large corporations in the short run need to reflect for a bit on the long-term consequences of impeding entrepreneurship on the Internet. Of the top 30 Websites listed in Alexa's Global Top 500 traffic rankings, 22 are based in the US or are foreign operations of US sites. Of the remaining eight, seven are from China. This is who is nipping at our heels. This is why we have to stay competitive. This is why we can't afford to damage Internet innovation.

April 07, 2006

Starbucks, Consistency, and Competition

Earlier this week, I wrote about the minor controversy in Missoula, MT over the opening of the downtown's first Starbucks. Now, again via Starbucks Gossip, comes word of an anti-Starbucks column written by a local resident:

While I agree that many small, independently owned espresso shops in America may owe their origin to Starbucks; I would argue that Starbucks, like many corporations, sold its soul on the route to ubiquity. Starbucks coffee has become a symbol of consistent mediocrity. No longer educating the public about coffee, they actually brew mass misconceptions about coffee and espresso (i.e. the caramel 'macchiato').

The downtown Missoula coffee market is more than saturated. There is a place to buy an espresso drink on EVERY single block of the downtown business district. The impending arrival of City Brew (with its Orange Street, interstate-friendly drive-thru) and downtown Starbucks are further pressuring an already pressurized market, hence the predatory practices which bring up the strong revulsion of Starbucks. There is not an open market for espresso downtown. Starbucks is not providing something which is uniquely Missoulian or uniquely Montanan, like the rest of the downtown businesses. It will not draw tourists from other areas to downtown. While each coffee retailer has its own loyal customers who would never darken the door of a Starbucks, that's not the customer base they are worried about. Downtown Missoula greatly relies on the summer tourist dollar. Coffee is of great comfort to the traveler. Before, a downtown tourist would have been obligated to take a chance on a local coffeehouse. Now the siren song of the "consistent yet mediocre" mermaid will be beckoning on North Higgins.

These are not customers who have the time or inclination to experiment with some local flavor. These customers have one shot to buy coffee downtown before they leave. A national name and familiarity is NOT something the local retailer can compete with.

Starbucks is "mediocre", yet its popularity means it can't be competed with? I'm reminded of the famous Yogi Berra line:

Nobody goes there anymore; it's too crowded.
You can't have it both ways, saying, "Starbucks is mediocre; I can't compete with it." If Starbucks is truly mediocre, then surely it can be competed with. And somehow it's "predatory practices" of Starbucks to open up one more espresso outlet when there's one on every single block of the downtown business district? You mean it wasn't predatory when all those other espresso outlets opened up on top of one another?

The author is right in one sense: Starbucks is all about consistency -- that's the nature of the quick-service food business. I don't pretend they make the best coffee around. For example, if I'm in Seattle, I'll choose Uptown Espresso whenever I'm near one. But if I'm on the road, and especially if I'm in a hurry, yes, I'll choose Starbucks -- I like it, and more importantly I know what I'm going to get.

It's said that the greatest weakness of a person or an organization is its greatest strength taken to an extreme, and I generally believe that. If Starbucks' greatest strength is consistency, then its greatest weakness is an inability to adapt quickly or locally. Instead of trying to prevent competition, figure out how to beat Starbucks at its own game. Make drinks they don't make. (Why hasn't someone made an Americanized, Starbucks-style version of Thai iced coffee and popularized it?) Offer customers a different experience than they can have at Starbucks. (Why no fireplaces, especially in cold-weather locations like Missoula?) Give them things that Starbucks doesn't: Pastries baked on-premises. Free Wi-Fi. Donuts. A free newspaper with a minimum purchase -- say, a drink and a pastry (and make it a national newspaper -- travelers don't care about local news). Fresh made-to-order sandwiches. Soft drinks.

Starbucks is neither evil nor predatory. They're powerful, and they have tremendous brand name recognition, and they didn't get that way by making drinks that people didn't want. But they can be competed with. To attempt to deny them access to a local market is anti-competitive, and therefore fundamentally anti-consumer. Moreover, if you don't like Starbucks, don't think you can defeat them by locking them out: you can't. You can only defeat them -- or, more likely, slow their advance -- by being innovative and clever in how you compete with them. And putting up barriers to them isn't going to teach you how to compete: just ask the US auto manufacturers about that.

May 18, 2004

Debating Libertarianism

I used to be a Libertarian. I'm not anymore. I think this exchange I had with a Libertarian on Plastic does a good job of explaining why.

The basic story was that a Utah woman named Briana Lane was severely injured in an automobile accident while she was driving under the influence, without a seat belt, without a license, and without health insurance. Emergency treatment to save her life required that part of her skull be removed. In what is apparently standard operating procedure in such cases, the skull fragment was stored so that it could be replaced a few weeks later. The hospital cancelled the restorative surgery at the last minute, hoping to get the state to pay for it. Meanwhile, Briana was walking around with half a skull. Media coverage ensued, her mother's insurance company agreed to foot the bill, and all was well. However, this engendered a heated discussion on about health care and human rights. Here's the relevant portion:

Crass Observations
by Russ Morrison
  1. This should have been a case of evolution in action. Precisely how stupid do you have to be to (a) drive drunk and (b) do it without a seat belt?
  2. The law that requires hospitals and doctors to treat emergency patients, regardless of their ability to pay, is one example of modern slavery: one is required, by law, to render service to another. Hospitals are, in essence, modern day plantations; the slaves are better educated, but they are slaves, nonetheless.
  3. Much will be made on this thread regarding the "high cost of medicine". It is not, however, the "medicine" that costs. It is that the costs of treating the Briana Lanes must be spread among the swiftly shrinking group that does pay. This, coupled with the fact that individuals seldom pay for their own medicine -- most treatment is paid for by government or insurance companies -- creates a strong upward pressure on the price of treatment.
Re: Crass Observations
by borkus

I've seen several posts pointing out that Lane's problems are the result of her poor judgement and break two laws (DUI and driving without a seatbelt) in the process.

Now, if Lane had been pulled over, charged and convicted of DUI and driving without a seatbelt, would her punishment have been to saw off her skull under anesthesia and subject her to six weeks of pain and blackouts? Probably not. Punishment for illegal and careless behavior are the purview of the criminal and civil courts -- not the healthcare system. Denying someone medical care because of a crime they committed has to be cruel and unusual punishment, especially since such a punishment would only apply to the poor and indigent. Also, she's a 22 year old waitress without health insurance; she's not necessarily indigent, but like many young people, she has an low skill job without health coverage.

Admittedly, it cost $200,000 to put Lane's skull back together. However, ongoing care of someone with half a skull would probably be a considerable sum as well; in Lane's case, she would have been a burden to society for the rest of her life. Now, with a skull completely covering her brain, she has 40 more years of work to pay taxes and contribute to society. Hopefully, she remembers to not drink and drive and to keep her seat belt buckled.

Re: Crass Observations
by Russ Morrison

...would her punishment have been to saw off her skull under anesthesia and subject her to six weeks of pain and blackouts?

Of course not. She isn't being "punished" -- she is suffering the consequences of her own stupidity. It is immoral to force any other person to suffer for her actions, and shielding her from any part of those consequences deprives her of the opportunity to learn from her mistakes -- if she is capable of doing so.

I wouldn't put any bets on that. Stupid people tend to remain stupid. It is unlikely in the extreme that Lane will learn anything from this event, other than that the taxpayer can be very generous.

Lane has already demonstrated that she is a net burden on society — someone who not only refused to do a minimal task in her own defence (put on a seat belt), but also actively pursued an activity (drunk driving) likely to cause her, and others, injury.

As to her paying taxes and "contributing" to make up the $200K: On a waitress' salary? You're joking, right?

Re: Crass Observations
by boosman

[S]he is suffering the consequences of her own stupidity. It is immoral to force any other person to suffer for her actions, and shielding her from any part of those consequences deprives her of the opportunity to learn from her mistakes -- if she is capable of doing so. (emphasis mine)

I want to be really clear about what you're saying here. You believe that, given that she was without insurance, no hospital or other treatment facility should have been required to treat her, whether to save her life in the first place or to replace her skull later on? If so, I presume you believe that if a hospital chooses not to accept insurance company X, and you're wheeled into the emergency room, 10 minutes from death, with a card from insurance company X, they can say, "Sorry, you'll have to go down the road to the next hospital."

This is why I gave up being a Libertarian a long time ago. Some of its precepts sound good in a theoretical sense, but then there's that pesky matter of the real world. In a Libertarian world, anyone should be able to refuse service to anyone on any basis. In the real world, we want to know that if we follow the big blue "H" signs, someone's going to save our life. In a Libertarian world, people should suffer all the consequences of their stupidity. In the real world, everyone makes mistakes, and compassionate people think that allowing someone to die for a mistake they've made is usually a bit harsh.

Re: Crass Observations
by Russ Morrison

I presume you believe that if a hospital chooses not to accept insurance company X...they can say, "Sorry, you'll have to go down the road to the next hospital."

Sure. And, in the real world, that hospital will lose all of the money that it could have gotten from X. Kaiser used to do this all the time, before the law forced them to treat all emergency patients; once the emergency is done, they still send you, frequently at great risk, "down the road".

In the real world, everyone makes mistakes, and compassionate people think that allowing someone to die for a mistake they've made is usually a bit harsh.

Depends on the mistake. And people die from mistakes all the time, compassion or no -- frequently from other people's mistakes, something that could easily have happened here (DUI accidents frequently kill or injure the sober party).

Compassionate people, for centuries, have created charitable and not-for-profit hospitals, and they do so with their own money, rather than taxpayers'.

I'm a very compassionate person. I've helped many folks, both directly and through organizations I support. But I refuse to be compassionate with your money. Courtesy (at least) and justice (at best) would seem to demand the same consideration from you.

Re: Crass Observations
by boosman

Well, the reality is that I doubt that most Americans want to live in a society where maybe a given hospital will treat their critical injuries, maybe it won't. I know I don't want to live in such a society.

Now, don't get me wrong: our health care system is broken, and I know it. We spend far more of our GDP on health care than any other OECD country and yet manage to have 40+ million uninsured Americans. To my mind, the right solution is to decide that we have reached a point as a society where everyone should be entitled to health care, and make it so. At the same time, though, I think we should implement a universal health care system in such a way as to preserve maximum choice and to encourage people to make responsible health care decisions.

Before you scream about this universal health care would be an unwarranted expenditure of your money, tell me how it's different in theory from universal primary education. Both are examples of the people deciding that what was once a privilege is now a right.

Re: Crass Observations
by Russ Morrison

To my mind, the right solution is to decide that we have reached a point as a society where everyone should be entitled to health care, and make it so.

I see. You would take a broken system, use a sledge hammer on the remaining pieces that work, and then declare that everyone should use the same broken system.

Want to preserve "maximum choice"? Then preserve it for doctors, too. And nurses. And hospitals (or, as someone else pointed out, "hospital administrators"). One does not increase freedom by removing it; no one should be forced to serve another, not matter how "necessary" or "good" the service might be.

Re: Crass Observations
by boosman

Did you actually read my comment? All I said was that I would institute universal health care and that I would do so in a way that would preserve choice and encourage good decision-making by consumers. How exactly is that taking "a broken system" and using "a sledge hammer on the remaining pieces that work"?

Here's the simple reality: within 50 years -- and probably less -- we'll have universal health care in the US, because a majority of Americans will have decided that health care is a fundamental right (just as we decided a century ago that education was a fundamental right). You're on the side that will ultimately lose this battle. The question you have to ask yourself is, do you want to be made irrelevant in the debate by advocating ludicrous ideas like allowing hospitals to let patients die on their doorsteps in the name of devotion to Libertarianism, or do you want to influence the debate in useful ways by proposing efficient market-based structures within a universal system?

Re: Crass Observations
by Russ Morrison

within 50 years -- and probably less -- we'll have universal health care in the US, because a majority of Americans will have decided that health care is a fundamental right (just as we decided a century ago that education was a fundamental right)

And in 50 years, we will have universal health care with the same high quality product that is provided by universal education. You don't want to just break what little is working, you want to destroy it altogether, and replace it with something that works just like public education.

I can hardly wait. Not only will my grandchildren be illiterate, so will my doctor.

Re: Crass Observations
by boosman

Holy crap! Do you comment on my postings without reading them, or do you willfully misrepresent them to suit your purposes?

I didn't assert an opinion about the state of the US K-12 education system. If I had, I would have said that I strongly believe in universal public-funded education. (I presume you don't, but are unwilling to come right out and say it, possibly because you know how extreme it would make you sound.) But I would also have said that I think the US K-12 education system needs far more market-based structures than it has today. There's nothing incompatible with guaranteeing every child an education while giving their parents far more say in how and where they're educated than they have today.

With all that said, for debating purposes, I'm willing to take your bait. According to the CIA, 97 percent of US citizens aged 15 and over are literate. If we take literacy as prima facie evidence that the educational system has done its job, at least at a minimal level, then that means the system has worked for all but 8.7 million people in the US. Compare that with the 40 to 44 million people who have no health insurance in this country.

You may bitch about our education system -- we all may from time to time -- but all in all, it does a reasonably good job of educating children. Yes, we all know of horror stories, and it's not to say the system couldn't work much better, but most of us send our kids to school every day feeling that we're sending them to a good place, with teachers who care, and where they can learn. (Note that I don't live in Washington, DC.) So, although I don't want a health care system structured just like public education today, even that would be an improvement over what we have now.

How about this: if we structured public education like our current health care system, we'd have 40 to 44 million illiterates in the US while spending half again as much on education as most other OECD countries. Now there's a good idea.

The same person who wrote, "I'm a very compassionate person," also wrote, "This should have been a case of evolution in action" -- or, to put it more directly, "I think that person should have died for her mistake." I think that qualifies as a use of the word "compassionate" I hadn't encountered before.

January 17, 2004

"The Dirty Little Secret" of Free Trade

Via boing boing comes an intriguing idea from the always -- well, intriguing -- Larry Lessig:

Now that [the US is] the world's leading exporter of intellectual property, we're also the most self-righteous about the importance of protecting it globally...

This push to protect intellectual property is defended as just one aspect of free trade -- the aspect that benefits Hollywood...

The dirty little secret, however, is that we don't respect the free trade rules that we impose on others. While the US sings the virtues of free trade to defend maximalist intellectual property regulation, we poison the free trade that developing nations care about most -- agriculture -- by subsidizing farming in the industrialized world to the tune of $300 billion annually. Rhetoric about family farmers aside, most of that money passes quickly to agribusiness...

A block of powerful developing nations should first take a page from the US Copyright Act of 1790 and enact national laws that explicitly protect their own rights only. It would not protect foreigners. Second, these nations should add a provision that would relax this exemption to the extent that developed nations really opened their borders. If we reduce, for example, the subsidy to agribusiness by 10 percent, then they would permit 10 percent of our copyrights to be enforced (say, copyrights from the period 1923 to 1931). Reduce the subsidy by another 10 percent, then another 10 percent could be enforced. And so on.

The mechanism is clumsy, but the message is clear: Both the subsidy of agribusiness and the subsidy of local culture and science violate the principles of free trade by ignoring American intellectual property laws.

Lessig could go even farther and point out that, while the piracy of copyrighted materials certainly harms content industries, agricultural subsidies kill. Literally. When the US and Europe (Europe is at least as bad as the US when it comes to subsidizing agriculture) drive Third World farmers out of business because they can't compete with subsidized First World crops, eventually, the absence of efficient indigenous farmers leads to food shortages and deaths.

I've made my living developing, marketing, and selling intellectual property. Even so, it's hard to feel much sympathy for American industry in the face of such blatant free trade hypocrisy.

For most US administrations, "free trade" means "free trade in the goods in which we're most competitive, and continued trade restrictions and subsidies in the goods in which we're least competitive." This has to stop somewhere. Sadly, I'm not aware of a single Presidential candidate who is saying this. In fact, the major candidates on both sides of the political spectrum seem to be falling over one another to promise more protections to more industries.

August 21, 2003

kickAAS

There's a new blog devoted to ending agricultural subsidies, kick All Agricultural Subsidies (kickAAS).

I've written about agricultural subsidies before. In July of last year, I wrote:

In 1984, New Zealand's government ended all farm subsidies, with a phase-out period of only one year. What happened next?
Forced to adjust to new economic realities, New Zealand farmers cut costs, diversified their land use, sought non-farm income opportunities and altered production as market signals advised -- for example, by reducing sheep numbers and boosting cattle ranching. Farmers were aided on the cost side as input prices fell, because suppliers could no longer count on subsidies to inflate demand. The striving for greater efficiency also supported environmental protection as marginal land farmed only to collect subsidies was replaced with native bush, and overuse of fertilizers ended when fertilizer subsidies were removed. The Federated Farmers of New Zealand believe their country's experience "thoroughly debunked the myth that the farming sector cannot prosper without government subsidies."
The result of all this was that the value of New Zealand's farm output has risen 40 percent in constant dollars since the 1980s. New Zealand's average increase in farm productivity per year has risen from one percent before reform to six percent since.

While the US radically increases farm subsidies -- and while Europe debates extending its massive Common Agricultural Policy (CAP) to new European Union applicants -- New Zealand motors along, spending nothing on subsidies and enjoying more efficient farming as a result. In a report on French shepherds broadcast on NPR's All Things Considered (available only as RealAudio), commentator Nancy Coons recounted the following comment made by a French shepherd on a sheep drive:

"We must all [drive sheep across southern France] every year, for no other reason than to say, 'We're here. If you continue to buy the lambs shipped in from New Zealand, we won't be here any longer.'"
The irony of this is palpable. Billions of dollars in farm subsidies, and still French shepherds are increasingly unable to keep pace with competitors halfway around the world -- not low-cost Third World producers, nor massively subsidized farmers, but highly efficient, unsubsidized, First World competitors.
Subsidies enable farmers to grow crops and sell them without regard to production costs or market prices. In the US, our elected officials become angry when they believe that other countries are doing this in steel, or microprocessors, or textiles. They label this practice "dumping" and retaliate with tariffs and quotas. Meanwhile, Western governments spend $300 billion per year on agricultural subsidies with far worse effects and seem to see no inherent contradiction in their actions.

It's time for this practice to end. The popularity of kickAAS is a good sign that people are starting to understand the problem.

April 05, 2003

Dramatic Ideas for Post-War Iraq

Two dramatic ideas for post-war Iraq:

Via Plastic, an article in the New Yorker proposing that Iraq repudiate its international debt:

In 1979, when Saddam Hussein took power, Iraq -- thanks to the oil boom of the seventies -- had a foreign surplus of about thirty-five billion dollars. A decade later, after the war with Iran, it had a foreign debt of some fifty billion dollars. And today, after more war and a dozen years of missed interest payments, the country owes, by many estimates, more than a hundred billion dollars. Its creditors, which include Kuwait, Bulgaria, and the Korean conglomerate Hyundai, are already jockeying for position to be repaid after the war.

Iraq has no hope of ever repaying its debts. Its annual gross domestic product is a mere thirty billion dollars, and even if this war does relatively little damage to the country’s infrastructure it will take years -- and tens of billions of dollars -- to repair the damage that Saddam has done to the Iraqi economy. Presumably, the U.S. and others will invest heavily in reconstruction. But, if Iraq is to become stable and prosperous, it needs to spend public dollars on public goods (health, education, roads), not on debt payments to creditors who willingly lent money to Saddam.

Even if the Iraqi people could afford to pay back Saddam's debts, it's hard to see why they should. Most of the money that Iraq borrowed in the past twenty years went either to Saddam's military misadventures in Iran and Kuwait or to his internal security apparatus. Asking the Iraqi people to assume Saddam’s debts is rather like telling a man who has been shot in the head that he has to pay for the bullet.

Oddly, though, that’s pretty much what international custom seems to require. Lenders and borrowers still believe that debt belongs to a state, not to a regime. As a result, only a handful of countries have ever repudiated their debts. Even when tyrannical regimes have been deposed -- Somoza in Nicaragua, Mobutu in Zaire, the apartheid system in South Africa -- their successors have dutifully, if reluctantly, assumed their debts.

It might be time to change all that and consider an old idea that has recently been resurrected: the doctrine of odious debts. First articulated in the twenties by a former tsarist minister named Alexander Sack, the doctrine holds that a country is not responsible for debts incurred by a "despotic regime" and used for purposes "contrary to the interests of the nation." Both criteria have to be met for the debt to be considered odious. (In other words, profligate Argentina couldn't repudiate its debt, because it's a democracy.) The idea is that when the despot falls his debt disappears with him. The Harvard economists Michael Kremer and Seema Jayachandran have proposed the creation of an international institution that would have the authority to declare a regime "odious." Such a system would likely persuade lenders to avoid tyrants, as they would no longer expect to be repaid...

Perhaps Saddam's successors should turn theory into practice and, when the time comes, repudiate the debts that Saddam incurred to stock his arsenal and maintain his power. That would vastly improve Iraq’s economic prospects, and establish a worthy precedent: lend to tyrants, and you will get stiffed. The U.S., at least, is unlikely to object -- two of Iraq’s biggest creditors are Russia and France.

And via InstaPundit, an idea to pass much of Iraq's future oil wealth directly to its people:

Our government should announce -- soon -- that the new postwar Iraqi administration will "personalize" the nation's oil revenues by establishing an Iraqi national investment trust -- The Iraqi People's Freedom Trust -- that will receive a major share -- say, 50% -- of all future Iraqi oil earnings.

The rest can go to central government and federal regional governments on some per capita basis.

Each Iraqi -- man, woman or child -- would be eligible for a personal investment account in the trust once they register as citizens of New Iraq...

Funds in the trust may be invested in New Iraq government bonds, domestic equities, venture capital investments in Iraq or international markets. But legal ownership will be vested in each individual Iraqi -- not the tribe, clan region, power-broker etc. Any Iraqi over age 21 may withdraw funds or borrow against their balances -- for any reason at all...

The effect -- immediately -- would be to establish irrefutably that the U.S. is NOT waging this war to somehow steal Iraqi oil -- but rather to return this resource to the benefit of the Iraqi people themselves -- directly. One person at a time.

It would give all Iraqis a clear sense of the profound policy difference between liberators and corrupt thieves like the Ba'ath regime who have exploited, stolen and misused oil revenues in way that infuriate ordinary Iraqis -- and endanger the world...

By ensuring that all Iraqis will have access -- on reaching adulthood -- to significant sources of money -- it would spur entrepreneurship, revitalize the whole economy, distribute real resources to the most remote and poor regions of the country and create a very strong interest among all ethnic and confessional groups and tribes in ensuring their nation's future stability.

We're not talking small money here. Once its oil facilities are repaired and production is ramped up, Iraq can earn $50 billion a year from its oil. 50% of that would be about $1,000 a year per person...and funds would accumulate for young people to even more significant sums -- until they came of age... I would suggest to you that such a proposal, properly structured and publicized, would have the kind of impact -- in Iraq and on world opinion -- that Lincoln's emancipation proclamation did on the domestic politics -- and nternational [sic]diplomacy -- of our own Civil War. It would be the same kind of profoundly moral -- and revolutionary -- stroke.

Though, as the conquering power, the US will have the ability to impose these ideas on Iraq, it shouldn't do so. But encouraging Iraq's new leaders to take such steps -- and working with them to make doing so possible -- has great appeal.

I don't agree with how we got into this war, but as Thomas Friedman says, now it's time to take our lemons and make lemonade. A post-war Iraq along these lines -- a secular, democratic nation of 25 million people, debt-free, with half its oil revenue kept in trust for the direct use of its people -- is a powerful idea.

July 07, 2002

Following New Zealand's Lead

Less than two months ago, President Bush signed a new farm subsidy bill that will cost over $190 billion over the next 10 years. This would seem to be the final nail in the coffin of the efforts begun in 1996 to gradually wean US farmers off subsidies.

Except for purely short-term political reasons, I'm at a loss to understand why Bush signed this bill. I consider myself neither Republican nor Democrat. Nevertheless, when Bush was elected, I thought that no matter what, at least he would impose fiscal discipline and promote free trade. In fact, he has done the exact opposite on multiple occasions -- and managed to spend recklessly and threaten the cause of free trade all at once by signing this bill.

Meanwhile, in the wake of this awful legislation, more and more commentators have noticed the New Zealand model. In 1984, New Zealand's government ended all farm subsidies, with a phase-out period of only one year. What happened next?

Forced to adjust to new economic realities, New Zealand farmers cut costs, diversified their land use, sought non-farm income opportunities and altered production as market signals advised -- for example, by reducing sheep numbers and boosting cattle ranching. Farmers were aided on the cost side as input prices fell, because suppliers could no longer count on subsidies to inflate demand. The striving for greater efficiency also supported environmental protection as marginal land farmed only to collect subsidies was replaced with native bush, and overuse of fertilizers ended when fertilizer subsidies were removed. The Federated Farmers of New Zealand believe their country's experience "thoroughly debunked the myth that the farming sector cannot prosper without government subsidies."
The result of all this was that the value of New Zealand's farm output has risen 40 percent in constant dollars since the 1980s. New Zealand's average increase in farm productivity per year has risen from one percent before reform to six percent since.

While the US radically increases farm subsidies -- and while Europe debates extending its massive Common Agricultural Policy (CAP) to new European Union applicants -- New Zealand motors along, spending nothing on subsidies and enjoying more efficient farming as a result. In a report on French shepherds broadcast on NPR's All Things Considered (available only as RealAudio), commentator Nancy Coons recounted the following comment made by a French shepherd on a sheep drive:

"We must all [drive sheep across southern France] every year, for no other reason than to say, 'We're here. If you continue to buy the lambs shipped in from New Zealand, we won't be here any longer.'"
The irony of this is palpable. Billions of dollars in farm subsidies, and still French shepherds are increasingly unable to keep pace with competitors halfway around the world -- not low-cost Third World producers, nor massively subsidized farmers, but highly efficient, unsubsidized, First World competitors.

For more on this issue, see the Cato Institute's excellent Washington Post editorial here.