05.19.08
Posted in Economic Analysis, Government Resources, Strategies, Taxes & Tariffs at 5:12 am by Administrator
I was speaking with the site manager for a large corporation that has a significant R&D component. The Company has steadily off-shored manufacturing of its sophisticated product and little traditional manufacturing is left in the US. What is new is that the company is being tempted to offshore its R&D jobs as well. In this case Ireland is offering incentives of € 20,000 per research worker. I remarked to him that that was “real money” — the incentive being in Euros instead of dollars. Another factor was that Ireland has a low corporate income tax rate and that in particular moved decisions at the US headquarters
There is an on-going discussion about whether offering incentives produces real long-term economic growth. There are certainly lots of examples where the jobs never materialized or the industry hit hard times later on and the new plant shut down. On the other hand there are examples like the German and Japanese automakers who opened sites in the US South, bringing jobs and prosperity to those regions.
There are several issues to be addressed — does the industry fit the development strategy of the region? Putting a heavy polluting plant in Northern California would be a non-starter. Trying to develop a Web 2.0 cluster in an area of the country where few such companies exist may not result in lots of jobs.
Another issue is the net effect on government revenues – i.e. taxes. Some countries and localities have given such large concessions that the result is that the government unit has greater costs with a permanently lower income level (look at some of the oil drilling concessions). On the other hand, a good project will produce not only more jobs in the long run but also greater prosperity for the community and a larger tax base. With the aid of economic models, those contributions can be quantified.
Do incentives work? There are lots of examples where they have made an impact but the government authorities must carefully craft a package appropriate to the economic development strategy.
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05.14.08
Posted in China, Economic Analysis, Oceania Cruise at 3:59 am by Administrator
Taiwan made an important historical choice on March 22 when it elected Ma Ying-jeou, former Nationalist party mayor of Taipei, as its new president. The country is well along a path as a mature democracy, putting back in power the party that had been associated with the dictatorship of Chiang Kai-Shek. Ma won handily 58 to 41% as the electorate strongly supported his policy of closer ties to Beijing.
The Taiwan economy finds itself in a peculiar place. The self-imposed limits on doing business with the mainland, which date back to the Cold War, had limited economic opportunities. It is estimated that almost a million Taiwanese live again in the PRC, with the largest concentration in Shanghai. On paper, Taiwan is the number three foreign investor in the mainland but many independent observers believe that the amount is much larger since Taiwanese companies have had to resort to setting up shell companies in Hong Kong and other countries to get around the official limits on investment in the PRC. Taiwan’s growth this decade has been strong, but many look with envy toward the explosive growth on the mainland. With a higher level of English literacy, Taiwan should be a portal, not a detour, to doing business with China.
My visit to Taiwan occurred two weeks after the elections. The country seemed confident of moving ahead, but like its neighbors it has to deal with the problems of pollution and congestion. The freeways and major highways, many of which are now 40 or 50 years old, are clearly inadequate. But the living standards are clearly on a par with the other Asian democracies and this most recent election bore testament to the strength of democracy in Taiwan, something was in doubt up to only a decade ago.
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05.04.08
Posted in Economic Analysis, Oceania Cruise at 11:16 pm by Administrator
On the Oceania Cruise, we stopped in Hiroshima, Kobe and Okinawa. Kobe offered insights into Japan’s economy. The area has always been a major sea-port and the new airport juts out into the Bay. We took the latest, fastest and most energy-efficient version of the bullet train to Kyoto. It is another symbol of the technical prowess of Japanese engineering. Compared to the German, French or Spanish fast trains, the Japanese one is quieter; the connections between cars are hardly noticeable; the overall feel is smoother. While the latest version of the bullet train goes 5% faster, it uses 35% less energy due to aerodynamic features.
The major change that I noted since my last visits to Japan is the increase in upscale spending. Kobe has always been noted as a sophisticated city and the department stores in the city center carried all of the world noted luxury brands. You could see that orinary citizens dress well and wear brand-name accessories.
Japan emerged from the doldrums of the 1990’s by making some tough economic reforms. The government streamlined both regulation and the bureaucracy. The banking sector wrote off many bad debts — including real estate loans that had been on the books for years. (I would encourage our economic policy makers in the US to look at that example. The current trend is to postpone the day or reckoning in the US.) All of the changes and reforms coincided with the global upswing from 2004-2007 and Japan prospered. Most importantly the ratio of exports to GDP rose significantly during the period. Japan had returned to its traditional export-led economic model, except that this time it was without the heavy-handed “guidance” from the Ministries in Tokyo.
As I noted before, Japan is spending its money on consumption, moving it a bit closer to the US model. The Japanese are now enjoying the fruits of their hard work. In the pure economic sense, saving too much (Japan over the past fifty years) is a drag on the economy as well as saving too little (the US since the 1980’s). Allowing the markets to find balance is everything in economics
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Posted in Economic Analysis, Oceania Cruise at 11:16 pm by Administrator
On the Oceania Cruise, we stopped in Hiroshima, Kobe and Okinawa. Kobe offered insights into Japan’s economy. The area has always been a major sea-port and the new airport juts out into the Bay. We took the latest, fastest and most energy-efficient version of the bullet train to Kyoto. It is another symbol of the technical prowess of Japanese engineering. Compared to the German, French or Spanish fast trains, the Japanese one is quieter; the connections between cars are hardly noticeable; the overall feel is smoother. While the latest version of the bullet train goes 5% faster, it uses 35% less energy due to aerodynamic features.
The major change that I noted since my last visits to Japan is the increase in upscale spending. Kobe has always been noted as a sophisticated city and the department stores in the city center carried all of the world noted luxury brands. You could see that orinary citizens dress well and wear brand-name accessories.
Japan emerged from the doldrums of the 1990’s by making some tough economic reforms. The government streamlined both regulation and the bureaucracy. The banking sector wrote off many bad debts — including real estate loans that had been on the books for years. (I would encourage our economic policy makers in the US to look at that example. The current trend is to postpone the day or reckoning in the US.) All of the changes and reforms coincided with the global upswing from 2004-2007 and Japan prospered. Most importantly the ratio of exports to GDP rose significantly during the period. Japan had returned to its traditional export-led economic model, except that this time it was without the heavy-handed “guidance” from the Ministries in Tokyo.
As I noted before, Japan is spending its money on consumption, moving it a bit closer to the US model. The Japanese are now enjoying the fruits of their hard work. In the pure economic sense, saving too much (Japan over the past fifty years) is a drag on the economy as well as saving too little (the US since the 1980’s). Allowing the markets to find balance is everything in economics
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