Economics at the dinner table

Economics at the dinner table
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First Published: Fri, Aug 24 2007. 12 35 AM IST
Updated: Fri, Aug 24 2007. 12 35 AM IST
Stephen Dubner at the Freakonomics blog suspects that wine markups are possible because diners wish to signal certain positive attributes to their dining partners—either knowledge about wine or deep pockets, for instance. That certainly seems reasonable. I would add that the price quoted on a wine list (in a restaurant) includes not just the wine, but also an expertise premium. In other words, diners are paying for wine, but also for the knowledge that the wine they select will be good. When choosing a bottle in a wine shop, usually from a dizzying array of bottles hailing from regions scattered across the globe, a consumer either knows very little about the ultimate purchase, in which case there is a fair probability that one’s relatively cheap wine will be bad or inappropriate given the situation, or the consumer knows a great deal, in which case he has invested time and energy into obtaining the knowledge necessary to get value for the money spent on a bottle.
Why we are poor
Greg Clark has written a book that offers a different perspective on why the Industrial Revolution happened and the West got rich before the rest. The main argument of the book runs counter to most of today’s theories, including ones that put the emphasis on property rights and high-quality institutions. Clark believes the secret of growth lies in the rich and economically successful having had more children than the poor in England during the crucial centuries before the Industrial Revolution. This enabled, according to Clark, middle-class values of hard work, thrift, and entrepreneurialism to spread throughout English society, which in turn raised economic growth.
Poor countries remain poor because they are stuck in a Malthusian equilibrium (and I guess because they do not have enough hard-working people).
Clark makes much of the fact that Indian cotton textile plants had much lower labour productivity than those in Britain in the 19th century despite having identical machinery. Clark thinks this points to low-quality labour (read laziness) as the key difference. Having recently seen how Toyota and BMW are able to eke out labour productivity levels in their South African plants equivalent to that in Japan or Germany, I think the example is far less telling (or general) than Clark thinks.
—Dani Rodrik
India: Japan’s client state?
Those fretting about such things as “independence of India’s foreign policy” and “strategic autonomy” in the context of the India-US nuclear deal must be looking in the wrong place. Writing on his blog at the International Herald Tribune, Daniel Altman declares that India is Japan’s client state. Much like Sudan is to China.
Why? Because “the Japanese government is happy to underwrite India’s growth, in return for a share of spoils”. Surely, a flagship $100 billion project to build an infrastructure corridor from Delhi to Mumbai should make India a grateful client, willing to do Japan’s bidding.
Altman’s argument makes a nice sensational headline. But it’s also absurd. That’s because for much of the last decade, Japan “underwrote China’s growth” for a share of the spoils and is nowhere near to acquiring Chinese clients. In fact, although Japanese firms are beginning to show more interest in India, Japan’s trade with China is still 10 times larger than with India.
So, why did China not become Japan’s client? More than cultural or historical reasons, China did not become a “client” state because of the relative power relationship. And the reason why it is absurd to suggest India will be Japan’s client is the same.
If “underwriting a country’s growth to share the spoils” is all that is necessary to secure a client state, then the United States should have become China’s client by this time.
Apart from the fact that the argument came from an economist and a publication of some reputation, there’s little to say about it. Indeed, it is in India’s interests to deepen its economic and strategic engagement of Japan, for this relationship has the potential to underpin the new order in Asia.
—Nitin Pai
Africa rising
Sub-Saharan countries are generating growing interest from hedge and private equity funds. In London alone, investors raised more than $2 billion to invest in local firms. Though many view African markets as too small and illiquid, others buy African equity—because of its low correlation with the rest of the world—to spread their portfolio risk. The region still trails behind the rest of the world on the ease of doing business ranking. But investors such as Tsega Gebreyes—a manager with Satya, a private equity fund—notice a shift in the business climate: In the past, when people talked about an African renaissance, it was largely about politics. This time, ... it is being led by the private sector, and by capital flows.
—Chris Monasterski
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First Published: Fri, Aug 24 2007. 12 35 AM IST