Business & Economics: March 2008 Archives

America's capital markets are losing ground to foreign competition due to excessive expense and regulation.

The United States received only 6.9 percent of the funds raised in global initial public offerings in 2007 and did not participate in any of the top 20 global IPOs, Harvard Law School Professor Hal Scott said at the U.S. Chamber of Commerce's second annual capital markets conference.

"We found U.S. public markets had increasingly become uncompetitive," said Scott, director of the private-sector Committee on Capital Markets Regulation.

In comparison, in 2000, about half of the value of global IPOs was raised in the United States, according to Scott's committee.

Scott also noted that many foreign companies in 2007 took advantage of a U.S. regulatory change that let them delist from U.S. exchanges. About 15 percent of U.S.-listed foreign companies left the U.S. markets in 2007, about three times the historical rate, he said.

We need to ease regulations and cut taxes, or businesses will go elsewhere. That's capitalism. If we keep moving towards greater regulation and government meddling, we're going to end up on the losing end of economic history.

(HT: John Rutledge.)

Tax Prof notes that in addition to being stingy, the Obamas aren't saving for retirement.

Several bloggers have note another curious fact about Barack Obama's tax returns: despite over $1.6 million in Schedule C income, most of it from royalties on his book, he did not take the elemental tax planning step of establishing a SEP-IRA. The tax magic is that you can shelter up to 25% of your self-employment income (up to $180,000 in 2007), and the investment earnings accumlate tax-free until withdrawn at retirement. Greg Mankiw (Harvard) suggests possible reasons that Obama did not do this:

Maybe he is getting bad tax advice. Or maybe he is expecting vastly higher tax rates in the future when the accumulated savings will need to be withdrawn and taxed. As Obama economic adviser Austan Goolsbee has written, "Future increases in tax rates potentially threaten to significantly reduce the value of your retirement savings and may even mean that you should not save in 401(k) accounts at all."

Great news.

Update:

The Obamas don't own stock either. Wow, these people either have zero foresight, or they know something we don't....

Despite massive outpourings of money over the past decades, AT&T's CEO Randall Stephenson says America's secondary education system is a failure.

Stephenson said he is especially distressed that in some U.S. communities and among certain groups, the high school dropout rate is as high as 50 percent.

"If I had a business that half the product we turned out was defective or you couldn't put into the marketplace, I would shut that business down," he said.

Gone are the days when AT&T and other U.S. companies had to hire locally, he said.

"We're able to do new product engineering in Bangalore as easily as we're able to do it in Austin, Texas," he said, referring to the Indian city where many international companies have "outsourced" technical and customer support workers.

"I know you don't like hearing that, but that's the way it is," he said.

The problem with American secondary education isn't a lack of funding, it's a lack of teaching. Not teachers -- we've got plenty of those, it's just too bad they apparently aren't capable of doing their jobs effectively. I think most of the blame lies with the teachers' unions' commitment to their own power at the expense of our students. They've created a culture in which the purpose of public education is to create union jobs rather than to actually educate children.

Benjamin Franklin famously advised that "a penny saved is a penny earned", meaning that reducing expenses has the same effect as increasing earnings. It's often easier to save a penny than to earn one, so the aphorism is a useful reminder to us all to be careful with our spending.

Fortunately for Ben Franklin, however, he didn't have to pay income taxes! With today's marginal rates, every penny you save can be equivalent to a penny-and-a-half in earnings! All the more reason to practice frugality.

With the feminization of our culture I think we're losing an appreciation for some of the male-oriented social skills that have helped propel Western civilization to the dominant world position we presently enjoy; perhaps chief among those skills is the art of intimidation. (That's a pay link, but I recommend reading the whole article.) Everywhere you turn is another fuzzy feel-good message about how we all need to be nice and get along, but the fact of the matter is that male-dominated social structures naturally coalesce around strong leaders, and strong leaders rely on intimidation to drive their followers. And that's not necessarily a bad thing.

Zander and Weinstein are examples of what I call great intimidators. They are not averse to causing a ruckus, nor are they above using a few public whippings and ceremonial hangings to get attention. And they’re in good company.A list of great intimidators would read a bit like a business leadership hall of fame: Sandy Weill, Rupert Murdoch, Andy Grove, Carly Fiorina, Larry Ellison, and Steve Jobs would be just a few of the names on it. These leaders seem to relish the chaos they create because, in their minds, it’s constructive. Time is short, the stakes are high, and the measures required are draconian.

But make no mistake – the great intimidators are not your typical bullies. If you’re just a bully, it’s all about humiliating others in an effort to make yourself feel good. Something very different is going on with the great intimidators. To be sure, they aren’t above engaging in a little bullying to get their way.With them, however, the motivating factor isn’t ego or gratuitous humiliation; it’s vision. The great intimidators see a possible path through the thicket, and they’re impatient to clear it. They chafe at impediments, even those that are human. They don’t suffer from doubt or timidity. They’ve got a disdain for constraints imposed by others.

The modus operandi of great intimidators runs counter to a lot of our most deeply entrenched preconceptions about what it means to be a good leader these days. We’ve all read the books and articles describing people who lead quietly and with great empathy and humility. But as you’ll see, the leaders I’ve been studying think and work in an entirely different way: They’re rough, loud, and in your face.

Beneath their tough exteriors and sharp edges, however, are some genuine, deep insights into human motivation and organizational behavior. Indeed, these leaders possess what I call political intelligence, a distinctive and powerful form of leader intelligence that’s been largely ignored by management theorists and practitioners. In all our recent enchantment with social intelligence and soft power, we’ve overlooked the kinds of skills leaders need to bring about transformation in cases of tremendous resistance or inertia. It’s precisely in such situations, I’d like to propose, that the political intelligence of the intimidating leader is called for.

The article expresses in very clear terms a concept I started to recognize in my later years of high school. Intimidating behavior doesn't come naturally to me, but I've tried to develop my abilities in this area and have found that a little bit of intimidation applied at the right time can often work wonders in business and social relationships. The flip side is that once you learn to use the power of intimidation it's very hard not to apply it in situations where it's not appropriate, such as on friends and family.

I also would never want to be (or be perceived to be) a bully, so that undermines my utilization of intimidation techniques. Most of the time I'd rather stay friends than make every effort to push a group towards an efficient or productive end, so intimidation certainly isn't the only tool in my social toolbox. Being an effective leader in a family, church, or group of friends where the primary reward to the group members is a positive social interaction is a much more difficult balancing act than leading a business that's paying its employees to get some job done. I'm far from perfect at this (as my wife will attest) but I'm working very hard to increase my experience.

First off, let me say that I think it's silly for corporations to pay taxes at all. Why not just tax income when the shareholders of a corporation take out their profit as dividends? Taxing corporate profit and then taxing dividends again for individuals isn't fair, because you're taxing the same money twice on the same people. Anyway, it would be a lot simpler to just combine all the taxes together.

That said, the Tax Foundation has released a new report showing that corporate tax rates in America are among the highest in the world, and there's no doubt that our high rates are pushing jobs and businesses out of the country.

A new study from the Tax Foundation, a nonpartisan tax research group in Washington, shows that most American states tax job providers at a higher rate than any other country in the developed world.

"This is startling news for America's businesses and workers," said Tax Foundation president Scott Hodge, the study's author. "Tax competition for jobs and investment is fierce, and the U.S. continues to fall further and further behind. Our states should be the world's leaders in many things, but high taxation should not be one of them. The high federal corporate tax rate is literally crushing states' competitive abilities. That means fewer jobs for American workers."

Counting the federal rate alone, the U.S. has the world's highest corporate tax rate, but including average sub-national rates (federal plus state in the U.S.), Japan edges out the U.S. for the highest-tax location (see table).

This new study breaks the tax down state-by-state, adding each state's corporate tax rate to the federal corporate tax rate. The results show that 24 states impose, when combined with the federal rate, a higher business tax rate than in any other nation. In fact:

* 24 states have a combined corporate tax rate higher than top-ranked Japan.
* 32 states have a combined corporate tax rate higher than third-ranked Germany.
* 46 states have a combined corporate tax rate higher than fourth-ranked Canada.
* All 50 states have a combined corporate tax rate higher than fifth-ranked France.

As I said though, to be properly considered you need to combine corporate tax rates with individual tax rates. My intuition tells me that if you add corporate tax rates to our individual tax rates, the sum would be lower than the similar sum for the various other countries mentioned. (I have no numbers on hand to back this up.)

NPR has an interesting take on why burglaries have been declining for decades:

"I was a salesman. I could sell anything," Mathis says, as he waits to see his probation officer at a city building in Washington, D.C. "Go get me some toilet paper, and I could sell it."

For almost 20 years, Mathis burglarized homes to support a drug habit. He only got caught a few times. Mathis says he stopped breaking into homes because there's just no money in it anymore.

"If you're going to do a burglary, you need to have some buyers," Mathis says. "Everybody has everything now."

Mathis says there's just too much on the street already. Everyone he knows already has a digital camera, iPod knockoffs and pirated DVDs shipped in from China.

"And if it's not new, a lot of people don't even want to fool with it," Mathis says.

Forget about last year's video games and old laptops, Mathis says. And don't even bring a VCR or boxy TV to the street.

"You can get a TV for nothing almost," he says. "People are giving them away now."

How's this for a definition of what it means to be a "wealthy" nation: legal commerce puts the black market out of business.

Perhaps most interesting is that private enterprise isn't just attacking burglaries from beneath, but also from above.

The program and the street economy may have turned Mathis' life around, but criminologists say there are other reasons behind the 30-year drop in burglaries — such as the 1 million private police and security guards at work in residential communities.

Two years ago, Steve Southworth, a private police investigator for the Wintergreen Resort in central Virginia, spent six months tracking the movements of a burglar who traveled along the Appalachian trail. ...

In the past, remote communities like this one were ripe for thieves. But since residents started paying for their own private officers, crime has dropped 70 percent.

Maybe a wealthy free market can provide solutions to problems that even many libertarians often believe require government intervention?

Of course, the flip side is that gadget robberies are up.

(HT: Marginal Revolution.)

All eyes are on Ohio and Texas... guess which state is being sucked dry by union vampires?

Ohio's most crippling handicap may be that its politicians -- and thus its employers -- are still in the grip of such industrial unions as the United Auto Workers. Ohio is a "closed shop" state, which means workers can be forced to join a union whether they wish to or not. Many companies -- especially foreign-owned -- say they will not even consider such locations for new sites. States with "right to work" laws that make union organizing more difficult had twice the job growth of Ohio and other forced union states from 1995-2005, according to the National Institute for Labor Relations.

On the other hand, Texas is a right to work state and has been adding jobs by the tens of thousands. Nearly 1,000 new plants have been built in Texas since 2005, from the likes of Microsoft, Samsung and Fujitsu. Foreign-owned companies supplied the state with 345,000 jobs. No wonder Texans don't fear global competition the way some Presidential candidates do.

Just imagine how good our education system would be if it's primary role weren't playing host organism to the education unions. Etc.

(HT: The Pirate.)