The Norway Model

Recently an article from New York Times talks about how Norway's economy is still thriving and manages to grow by 3% in GDP last year while the rest of the world is sliding deep into the recession caused by the Global Financial Crisis in 2008. Naturally it makes people wonder, which is the better model, the scandinavian socialistic model, characterized by generous social welfare and high tax, or the Anglo-Saxon laissez faire model, characterized by a privatized social safety net, education and a lightly regulated financial system.

Norway's story is not typical. Its GDP per capita in 2008 is $53,450, ranked No.3 after Luxemburg. Norwegian people feel blessed that their country not only has the stunningly beautiful fjorks, but also sits on top of rich petroleum and natural gas resources near the North sea. The country is also rich in hydropower, which makes refining aluminum, another rich resource they have, feasible. Norwegian fishermen have access to one of the largest salmon fields in the world.

Rich natural resources and a small population might already explain half of the Norway's economic successful story. The other half lies in norwegians' frugal fiscal policy. More than 80% of the oil and gas revenue goes directly to the sovereign wealth fund, which is used to buy assets around the world, such as US treasuries or Japanese stocks. Although the fund's holding takes a hit in this financial crisis, the cost for the assets are actually cheaper than ever. Savers like Norway could take this opportunity and buy up more assets.

The public spending of the norwegian government is much lower compared to other developed countries, thanks to the lack of a strong military program. The saved money is spent in the norwegian tax payers: all norwegian citizens get free health care, free education (including higher education) and a generous financial aid for people out of work. In return, 40-50% of personal income in Norway is taxed. Another important feature in Norway's social structure is that, the income gap between the "rich" and the "poor" is relatively smaller compared to United States. Doctors, lawyers and businessmen make less than 3 times of what a waiter/waitress could make.

People in U.S. might argue that, in system like Norway, no one has the incentive to work. As the petro-resources run up, the country has to face the reality. I partially agree with this view. What makes America the most dynamic economy in the world, partly is that entrepreneurship is strongly encouraged in U.S.'s economic system. People have incentive to take risk, work hard and innovate. Such dynamic entrepreneurship-based economy has dynamic consequence too: companies frequently find the need to lay off or hire people in America, depending on whatever opportunity present. A flexible labor market is needed for a dynamic economy, since entrepreneurs could allocate the most effective resources as they see fit. This is exactly lacking in countries like Japan, Germany or France. The more dynamic the economy is, the more new jobs can be created.

The downside of America's model, compared to the Norway's one, is that the basic social safety net does not support the dynamic economy and risk taking. A nationalized health care plan and free college education for their children, could free workers' minds from worrying about losing their jobs. A worry-free worker is more willing to take risk and pursue what they could potentially achieve entrepreneurship-wise. Additionally, a free health care and free higher education can mobilize people from different social classes, not to mention narrowing the income gap, and therefore maximize the availability and quality of the workforce, and improve the nation's overall productivity.

两首财津和夫的歌

青春之影: 1974年



仙人掌之花: 1994年

Touched

Today my wife let me read her MSN profile. In her profile, she wrote that she wishes to find someone who can enjoy "Castle in the sky" and "Shaun of the Dead", and someone who is as cute as Do la A Meng (a little robotic cat in a Japanese cartoon).

Her profile is about me.

I feel lucky that I could share my life with someone who could and would connect with me spiritually. She and I have a lot in common. Often times we feel happy for the same causes, and angry for the same reasons. We sometimes end up being mad at each other simultaneously, because she's probably having the same feeling that I have. In a sense, it's easy to make her happy, because I feel happy the same way too.

I wish that wife and I could share a same ideal, and a same perspective of what a good and enjoyable life journey is. I am a person who could be easily be touched emotionally, and I am happy about it because I am feeling life. Isn't life is about being touched and touching others' hearts?

Converse All-Star Leather vs PUMA Roma

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Study What You Like

My undergraduate training was received in China. Back in my day, we have a unified college entrance exam, held once a year. Your test score from that exam determines what school you will be admitted to, and possibly what you will study for four years that largely defines your career.

Although I have left China for nearly 10 years, I don't think the situation is fundamentally changed. When a high school student apply for college, he/she chooses what to study not necessarily based on what they like, but mostly on what they can get in. On the university side, each department enrolls a fix number of students, based on a centralized plan, which are somewhat disconnected from the job market. If you have good scores from the test, you are lucky to get into those "popular" programs such as computer science, electrical engineering or finance. If you are less lucky, you will be "allocated" to "less popular" departments, such as natural sciences or literature.

There are two major problems for this model. Firstly, students who are forced to study what they don't like, are highly unmotivated. Therefore they are most unlikely to benefit effectively from the training in that area. At the end of the four years, they find themselves wasting valuable time. Since those unpopular departments often time take in more students than the market actually needs, their graduates have trouble finding jobs.

Secondly, since only the highest scorers can get into "popular programs", the number of graduates from these programs is under-supply. Therefore, these programs remain artificially "popular", because of the subsidy from this particular enrollment system. This might be a good news for students in those disciplines, but not so much for the overall economy. The supply of labor from these disciplines is artificially limited, making the labor cost in those industries higher than what the nation can potentially offer. The students who are forced to study the "unpopular programs" are fully capable of studying the "popular programs" and become a potential competitor in those areas. But the reality is that, those graduates from the unpopular programs suffer from artificially low wages because of the oversupply of graduates than what these areas can consume. Since the wages in the "unpopular" programs remain low, the program remains "unpopular".

At the core of this very problem, is that the number of students enrolled in each majors does not reflect what the market actually needs. I am not saying the main job of universities is to provide vocational training to their students. But let's face the fact that universities are the major source for new labor into the market. If students are provided freedom to choose what they like to study, based on their perceived views of the future job markets, the situation will change: more people can study the now "popular programs", such as computer science, therefore the wage for a computer engineer will decrease, lowering the cost for the industry, and popularity of computer science will gradually reduce because of the lower wages and higher competition; less students will choose to study the now "unpopular programs", therefore the wages in these area go up, making them more attractive. It's more efficient to let the job market decides how many students should be taken into each academic programs.

By letting students to freely choose what they study for higher learning, the income gap between different majors will narrow down. The perceived images of various disciplines will therefore be changed to a more realistic way. Technically, there are no majors intrinsically less popular than the others. But there are definitely some majors need more labor than others, based on the particular economic structure of the country and the nature of each jobs. Simple example is, an economy tends to need more computer engineers than physicists, because computer science are applicable to more areas in the real life. That doesn't and shouldn't mean computer scientists are more valuable than physicists. It only means the current market needs more computer science professionals than physicists. If you force more people to study physics than the market actually needs, the supply pattern is distorted.

Of course, for students to make the right decisions about what to study, accurate and realistic data for salaries and number of job openings should be available frequently. Students should also be allowed to change their major at least once in college, because the job market is dynamic, and we might not make the right decision in the first place.

Obama: more engineers, less bankers

A commentator on the internet commented on Obama urging American kids to study engineering instead of finance:

"I hear talk in canadian news about a shortage of skilled workers too, mandating the dire need to import more skilled workers on temp. work visas.

The problem with that is multi faceted. Our education system sucks, flat out, it's broken because they don't put the money into it and instead use it to get you indebted. The quality of the courses isn't there, the quality of the teachers is not there, student loans are less than 40% of what's required for engineering courses which are easily the most expensive, and you can't reasonably work a full time or even part time job while doing an inhuman program like they are unless you just "manager" your way though it.... which is all they are interested in graduating.

Then you look at your options and find that for a 30 to 40 thousand dollar education you qualify to earn just a little over min wage, but hey it's OK because you can work allllllll the hours you want, nobody will stop you.

Standard of living and quality of life are buzz words from a fairy tale that doesn't exist. Forget job security you don't even get that with engineering. Some of the world's very best analog engineers, the guys who wrote your books and designed some of the best components now in use are all getting the axe right now. There's nobody better, but there's millions cheaper. You don't even have to worry about them comming here to take your job anymore, the companies are going over there.

Anyway for decades they've created a void by underfunding education and making it feasible for the select few, further poisoning it by favoring the manager/ceo type that cheats their way through without knowing a damn.

Their solution to this self created void is always the same, you never hear them say "we really need to see what we can do to produce better and more engineers and make sure they have incentive to go into such a career. No, what they say is "there's big gap, must import".

They import ingineers that come and work for peanuts, send all their money home where their family can live off it like kings. Obviously this is just another bubble to be burst, but before it does they'll take it for all they can, and our countries will rott from the inside out as they so obviously are.
"

Ways to improve the investment environment in developing countries

Developing countries, also known as the emerging markets, have attracted tremendous interest of foreign capitals from their richer counterparts. The reason is simple, there is more room for growth. This huge inflow of capital, usually in the form of foreign direct investment or international bank lending, is subjected to a number of systematic risks that the investors would be aware of. The risks include economic and political ones, such as the fluctuation of currency exchange rate, protectionism-driven trade policies, and local tax codes. Developing countries courting the global capitals nowadays are willing to stabilize their exchange rates, lower their tariffs for imports and reduce the corporate tax that foreign companies. Some ex-developing countries have successfully leveraged these policies to attract foreign investment, and simultaneously build their own economies using the technical and managerial expertise that come along. Ireland, the celtic tiger in the 90s, is a case in point. The low corporate and export tax combined with the highly educated workforce of the country have attracted numerous multinational companies to put regional headquarters and manufacturing divisions in there, and ireland gradually becomes the export platform for these firms. Many cities in China, such as Shanghai, Dalian, Tianjin, now all have the so-called high-tech zones, which are trying to do what exactly ireland, south korea, taiwan, or singapore were doing 10-20 years ago.

There are other risk factors that foreign capitals might face in developing countries that are not as easy to manage. The top three risks are social-political instability, corruption and lack of transparency. Social-political instability affects the security of the capital investment and the market demand (which might be highly manipulated by the governments). The poorest countries in the world have always been those with constant domestic unrest, albeit they might have the lowest wages. Corruption puts the foreign investment in an unfair competition. Foreign companies are restrained to bribe local officials to be favored over a government bid, for example, will lose to another firm which is willing to do so. The winner of the bid might not necessarily have the most cost-effective solution. The bidders who on the other hand have the expertise are discouraged from participating again. At the end, everybody loses except the corrupted officials, who usually are not accountable for how they are spending the tax-payer's money. Furthermore, accurate and updated financial information, macro-economic data, and information about government policies are usually not easily available to foreign investors. As a fund manager deciding which chinese companies to put your clients money into, for instance, you bear a lot of risks: does the company you are researching published trustworthy financial statement? Is the unemployment rate reported by the government accurate enough so that I can use that to plan my factory capability? Will my investment on a certain project be at risk if suddenly the government change its policies to favor another project?

These questions are exactly what a developing country should tailor its economic reform to address to make the country more attractive to a continuous flow of foreign investments. Feasible economic measures to reduce corruption, include reducing relation-based bank lending, better accounting standards and allowing more foreign competitors to enter the local market. If banks are operating on their own instead of being guaranteed by the government, they would only lend loans to the most profitable projects. If more foreign players are let in, with their more sophisticated operations and managements, weaker local companies who used to rely on bribery will be forced out of the competition. Fast and more accurate disclosure of information too is desirable for governments as well as for banks and private companies. In U.S., macro-econ data is published everyday, both by public and private agencies. Investors learn these data and make decisions. Such efficiency can quickly direct resources to the most needed areas away from those non-profitable ones. In developing countries, herding among investors (investors following not their data-driven decisions but the crowd) is a common phenomenon. The root cause is the lack of accurate information that they can study. Such herding tends to amplify the economic cycle and driving output and asset prices higher in booms and lower in slumps. The economic stability will therefore be seriously damaged due to the lack of information.