Rating Countries by Mining Policy Attractiveness

To no one's surprise, investors say Sweden has the best mining policies.

More so than the amount of extractable resources or the economic conditions in a particular country, I'd argue that the political climate is more important in determining its attractiveness to investors. Even in this day and age, mining remains a key industry, especially since many high-tech goods rely on certain minerals. Nor have we moved into a post-hydrocarbon age for powering the world economy. Canada's Fraser Institute produces an annual survey that ranks countries on these criteria, and the latest one shows definite trends. In general, developing countries with their poorer governance lag behind developed ones. Indeed, those concentrated at the bottom and the top are instructive. In general, poor performers have some shared characteristics:

1. The leaders are leftist nutters who may expropriate you at any time;
2. Mining regulations are unclear regarding what areas can be mined, what areas are protected and what the government's share of the revenues are;
3. Other rules regarding the environment and foreign direct investment are similarly unclear.

In other words, highly uncertain political environments tend to rate lower regarding policy perceptions. Here is a brief description from the Fraser Institute:

Policy Perception Index: A “report card” to governments on the attractiveness of their mining policies. While geologic and economic considerations are important factors in mineral exploration, a region’s policy climate is also an important investment consideration. The Policy Perception Index (PPI), referred to in previous surveys as the Policy Potential Index, is a composite index, measuring the overall policy attractiveness of the 112 jurisdictions in the survey. The index is composed of survey responses to policy factors that affect investment decisions. Policy factors examined include uncertainty concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system and taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labour regulations, quality of the geological database, security, and labor and skills availability. The PPI is normalized to a maximum score of 100.

And here is the entire policy perceptions ranking. As usual, it is galling that countries that could benefit the most from stable and predictable mining policies are those which do worst:

Will Xiaomi Be China's First Tech Superbrand?

Xiaomi mascot Mitoo [L] dreams of overseas market share.

The business press is all agog over the emergence of Chinese mobile phone maker Xiaomi. Supposedly, we are on the cusp of a Chinese tech superbrand competitive with products from anywhere else in the world. Naturally I'm a bit skeptical. Aren't these Chinese the same folks who had to buy the ThinkPad name from IBM to be able to sell PCs abroad? Outside of China and B2B circles, who's heard of Alibaba and Baidu? It doesn't really count when you buy off brands others have developed or you're only big in China. Admittedly a nation of 1.3 billion is a pretty big market, but being big there doesn't make you a household name worldwide.

Enter Xiaomi. The press keeps drawing comparisons between its founder Lei Jun and Steve Jobs--he is an engaging salesperson for his products too--though he'd rather be his own man. Personally, I'm taken by their mascot Mitoo who sports an army hat bearing a red star, of all things. Let's just say Mitoo's political affiliations are being toned down for overseas markets where Communist paraphernalia is not quite as welcome (such as Taiwan). Given how racist-protectionist Americans are about foreign technology firms with Communist Party affiliations, I shudder to think how Xiaomi's reception will be Stateside if its mascot remains a red booster! In any event, some of the hype I cannot understand. For instance, they claim Xiaomi's exclusively online retail model is unique. Has Businessweek ever heard of Michael Dell?

Xiaomi’s real invention is its business model. It sells online, never in stores, and avoids conventional advertising, devoting only about 1 percent of its revenue to marketing. (By comparison, Samsung earmarks 5.4 percent.) Instead, the company relies on China’s social networks, Weibo and WeChat, and the free press Lei gets as a national tech hero.  

There's no doubt about it: to be able to boast that Xiaomi has become a global brand, it must crack Western markets. Otherwise, it will be regarded as a China-only phenomenon. For this mission they've hired former Google man Hugo Barra:

On the 11th floor in the main building, in a corner office, is the realm of Hugo Barra, the Brazilian-born Google executive who made news by joining Xiaomi in 2013 to lead its overseas expansion. As he talks, Barra paces his spare office, which overlooks the old tenements that once housed the workers of the demolished wool factories. Barra’s shelves are stocked with Mitoo dolls and other knickknacks. Evidence of his five-year tenure at Google hangs on the walls, including a framed Pac-Man doodle that once appeared on the search engine’s home page.

Barra is naturally bullish about the company’s prospects abroad, and one new weapon is the $130 Redmi smartphone, which Xiaomi introduced last year alongside the pricier Mi 3. The phones look alike, but the Redmi sports an inexpensive processor from Taiwan’s MediaTek. Barra even mulls the prospect of a $50 smartphone that might one day upend the economics of mobile. “I don’t think it’s possible today, with the quality of software and hardware that we would expect,” he says, “but I expect that could change over time.”

Xiaomi has to show it can use Western social media tools such as Twitter (TWTR) as well as it has exploited Weibo and WeChat. It must extend its supply chain across oceans and adjust its business model to countries where carriers sell handsets and customers aren’t accustomed to buying phones online. It must also overcome the association that Chinese brands have with piracy and counterfeiting. And Xiaomi will have to learn to do with less free, worshipful publicity. “Lei Jun is a relative nobody outside China, so leveraging his fame may be a little bit more difficult to do,” says Michael Clendenin, managing director of China’s RedTech Advisors. “Guerrilla marketing won’t be as easy.”

To get props as China's first tech superbrand, America awaits as the world's largest consumer market. Otherwise, Xiaomi will only be regarded as a mainly Chinese phenomenon a la Alibaba, Baidu, etc.

On Inherited Wealth

Click here to read my column in Sunday's NY Times.

How much has the Affordable Care Act reduced potential GDP?

The Affordable Care Act added "about six percentage points to the marginal tax rate faced, on average, by workers in the economy."  So estimates the University of Chicago economist Casey Mulligan. 

Given that labor income was already taxed by income and payroll taxes, that figure indicates the return to working fell by about 10 percent. If we apply a plausible aggregate labor supply elasticity of 0.5, this in turn suggests a decline in labor supply of about 5 percent. In the long run, as the capital stock adjusts, a fall in labor supply leads to a proportionate fall in output. So we end up with a 5 percent fall in long-run potential output.

That calculation is very, very rough, but it does indicate that the ACA could well be a significant reason why the economy is not returning to its old growth path.

Update: Casey emails me that he believes the GDP effect will be smaller than this (about 2 percent or a bit more) because the impact on less skilled workers is greater than that on more skilled workers.  As a result, the mix of skills will change, and GDP will fall by less than total hours worked.

Shakira, the Yoko Ono of Spanish Football

Shakira killed Gerard Pique and Spain's double fantasy for a World Cup repeat.

[Apologies for this post not concerning IPE all that much, but it is definitely international and affects the reputation of the greatest footballing nation in recent times. Besides, it's the weekend.] Following its 5-1 drubbing at the hands of the Netherlands, Spain lost its second game 2-0 to a hungry and inspired Chilean side. Now, the reasons for Spain's decline have been endlessly rehearsed over the past few days and they all can't be ignored: Barcelona FC's decline mirrors Spain's decline. The Spanish team is now too old. Spanish tactics are by now predictable and the lack of surprise fools nobody. And so on and so forth.

This being the World Cup, though, I have another, more entertainingly plausible hypothesis about Spain's unprecedented two losses in a row at the start of a defending campaign: it's the fault of Colombian megastar Shakira. Sure she sang the catchy 2010 World Cup song, but let's just say that her other sporting involvements have not been as profitable. When Barcelona FC and Spanish national team center back Gerard Pique famously paired with her, it was all downhill for his career as he became fat, dumb and happy--like the Americans he grew increasingly fond of being around:

Pique's problems began in Pep Guardiola's final season at Barcelona. PG and GP enjoyed an excellent relationship initially, but the coach grew frustrated at his player's attitude towards training and conditioning. As the defender's relationship with Shakira grew, so too did his waistline: Pique fell in love with one of the world's most glamorous singers - and fell out of love with the beautiful game.

Guardiola tried everything to get Pique back on board, but was increasingly irked by the player's irresponsibility off the pitch: Gerard and Shakira posted pictures of them white-water rafting - an activity strictly forbidden in the player's contract at Camp Nou. That was in the summer of 2011, and during the winter break, the two shared some snaps of them jet-skiing in Miami. That, too, was supposed to be off-limits.

Barcelona FC famously sicced private investigators on Guardiola's behalf to monitor their wayward center back as he wanted to live the glamorous life:

Pep, although a media-friendly coach, hoped his players would shun the spotlight and was concerned at Pique's priorities - especially as the defender was flouting the rules on his holidays. Gerard also incurred the wrath of his boss by leaving his car parked in a bus lane in central Barcelona with the door open ahead of a crucial Champions League trip to Bayer Leverkusen. On and off the pitch, he was becoming far too distracted.

It has since emerged that Guardiola hired private detectives to spy on the defender in a desperate attempt to learn the full extent of his off-field behaviour and, in that final season under Pep, Pique played just 22 times in La Liga and only five games in the Champions League.

Never the quickest center back in an increasingly high-tempo game, Pique looked totally out of sorts in the Netherlands game and was dropped to the bench for the Chile game. Not that it did much to help Spain's prospects, but it's kind of shameful to be washed up at the age of 27. Without a reliable central defender, Sergio Ramos notwithstanding, Spain's prospects went the way of the dodo.

Yoko Ono is famously known as the woman who allegedly broke up the Beatles, the greatest rock group of them all. In the same manner, Shakira probably cannot escape blame as the woman who destroyed Spanish footballing dominance, incredibly having won the 2008 and 2012 European championships and the 2010 World Cup to boot.

Nowadays, I guess the only thing underneath Pique's clothes is...a big gut.

From Where Does Silicon Valley Import Its Brains?

There's an excellent infographic over at Businessweek on where its workforce comes from both inside the United States and outside of it. There are some highly interesting results: First, Mexico more than any other country or state provides the most human capital to Silicon Valley. Second, the Philippines is, after Mexico, the second-largest provider of human capital to the area. However, why is it that you rarely hear of startups from folks from those countries? Odd. By contrast, India ranks only ninth in terms of headcount, but it matters rather more in the overall picture since a third of all startups there are headed by Indian entrepreneurs.

When viewing the infographic, I am reminded of the excellent research of AnnaLee Saxenian on the link between migration and technological innovation. Her pioneering work in this area remains Silicon Valley's New Immigrant Entrepreneurs that established the case that anti-immigrant xenophobia ultimately harms the United States' future economic prospects. #7 China and #50 Taiwan are also important in the sense that many Chinese who gain experience working in Silicon Valley often apply their skills once they return. Together with the Indians, they form the backbone of another study of hers on transnational communities and the evolution of global production networks.

Good stuff.

How the World Cup Showcases Brazilian Inequality

Just as you don't see fat or old people in Ricky Martin videos, something's missing here.

Brazil has long been the unwilling keeper of an image of radically high inequality, with fabulous wealth sitting alongside wretched squalor in any number of its cities. So many years after the black football player Pele won the hearts of the world with his magnificent displays, I am afraid that not all that much has changed. To be sure, the conditional cash transfer program Bolsa Familia which gives poor households grants upon meeting health and education criteria for their children has helped. That said, inequality remains radically high there, with Gini coefficients measuring inequality well above the 50 mark.

Earlier on, protests about the social wastefulness of hosting the World Cup were bolstered by a provocative image taken during the Confederations Cup also held in Brazil in which [rich, white] matchgoing fans threw garbage into a dumpster inhabited by a [poor, black] woman. Unfortunately, the supposedly progressive Brazilian leadership of Dilma Rousseff--formerly a Marxist guerrilla fighter--appears to be tone deaf to the sensitivities about race and inequality the sport raises. Alike the United States where [rich, white] basketball and football fans pay top dollar to watch sporting events dominated by black athletes, the symbolism is not lost:

Inside the stadium, crowds have been what you might expect at these large scale sporting beanos: basically a collection of rich people. This World Cup, like much of the London Olympics, is out of reach of those who cannot pay a premium for tickets. Welcome to the world. This was always going to be the case from the moment it became clear only 400,000 of 3.3m tickets would be made available to ordinary Brazilians, with most at prices beyond the reach of the average salary. There have been comments about the lack of non-white faces in the stadiums. This is not football-specific racism so much as a reflection of wider inequities. Brazil’s middle class is predominantly and historically white. These are not so much white people as rich people.

The Guardian's Barney Ronay reads this one correctly: having ultimately funded the mega-stadiums hosting these events, the ordinary folks certainly had a right to normally priced tickets. In this day and age of media supersaturation, it simply does not look good when this supposed "melting pot" has stadiums filled with a sea of white faces. It hardly reflects the multiracial composition of the football team:

While football cannot be blamed for Brazil’s entrenched social issues, Fifa can and should be blamed for not insisting a huge tranche of tickets go on sale to Brazilians at fixed, affordable prices. And not simply over the internet, to which not all have access, but through local team memberships and stadium connections. Everyday Brazilians are often hugely passionate about club football. They should be sitting in those publicly funded seats at Brazil’s World Cup.

The attendance shocker of the World Cup so far was the group stage rematch of the last event's finalists Spain and the Netherlands featuring 3,500 seats. I'll put the no-shows down to corporate-sponsored seats. Again, what harm would it have done to sell those to average Brazilians who'd have been more than happy to attend?