Category: Travel

Hi from Astana

Capitalism-service

When I first started coming to Kazakhstan in 1992 I was struck by the dramatic difference in the quality of customer service in the post communist country and the standards of the non-communist world. Under capitalism we make money serving others and you can make lots of money serving others better than anyone else. In the communist world, they explained to us, “they (the government) pretend to pay us and we pretend to work.” Service was begrudging and lousy. In fact, Hyatt and other international hotel chains refused to establish hotels in Almaty for a several years because they concluded that it would be too difficult (costly) to train local staff in the service levels expected at four star hotels around the world. Today, the Hyatt Regency I stay in when in Almaty and the Radisson I am staying in now in Astana provide excellent service, which is to say normal service. Impressive progress has been made toward the service orientation of capitalism. You can’t appreciate the transformational nature of this reorientation of incentives unless you have seen both.

Capitalism-standards

Even in the United States we have abdicated standard setting and enforcement in a growing number of areas to the government. I guess we are wealthy enough to afford it (i.e., to absorb the costs and inefficiencies of government rather than private provision of almost anything). But there are limits beyond which we will lose the wealth from which we afford such wastes. I was thinking of this while looking at the water purification facility hidden in the back of the Intercontinental Hotel I stayed in for three weeks in Nairobi a few weeks back. If Western travelers had to rely on third world government standards and enforcement of water purity, food quality, etc. (even electricity), we wouldn’t travel to the third world. What we rely on and trust in is the greedy self interest of international hotels to protect their reputation as clean and safe places to stay anywhere in the world.

International Cooperation

International cooperation is useful if not essential in almost every area of life. The need for different power plugs in different countries and driving on the left some places or on the right in others, stand out as examples of where cooperation on standards falls short. But modern technology overcomes some of these areas of limited standardization. We do manage to send emails and visit the WWW anywhere and from anywhere in the world seamlessly. Making payments anywhere is getting easier. Thus I was struck when leaving Nairobi two weeks ago with a “final” security check point (those at the gates after having passed one to get into the boarding area) at the entrance to the gate waiting room and another one on the other side of the room on the way to the plane. Guessing that the first one was Kenyan and the second one British Air, I ask the Brit at the second one why the guys at the first one didn’t trust him (my way of trying to be nasty). He shrugged and said that their two governments had not yet managed to negotiate an agreement on the matter so they were both required to have check points. More over, if I were arriving by in the U.S. in Atlanta, I would have to take my shoes off and go through it all again before being let back into the country. Fortunately this is not the case when arriving as I am at Dulles in Washington DC. There is more work to be done

Buy American—Dumb and Dangerous

The every thing but the kitchen sink stimulus package bill (I can’t remember its cute name) included Buy American restrictions on where the money could be spent (this particularly upset our Canadian friends whose economy is highly integrated with ours). This is dumb (it reflect ignorance of basis economics) because if we can’t buy cheaper better foreign goods and services, foreigners will not have the dollars with which to buy our relatively cheaper, better goods and services (ever hear of comparative advantage?). Increases in American exports were the one positive factor keeping our economy going last year. No jobs will be saved by “buying American”, they will just be shifted into less productive areas lowering our (and the rest of the world’s) standard of living. Every college student who has taken basic economics knows this. It is dangerous because it could lead to a rise in protectionism around the world (Buy Kazakh, Buy Russian, Buy German, etc) of the sort that was a major cause of the depth and duration of the Great Depression when retaliatory tariffs were raised all over the world in response to high tariffs in the U.S. Do we never learn anything?

The return of Marxism?

This is a dangerous time in many respects. One is the danger of a backlash against capitalism, despite the great wealth it has helped create and the huge increase in the standard of living of hundreds of millions of people around the world that it has made possible. We must address its weaknesses and vulnerabilities very carefully and thoughtfully. The economic Forum I participated in here in Astana, was full of anti-capitalist rhetoric. Ed Phelps, a Nobel Prize winner in economics (Bob Mundell, another Nobel Prize winner in Economics was also participating in the Forum), made the absolutely stupid proposal that the American banking system be restructured with government subsidies to focus on business lending. The chair of my panel, the last of the day, ended by quoting Marx (Karl not Groucho) favorably. Those of us who believe in the virtues and merits of capitalism (and this includes most of Obama’s team despite some very disappointing moves toward bigger government) have a big challenge to defend it in the coming years. This will require some adjustments in the government’s regulatory role and improvements in macro policies that contributed to the current crisis, in the never ending search for the best balance (partnership is the currently popular word) of the public and private sectors.

All the best,

Warren

I am entering my third and last week of this visit to Nairobi. This time I am here for the IMF to provide assistance to the Central Bank of Kenya’s implementation of its monetary policy (it follows a monetary rule). This visit comes exactly two years after my first, which was for a regional meeting of the Mount Pelerin Society. So I looked back to see what I had said about that earlier visit. To my surprise, I had come last time from Kazakhstan with a pleasant stop over in Istanbul. This time I am traveling on to Kazakhstan, with a week in Amman, Jordan for meetings with the Central Bank of Iraq in between. And the President of Turkey is here in my hotel. I had breakfast with him this morning, sort of (from across the dinning room). Who would have imagined such a connection between Kazakhstan, Kenya, and Turkey.

Nairobi is a nice city of high and low rise buildings among many parks and a population of almost 4 million. It has too many cars and bad traffic. Its altitude of 5,450 ft above sea level is too high for malaria carrying mosquitoes. Its two rainy seasons produce a beautiful green country side with exotic and beautifully shaped trees the likes of which I have only seen in Africa. Kenya is near the equator and always temperate but February enjoys particularly good weather, which is generally clear and in the upper 70s during the day and the low 70s in the evenings.

I walk the five blocks between my hotel and the Central Bank each morning and afternoon. I took special note the other day that during my walk back to the Intercontinental I did not see one white face among the thousands I passed on the street. Inside my hotel is another matter. The Kenyans I have met are very friendly and helpful, often sensing correctly that I am lost (generally within the Central Bank). They are very open and easy to talk to, something highly valued in my profession of advisors. Everyone speaks English fluently.

A few days ago I meet with eight members of the Association of Financial Market Dealers to discuss the trading of government securities and a new inter bank repo (purchase/repurchase agreements for government securities). The issue was why this new instrument, which had been several years in preparation, had not yet traded. Like dealers every where in the world they were young and full of energy (or vinegar as my grandfather used to say). They were not shy about identifying this or that problem. At the end of our meeting the head of the Association, a witty, quick talking young man in his mid to late 20s, smiled and said: “Yes we can.”

On several occasions I was asked where I was from. Upon replying “America,” my questioners would smile and say something like, “You know that your new President is our brother.” It is nice not having to claim to be Canadian any more. No offense Bill.

As I have not traveled outside of the area since the last Cayman Islands Monetary Authority’s board meeting November 5, my usual excuse for these notes, I would like to share with you a recent twenty minute car trip into town.

November 18

The orchestra for this evening’s concert rose as its young director Gustavo Dudamel walked to the podium. Then, still standing, they broke into The Star Spangled Banner. For a moment this cause some confusion among the Kennedy Center audience, as concerts, plays, movies and other public events in our country do not generally begin with the National Anthem as in many other countries. But we quickly rose to our feet and some even sang along with the orchestra. They played our National Anthem more beautifully than I had ever heard it before and tears actually formed in my eyes. As the music played I quietly reviewed some of America’s many strengths and virtues. I was proud of America again. It had been a while.

Before we could take our seats at the end of the Anthem, the orchestra took up the Hatikvah (the Hope). The haunting, melancholy strains of the Israeli National Anthem kept us standing for a few minutes more. We took our seats and the Israel Philharmonic Orchestra began Felix Mendelssonh’s Symphony No. 4, his “Italian” symphony. The young German composer traveled to Italy at the ago of 21 and wrote: “Italy at last. And what I have all my life considered as the greatest possible felicity is now begun, I am basking in it.” He began his Italian symphony during his nine month visit to Italy and premiered it three years later in London at the age of 24. And I was enjoying his symphony and even more Brahm’s (also German) much richer Symphony No 4 that followed it here in Washington DC performed by Israel’s premier orchestra.

The mix of nationalities reminded me of my first full Opera many years ago. Jean and Tom Dusenbery took me to the Berlin Concert Hall to watch Puccini’s Madam Butterfly. These beautify arias about an American in Japan where sung in Italian. I was watching it in West Berlin (my older friends will remember that there was a West Berlin for 28 years as well as a West Germany for about 45 years). For all its problems the world is a better place for most people.

December 24

Last months concert is one of the many experiences of rich cultural diversity that make life here so rich and exciting. It has been a trying and difficult year in many ways, but we do have so much to be thankful for as well and 2009 will be a new and I think exciting year. I wish you the very best for the coming year.

In the late 1980s my friend Tom Palmer, now Vice President for International Programs and Director of the Center for the Promotion of Human Rights at the Cato Institute, crisscrossed the captive nations of Central and Eastern Europe cultivating contacts sympathetic to free market capitalism. When I first went to newly “liberated” Bulgaria in February 1992, leading an IMF technical assistant team to the Bulgarian National Bank, Bulgaria’s central bank, Tom gave me the names of his two contacts in Sofia, Bulgaria’s capital. Philip Harmanjiev and Ivo Prokopiev were young reporters for 24 Hours one of Bulgaria’s many newspapers and one of several English language business newspapers. I met with them and have met with them on every subsequent trip to Sofia. They were bright, ambitious, and eager to learn about the West. They were shining examples of the great good to the world resulting from the lifting of the shackles of Soviet repression from a new generation of men and women eager to make their mark on the world.

Today, still in their 30s, they created and own respected business and other publications in Bulgaria. Philip bought a small winery in southern Bulgaria as part of the country’s privatization program and is now a wine producer, wine importer and creator, owner, publisher of Bacchus, Bulgaria’s wine magazine. With Ivo he founded Capital Weekly, a respected political and business paper, then Dnevnik, the leading business daily. These are now among the many publications of Economedia, the leading Bulgarian provider for business media owned by Ivo and Philip. Ivo’s wife Galya is Editor-in Chief of Capital Weekly. Ivo is Chairman of the Board and CEO of Economedia, and of Alfa Finance (which includes among its holdings Capital Bank in Macedonia), and is Chairman of the Association of Employers and Industrialists of Bulgaria (AEIB). For three years now AEIB and Capital Weekly have put on a conference on business and government issues to which Galya invited me as one of this years speakers: "The Financial Crisis: Bulgaria in the Global Economy". This is my second trip abroad to address bankers and the business community on America’s subprime mortgage and related financial crisis that has resulted from friends reading my occasional travel and economic notes. The first was earlier this year to Amman, Jordan.

Yesterday was my 15 minutes of fame in Bulgaria, which lasted most of the day. I was up at 4:00 am (because I couldn’t sleep) and picked up at 6:55 am and driven to the studio of the Bulgarian National Television station. At 7:15 my face was powered to prevent it from shinning under the TV lights and from 7:30 to 7:45 am I was interviewed on the probable impact on Bulgaria of the global financial panic. The conference for which I had been brought to Bulgaria started at 10:00. Following the address of Ivaylo Kalfin, Minister of Foreign Affairs and Deputy Prime Minister of Bulgaria, Kristalina Georgieva, a VP at the World Bank, Fabio Ganzer, Head of the International Department, Shell International, and I spoke. Other speakers included, Ivan Iskrov, Governor of the Bulgarian National Bank and Plamen Oresharsky, Minister of Finance.

At the end of the conference in the late afternoon, two young Capital Weekly reporters interviewed me about the same topics. I could not help but marvel that this story had come full circle. The two young reporters worked for the newspaper established and owned by the two young reporters for 24 Hours I had met just sixteen years earlier. They were about the same ages as Ivo and Philip had been back then. In between Bulgaria experienced a banking crisis and hyperinflation in 1996 and adopted a currency board in 1997 since which it has become one of the most rapidly growing economies in Central and Eastern Europe (currently around 7% per annum). Capitalism, with its freedom for individuals to express themselves and develop their talents, has opened up the human potential and brought the world a very long way. It has always been an irregular path and I am here in Bulgaria to discuss one of its bigger bumps in the road, but I have no doubt that it will continue to open the way for man kind to reach ever greater and greater heights.