Chan Akya wrote:
"Permanent Advantage" explained



- did I extrapolate much? Actually no. You need to travel around Asia to see what I have seen, and enjoy what I have. Add in the low taxes in most countries (ex-Japan), and suddenly the region becomes the most lifestyle friendly in the world today. Put differently, would you rather pay 60% tax in Europe, 50% tax in the US (or is it the other way around) and suffer from the poor facilities ? or alternatively, pay 30% tax and enjoy a 7 lane superhighway to your factor? Gee, that is a QUIZ now, isn't it?


CA

Hi Chan,

Really glad that you enjoyed your recent foray into Asia. I can also see that you enjoyed writing your extended gloat (Asia's permanent advantage) rubbing it into the oh-so-superior West.

Our experience out here is that freeways within nand close to major population centres do not solve traffic congestion problems: they merely attract more cars on to the road, transferring the congestion that used to be seen on the narrower arterial roads they were supposed to have superceded. Seven lane freeways around Shanghai, Seoul, Bangkok? I shudder at the thought of the gridlock, the carbon monoxide fumes and the frayed nerves.

Even if I have to pay higher taxes and do without the freeways, I think I would still rather stay where I am, breathe the clean air and enjoy the elbow room!

"How do you figure out the ROI on infrastructure? China is building infrastructure and the multiplier affect can be compared to a similar multiplier in US in the 50/60's and Europle in the 60/70's.
We know this levels off eventually, and that the debt accumulated was never paid off in the west. I see no reason that China should escape this trap."

Valid questions, but you are trying to see everything in your own light.
This kind of questions have been studied and answered.
Example, Beijing Olympic. About $100 Billions were invested
in the Beijing Metro area between year 2000 to 2008. It was
not only the best Olympic, everyone involved made money from
it too.

Seven lane superhighway:
Expressways in China are financed with various mechanism.
Only a fraction of new roads are financed by central government.
Most are built by the local governments in partnership with
private funding. They are toll roads which often look less busy. Investors get to manage the road for 25 years to
collect their profit. After 25 years, it becomes public owned.

quark wrote:
[quote
Seven lane superhighway:
Expressways in China are financed with various mechanism.
Only a fraction of new roads are financed by central government.
Most are built by the local governments in partnership with
private funding. They are toll roads which often look less busy. Investors get to manage the road for 25 years to
collect their profit. After 25 years, it becomes public owned.[/quote]

When our state government builds a freeway out here they often (likewise) get private enterprise to build it and allow them to collect tolls, usually I believe for 15 or 20 years depending on cost of tollway, after which it goes to public ownership.

(Gad! These Chinese are becoming like us!)

"(Gad! These Chinese are becoming like us!) "

So why not upgrade your infrastructure like China is doing?

two separate issues

replacing and upgrading infrastructure is different than building it for the first time, the stuff that we are adding in NA is usually of the mass transit variety. As politicians finally catch up with what urban planners have known for a century, cars and cities do not mix very well. The fight is between the two communities the older folks and commuters who are addicted to their cars and the younger generation who can't afford them.
We have already made the mistake of investing in urban road systems, people have bought their cars, its all money that has been spent. When you make these kinds of mistakes you must pay for them. One of the reasons NA and Europe are in the mess their in is because instead of investing in factories we bought toys, that's what you own when you use a car in the city. Cost per mile compared to other forms of transit are appalling. It promotes sprawl which increases servicing costs, parking lot are a huge unproductive use of urban space, congestion adds to the cost of servicing and deliveries, tax issues etc.

why do you think London and Stockholm imposed restrictions? Why do you think several other cities are considering it?

having said all that this a picture of my new ride,
greenville.kijiji.com/m/ViewLargeImage?adid=547606&index=0

same model/year etc



we tried the private thing in in Vancouver, when they got into it and crunched the numbers, and realized that they would go broke. Government had to bail them out; any urban planner from the 60's could have told them that.

It will be of interest to see what's the profitability of these Chinese and Australian companies are over the long haul [30 years]. Saw a lot of toll roads in Florida, Texas etc. one wonders if they are paying taxes on the urban space that they are taking up? Or is it just a way to take care of one part of the community at the expense of another.

How much govt money is being spent on connectors/feeder roads? This has been one of those corruption dodges that has happened in many places, a corporate gets to make money on the main line while the community tax base picks up part of the tab for the system.

A few random points:

USA's interstate highways served a significant military purpose. Its cost should be calculated under military spending, then its economic ROI is astronomically positive.

The West's civil infrastructure are IMHO, mostly good investments, but I won't going into details.

There are many examples of infrastructure investment that turned out badly for the investors and/or taxpayers. E.g. public money that went into for-profit sport/entertainment stadiums and pay-per-use roads, bridges/tunnels, or private money that went into the .com infrastructures, most famous are Nortel and Deusche Telecomm. But I think if calculated as overall cost to society (including both the original investors and money that went into bail-out etc). The society as a whole still enjoy a net positive ROI. (unfortunately, I have to count the profit made by corrupt businessmen/officials to reach that conclusion).

So I think over-capacity is over-hyped, yes it had caused problems before and it will cause further problems, but it's not comparable to the systemic threat we have seen with the Asian Flu of 1997 and sub-prime triggered crisis of today.

As an example, a significant barrier to recovery in the USA is high unemployment, with construction job loss contributing a more-than-fair share. Construction employment picture is lousy due to an over supply of homes, especially luxury homes. But I think exactly this is the wrong logic to follow, over-supply is part of the symptoms of the "problem" not the cause of the problem. The true cause is bad fiscal policies, at governments, lenders, borrowers and investor levels.

So over-supply or over-capacity may amplify an underlying systemic problem, but it doesn't on its own create a systemic problem. E.g. Nortel is the mother-of-all-over-capacity but its damage to Canada as a whole was smaller than Enron (financial mess) to USA.

Another factor that is at least true in China, (but I think also apply to other Asian, post-1997 flu countries) is that most of the infrastructure was financed by accumulated savings rather than debt. If an investment is bad, wasting savings accumulated from past productivity is quite different from making one's future generations debt-slaves (especially bad if the debt is held by foreigners). Japan might have accumulated a lot of national debt, but their problem is significantly mollified since most of the debt is held by Japanese corporations and citizens.

The "novel" terminology in US politics is Pay-as-you-go (PAYGO), for us it's like hearing Marco Polo "discovered" China. Asians have been debt-adverse for centuries, since we ACTUALLY learn from past mistakes.

I might inject one small side-track: Muslims went one big step further by prohibiting interest payments or usury all together. I used to find this Islamic law totally puzzling and unnatural, but now it seems wisdom of the highest order.

everybody love infrastructure no one wants to pay the cost.

Another East/West difference is that in Asia, the boundary between public and private interest is far more blurry. This is not just Communist China, it applies just as well to India, Taiwan, Korea and Japan. It's well known CA view this reality in a very dim light and disparages it as crony capitalism.

It's true crony capitalism does stifle competition and innovation, but one huge advantage is that both public and private officials are "in the same boat" for the long haul. In the West, any financial/fiscal mess that can be covered-up for 4 years is the next President/PM's problem. In the East that won't work at all. The sitting President/PM is likely to be in power for 10+ years, and even beyond his own term, he still has an incentive to leave the country in a sustainable state for his successor who might be his own son.

Likewise, even without evidence you can safely assume that Samsung is making the Korean people pay for, or at least subsidize heavily, any high-risk investment (say the next generation semiconductor foundry). At the same time, it's also safe to assume that Samsung will never outsource its manufacturing jobs to China the way American corporations have gutted the middle class bedrock of US economy. Yes I know Korea has serious fiscal problem (I don't really understand at the moment) but I believe this hasn't impacted their real economy.

MW,

Your pursuit of clean air and elbow room is commendable - but
not to worry, all Western countries with their demographic
declines and net emigration (i.e. negative immigration) will have
a LOT of elbow room in years to come. Europe is already seeing a
marked reduction in industrial activity due to an aging popul.
and so shall be the case elsewhere...after all, when over 50%
of Global GDP shifts to Asia in the next 20-30 years, what
matters if a particular suburb in Sydney is leafy or dry ...


Michael

The points you raise are addressed superbly by an author I have
quoted in the forum before - Jim Kunstler. His blog is a good
place to look at the future of the carbon economy in the US and
other countries, and it dovetails nicely with the whole city /
urban design issue you bring up with regards to London and
Stockholm.

Dr Core

1. Korea has a fiscal deficit and certain structural problems
(long story) but it does have a decent current account with an
ability to export to the rest of the world. Hyundai for example
has gotten to be a great brand in the past 10 years and Samsung
is way ahead of the Japanese in the electronics field. Same for
many other sectors including computer animation, memory chips
and so on. Competitive advantage globally helps to reduce the
pressures of domestic fiscal dysfunction - a luxury that the US
for example does NOT have, and neither do most European
countries.

2. Crony capitalism is wrong, and always backfires in the end
because of the misallocation of capital. Malaysia is Exhibit A,
and many other countries have structural problems due to the
prevalence of crony capitalism. Its defendants come up with a lot
of flowery prose to deny the disadvantages but in any hard nosed
analysis it becomes clear that the 'system' will fall flat on its
face eventually. Exhibit B - the US financial system

3. Islam's ban on interest (usury actually) has not demonstrably
led to a better system of capital allocation - if anything, there
is a shortage of willing investments (we can't call them loans)
by banks and a concentration of capital advantage in most
Islamic countries for PRECISELY that reason. Its a good topic
to explore, but suffice to say at this stage that if you don't
believe me, please look up the Worst Performing Stock Index of
the past twenty years - surprisingly, it is the Saudi Stocks
and the reason is the very same concentration of capital that
is caused by the absence of a 'transfer price' on liquidity

CA

"2. Crony capitalism is wrong, and always backfires in the end
because of the misallocation of capital"

always???? the Rockefellers, haute finance, resource capitalism is mostly crony capitalism, govt hand in glove with finance. If you have access to resources the rest will follow, and access to resources has always been controlled by govt. and their cronies.

I wrote a paper on the failure of urban auto transportation in the 60's, what we all new then is being played out in China, India etc now.
investing in a failed technology is never profitable, one has to be careful, confusing toy culture with investing is a fools game.



Dr Core, not sure about your point as to savings? why does it matter?