According to a story by Aesop The Lion went hunting with the Fox, the Jackal, and the Wolf. They hunted and they hunted till at last they surprised a Stag, and soon took its life. Then came the question how the spoil should be divided. "Quarter me this Stag," roared the Lion; so the other animals skinned it and cut it into four parts. Then the Lion took his stand in front of the carcass and pronounced judgment: The first quarter is for me in my capacity as King of Beasts; the second is mine as arbiter; another share comes to me for my part in the chase; and as for the fourth quarter, well, as for that, I should like to see which of you will dare to lay a paw upon it."
A few things should be noted in this story. The 1st the Lion were hunting with the Fox, the Jackal, and the Wolf. Because he got help it is safe to assume that the stag was faster and smarter then one on its own. They had to cooperate to gain this excellent meal. The 2nd thing that should be noted is the beauty of their cooperation was spoiled by the lion’s competitiveness. The moral of the story? Competition corrupts excellence.
Thursday, March 25, 2010
Friday, March 12, 2010
Free Trade: What Do Economists Really Know?
http://search.newyorkfed.org/board_public/search?text=competition&Search.x=8&Search.y=2
Remarks by Vice Chairman Roger W. Ferguson, Jr.At the Conference on Trade and the Future of American Workers, Washington, D.C.October 7, 2004
Free Trade: What Do Economists Really Know?
The role of trade in the U.S. economy has moved well into the spotlight in recent years, and I am pleased to be here today to share my thoughts on this important topic with such distinguished and knowledgeable colleagues. Over the course of this day, you will be hearing from leading analysts, policymakers, and commentators about recent developments in the U.S. economy, past and prospective trends in job creation, the role of sourcing (both out- and in-), and the implications of trade for the coming elections. In my remarks this morning, I would like to put these issues into the broader context of the debate over free trade and its implications for the American economy.
Though my focus will be on free trade, we must remember that prospects for the average American depend on many other factors as well, including technological progress, the education required to exploit this progress, a dynamic market-oriented economy, a framework of limited but effective regulation, healthy and well-governed financial institutions, and a stable macroeconomic environment. And free trade is not necessarily the most important item on this list. Even so, it has been a focus of interest and aspiration for economists dating back to Adam Smith and David Ricardo. As you know, finding overwhelming agreement on issues is difficult among economists, but free trade is an exception.1
The supporters of free trade have not been ignored. In the past half-century, global trade has become freer and has expanded rapidly. The ratio of trade (exports plus imports) to worldwide gross domestic product rose from only 16 percent in 1960 to 40 percent by 2001. In 1960, the United States, Germany, and Japan had average tariff rates of around 7 percent; these rates were more than halved by 1993. The number of members of the World Trade Organization (WTO), or its predecessor, the General Agreement on Tariffs and Trade, rose from 18 in 1948 to 146 in 2003, and the number of regional trade agreements in the world ballooned from only 1 in 1958 to 161 in 2003.
Although most economists welcome these trends, the public at large has been much more ambivalent about international trade. Attitudes toward free trade in principle remain generally positive, but a substantial--and, perhaps, growing--minority of Americans hold more negative views. According to a poll completed around the beginning of this year, 41 percent of respondents viewed the process of increasing international trade through reduction of barriers as proceeding too quickly; this number was up from 30 percent in 1999. And 43 percent of respondents believed that the government should try to slow or reverse the expansion of international trade, up from 39 percent in 1999.2
What accounts for the apparent deterioration in public support for free trade over the past five years? The widening of the U.S. trade deficit may have exacerbated concerns about the country's international competitiveness. More important, some have blamed overseas competition for the job losses associated with the economic slowdown earlier in this decade.
Without solid public support for free trade, achieving continued progress in reducing protectionist barriers, both at home and abroad, may become more difficult. In the remainder of my remarks, I'd like to review the arguments for and against free trade, explore why it has been difficult to muster more widespread public support for this goal, and address some of the consequences of trade protection as it has been implemented in practice.
Arguments for Free TradeInternational trade contributes to prosperity and growth through several channels. These channels are not especially subtle or esoteric, and I would argue that the public at large understands them reasonably well. At the same time, however, quantifying the contributions of trade to national welfare is by no means straightforward.
First, and most obviously, trade increases the variety of goods available to consumers. Trade provides some products that otherwise would be beyond the reach of most American households, such as roses for Valentine's Day, or peaches and nectarines during the winter. More generally, international trade allows us to choose from a wider array of goods than would otherwise be available: Japanese and German cars in addition to American, Chilean apples as well as Washington state, French and Australian wine as well as Californian. It is difficult to put a dollar figure on the value of this increased variety to the consumer, but estimates range as high as nearly 3 percent of GDP.3
A second benefit of international trade is its role in reducing the cost of goods and hence in raising our standard of living. To anyone who has walked into a large discount store and surveyed the range of low-priced items produced in any number of distant economies, this benefit is abundantly clear. However, actually measuring the extent to which trade holds down consumer costs is tricky. Between 1990 and 2003, for example, the overall consumer price index rose 41 percent, whereas prices declined for many highly traded goods, including toys (whose prices fell 26 percent), televisions (53 percent), and clocks and lamps (15 percent); in just the past five years, the price of telephones, calculators, and other such items has fallen 42 percent. Yet, we do not know how much of the decline in these prices can be attributed to trade, as most traded products are manufactures and are subject to greater productivity growth (and hence steeper declines in costs) than nontraded products such as services.
A more fruitful approach may be to compare the prices of goods that are protected from international competition with what they would be in the absence of such barriers. A recent study by the U.S. International Trade Commission indicates that sectoral trade liberalization would lower the price of sugar for U.S. consumers by 8 percent, of apparel by 5 percent, and of footwear and leather products by 4 percent.4 Clearly, if international trade were curtailed for a much broader range of goods, the cost of living for American workers would be higher and the standard of living correspondingly lower.
A third key benefit of free trade is that it allows economies to specialize in the activities they do best. This notion was at the core of the classical economists' defense of free trade. By allowing England to specialize in cloth production and Portugal in wine, for example, international commerce leads to a higher income for both countries than if each tried to produce both goods for themselves. By the same token, no American today would object to trade between Massachusetts and Montana, or between Alaska and Alabama--the various U.S. states obviously have their own comparative advantages in producing a variety of different products, and trade among them makes such specialization possible. Extending the example of trade among states to trade among countries is not much of a stretch.
Can we measure the extent to which the specialization associated with free trade may boost incomes and welfare? Such an estimate is obviously no simple thing to calculate. Economists frequently use so-called computable general equilibrium models, often consisting of hundreds of equations, to address this issue. A recent analysis of the effects of past trade liberalizations on the U.S. economy puts the gains to U.S. welfare at about 1/2 percent of GDP.5 A separate analysis of a hypothetical 33 percent reduction in trade barriers around the world suggests it would raise welfare by 1-1/2 percent of global GDP.6
In addition to promoting specialization, trade boosts productivity through a fourth channel of influence: opening the economy to heightened competition. This effect could occur either as firms are spurred by foreign competitors to become more efficient, or as the least productive firms are forced to close, thus raising the average level of productivity for the economy as a whole. Again, most Americans likely recognize the importance of competition in boosting performance--the ascendancy of Japanese automobiles, for example, has been cited as a factor that has spurred Detroit to greater innovation and better quality. By heightening competitive forces and thus incentives for productivity and innovation, international trade has likely accelerated the process of "creative destruction" by which outdated and less productive activities are replaced by new technologies and more dynamic enterprises.
Academic research supports the view that import competition has led U.S. manufacturing firms to become more capital intensive;7 trade liberalization apparently has enhanced productivity in some import-competing firms in foreign countries as well.8 Producing for export markets may also yield dividends: Research suggests that exporters are more productive than non-exporters in the same industry and that they grow more rapidly as well.9 Finally, many studies suggest that countries that are more open to international trade have enjoyed higher rates of economic growth.10 Our sad experience after adoption of the Smoot-Hawley tariff of 1930, as well as the record of Latin America, India, and other regions that experimented with "import-substituting industrialization," point to the deterioration in economic performance that occurs when countries erect barriers to trade.11
Arguments against Free TradeIf the benefits conferred by international trade are reasonably straightforward, how can we explain the apparent ambivalence toward trade picked up by recent surveys? Clearly, many people view the benefits of free trade as being outweighed by its perceived costs.
One concern about free trade may be that it has given rise to large trade and current account deficits, thereby adding to the nation's debt and putting future prosperity at risk. Now at more than 5 percent of GDP, the current account deficit is in record territory, it is growing, and it cannot be sustained indefinitely. We cannot foresee when the deficit will stop growing and return to more-sustainable levels, through what mechanisms this adjustment will occur, or whether this adjustment will be smooth or disruptive for financial markets and the economy more generally. No matter how a correction of the external imbalance proceeds, however, it will involve a range of adjustments to investment, saving, and asset prices, both for the U.S. economy and for our trading partners. Research suggests that past corrections of large external imbalances in industrial countries generally have occurred without crisis.12 Whether or not this will remain the case, I am confident that protectionism is not the appropriate response to our growing current account deficit. The amount of current account adjustment that would be gained from a given tightening of import controls is questionable. Yet, it is certain that such actions would impose costs on the economy that would persist long after concerns about the deficit dissipated.
A second concern about free trade that is frequently voiced, and probably a more important one to many people, is that trade destroys American jobs and creates unemployment. The same survey I mentioned earlier, showing a deterioration in general attitudes toward trade, also indicated that 40 percent of respondents believed that trade barriers should be maintained because of the threat to U.S. jobs, up from 31 percent in 1999.13
It is worth distinguishing among several variants of the concern about trade and jobs. The first variant holds that the rise in imports lowers employment and raises the unemployment rate by shifting jobs overseas. This claim is strongly contradicted both by theory and by experience. Make no mistake: Import competition clearly has cost some American workers their jobs and has caused them considerable hardship as a result. However, economywide equilibrating forces, including monetary policy, ensure that over time such employment losses are offset by gains elsewhere in the economy, so that the nationwide unemployment rate averages around its equilibrium level. In fact, the inflow of foreign capital that finances our trade deficit provides the funding for investment projects that employ U.S. workers just as surely as does any other productive activity in the economy. Between 1960 and 2003, the trade balance moved from a slight surplus to a deficit of 4-1/2 percent of GDP, and nominal imports rose from about 4 percent of GDP to 14 percent--yet, the current unemployment rate of about 5-1/2 percent is little changed from its 1960 level, while nonfarm private employment has grown by more than 60 million jobs.14
It has also been suggested that import competition has caused a significant portion of the decline in employment since the recession of 2001. Yet, the ratio of the nominal trade deficit to GDP widened less than 1 percentage point between 2000 and 2003. Moreover, this deterioration came entirely from a decline in the ratio of exports to GDP, from 11.2 percent in 2000 to 9.5 percent in 2003; the ratio of imports to GDP actually declined about 1 percentage point over this period.
A second variant of the concern over trade and jobs is certainly valid: Import competition can be highly disruptive and cause considerable pain for those who lose their jobs. One study of worker displacement indicates that only about two-thirds of displaced workers found another job within three years, and even when they were successful in finding full-time work, the earnings of these workers on average declined 8 percent.15 Another study found that job losers in industries facing heavy import competition were slightly less likely to be reemployed, and suffered greater earnings losses, than workers who lost their jobs in industries facing less import competition.16
We cannot and should not minimize the hardships of workers displaced by imports. However, we must also keep in mind that their numbers are relatively small compared with either the total labor force or even the total number of jobs lost in the United States. Estimates of the gross number of jobs lost to imports vary, but one representative estimate puts them at a bit more than 300,000 per year during the 1980s and 1990s.17 This number, while hardly negligible, is dwarfed by the roughly 15 million job losses estimated to occur each year in the United States. As our dynamic market economy evolves, it generates substantial churning in labor markets as jobs are gained in some sectors and lost in others; jobs gained and lost because of trade are only a small part of that process.
It is understandable that concerns about job losses from import competition may extend far beyond their actual incidence in the labor market, given more general anxieties about employment security among American workers. However, to echo a point that has been made before, the proper response to the disruptions associated with trade is not to reduce trade, but rather to ameliorate the pain associated with those disruptions through enhanced assistance and retraining for displaced workers.
A final concern about trade that I would like to discuss is that import competition, whether or not it affects the number of jobs, shifts the employment mix from high-quality jobs to low-quality jobs. For example, critics have long held that international trade pushes workers out of manufacturing jobs and into less desirable service-sector jobs. However, no conclusive evidence has shown that, over the long haul, the service jobs being created pay less or are otherwise less desirable than manufactured jobs being displaced. Moreover, the declining share of manufacturing in U.S. employment most likely stems less from import competition than it does from the rapid pace of productivity growth in manufacturing; this growth outpaced the productivity growth of the overall economy by about 1-1/4 percentage points annually from 1973 to 1994 and by 1-1/2 percentage points from 1994 to 2000. The higher rate of productivity growth in manufacturing has restrained both price increases and employment in the sector, thus leading the services area of the economy to expand its share of spending and jobs. This phenomenon is hardly unique to the United States--the share of manufacturing has declined in most of our major foreign trading partners as well.
More recently, the outsourcing of service jobs to developing countries has come under the spotlight. The increasing use of computer programming talent in India and other low-wage countries has, understandably, struck a chord of anxiety among American workers. For years, the response of pro-trade advocates to the loss of low-wage jobs in manufacturing has been that they are being made up by the creation of higher-paid, higher-skilled jobs in the service sector. The loss of highly paid programming jobs to lower-paid workers abroad now appears to suggest that there is no place where American workers can hold their own.
Yet, as in the case of import competition more generally, we must not exaggerate the importance of outsourcing to the nation's overall employment picture. There are no conclusive data, but a prominent study puts the number of jobs displaced through services outsourcing over the next decade or so at fewer than 300,000 annually, or less than 2 percent of the 15 million in total gross job losses I noted earlier.18 Moreover, only a fraction of those jobs represent high-skilled, high-wage jobs; these numbers are quite difficult to pin down, but one study puts the number of software jobs lost to India since 2000 at fewer than 50,000 annually.19 Finally, we should remember that the United States gains jobs through what is often referred to as "insourcing," that is, performing service jobs for other countries. In fact, the United States has consistently run a surplus in those categories of the balance-of-payments associated with trade in business services.
Turning from the sectoral job mix to the impact of import competition on wages, the evidence is particularly unclear. Some studies have suggested that import competition from low-wage countries has depressed wages for low-skilled workers relative to those for higher-skilled workers in recent decades. However, other studies have argued that the rise in skill premiums is attributable to technological developments that have raised relative demands for educated workers. Focusing on the past few years, we see no consensus on how the mix of low- and high-wage jobs in the economy has evolved; estimates are extremely sensitive to the definition of job classes, the source of data, the time period, and method of calculation. In any event, it is doubtful that changes in the pattern of wages in the U.S. economy can be explained by any single factor--trends in trade, in population and immigration, in unionization and labor market competition, in minimum wage policy, in the skill mix of the labor force, and in technology all play a role.
Drawbacks of ProtectionismTo sum up the discussion so far, the public likely has a reasonably good grasp of the benefits of free trade. It is the perceived drawbacks to international trade that probably account for the ambivalence indicated in opinion surveys. Some of these fears may be overstated--for example, the claim that imports lower aggregate employment. But other concerns cannot be dismissed out of hand--especially the claim that trade leads to disruptions for some workers. Balancing the pain for a few against the lasting gains for the economy as a whole, economists generally view the latter as outweighing the former, but it is admittedly difficult for many individuals in American society to share this assessment.
Rather than arguing the merits of international trade in the abstract, advocates of free trade might gain more traction by arguing against concrete examples of protectionism. Each year brings new actions by the U.S. government to protect individual sectors from imports. Antidumping duties are imposed when domestic industry is believed to be injured by the sale of imported goods at less than "fair value." Countervailing duties are intended to counteract subsidies to foreign producers. Safeguard actions are intended to protect a domestic industry that has been seriously injured by a surge in imports.20 As of August 2004, 359 antidumping and countervailing duty orders were in place in the United States against imports from 51 countries.21
By discouraging unfair commercial practices, such actions, in principle, promote a more stable and competitive environment for international trade. In practice, identifying anticompetitive practices is a murky process. For example, in antidumping cases, determining the "fair value" of a good may involve a degree of discretion, thereby complicating the assessment of whether foreign goods are being sold below their appropriate price.22 Domestic producers have a strong incentive to lobby for trade actions regardless of whether such actions are merited.
Because they inhibit free trade, protectionist actions have an array of adverse consequences that one would expect: They reduce variety and raise costs for consumers; they distort the allocation of resources in the economy by encouraging excessive resources to flow into protected sectors; and they foster inefficiency by reducing the extent of competition. Perhaps more important in the eyes of the public, however, may be several related and highly egregious consequences of protectionist actions.
First, by raising the cost of goods that are inputs for other producers, import barriers may destroy more jobs in so-called "downstream" sectors than they save in protected sectors. According to one study, the 2002 steel safeguard program contributed to higher steel prices that eliminated about 200,000 jobs in steel-using industries, whereas only 187,500 workers were employed by U.S. steel-producers in December 2002.23
Second, trade protection may lead to very large payouts to a small number of producers and hence is often inequitable. Any time a product receives import protection, of course, a relatively small number of domestic producers receive benefits--through higher prices--at the cost of all domestic consumers in the economy. On top of this, a disproportionately small number of sectors, and often a disproportionately small number of firms within a sector, tend to enjoy the gains from protection. For example, more than one-half of the antidumping and countervailing duty orders in place as of August were on iron and steel-related products alone; by contrast, less than one-half of 1 percent of total private nonfarm employment is accounted for by iron and steel producers.24 As another example, according to a 1993 General Accounting Office study, 42 percent of the benefits to growers from sugar protection went to just 1 percent of growers.25 Although Americans favor policies designed to help the small farmer, much larger enterprises are also benefiting from agricultural trade protection.
This disturbingly inequitable distribution of the benefits of protectionism is exacerbated under current law by provisions allowing antidumping and countervailing duties to be disbursed to the companies that petitioned for the duties. These provisions, which have been ruled illegal by the WTO, lead to protected producers being rewarded twice: Once through the higher prices stemming from the trade protection and again through the disbursal of the higher duties paid by importers. The distribution of these payouts has been extremely skewed: For fiscal year 2003, a single firm received more than one-fourth of the $190 million in countervailing and antidumping duties that were distributed to U.S. firms.26
Import quotas (as opposed to tariffs) raise a third concern about trade protection. By restricting the supply of certain types of imports within the United States, quotas may benefit those foreign producers who retain the right to sell to U.S. markets by raising the prices of their goods. For example, one study found that, of the $8.6 billion in net welfare costs induced by the Multi-Fiber Agreement, which restricts textile and apparel imports, about $6 billion accrued to those foreign producers who were allotted shares of the import quotas.27 Surely, many Americans would cease to support certain types of import protections if they knew that such actions were serving to prop up the profits of foreign producers.
Finally, we must not forget that trade actions, while sometimes protecting some American workers in import-competing industries, often invite the threat of foreign retaliation that would hurt American workers in export industries. For example, after the imposition of steel safeguard duties in March 2002, eight of our trading partners initiated safeguard investigations of their own on steel imports. Given the importance of export markets to the most dynamic areas of U.S. manufacturing, we cannot afford to jeopardize them by inviting foreign barriers to our products.
ConclusionIn conclusion, I think it unlikely that we will see a marked global reversal of trade liberalization on the order of the restrictions enacted in the 1930s. Policymakers have generally learned the lessons of that destructive episode. Nevertheless, it is not inconceivable that progress in dismantling trade barriers could stall. Many of the easiest negotiations--such as on lowering tariffs--have already taken place. More ambitious and intrusive trade liberalizations, which often involve dismantling barriers to internal competition or cherished systems of domestic subsidies, may not have the necessary public support. It is also possible that a multiplicity of narrow, targeted trade actions--such as antidumping or safeguard actions--could lead to a de facto rollback in the overall degree of free trade even without a concerted shift in national policies.
Thus, it is crucial to maintain public pressure for free trade. First, it is important to continue to educate the public and create a political environment supportive of free trade. In this respect, targeted criticisms of protectionist actions may be more effective than general paeans to free trade. In a recent speech, my colleague, William Poole, urged journalists describing trade restrictions to ask who gains, who loses, and what is the net gain or loss for the economy as a whole?28 I very much support that sentiment. Second, it is crucial to implement policies that foster stability and economic growth. Reducing unemployment and diminishing economic insecurity will likely be more effective against protectionism than a thousand speeches like this one. Toward that end, the Federal Reserve will do its part by working to promote stable financial conditions and sustainable, noninflationary growth.
Remarks by Vice Chairman Roger W. Ferguson, Jr.At the Conference on Trade and the Future of American Workers, Washington, D.C.October 7, 2004
Free Trade: What Do Economists Really Know?
The role of trade in the U.S. economy has moved well into the spotlight in recent years, and I am pleased to be here today to share my thoughts on this important topic with such distinguished and knowledgeable colleagues. Over the course of this day, you will be hearing from leading analysts, policymakers, and commentators about recent developments in the U.S. economy, past and prospective trends in job creation, the role of sourcing (both out- and in-), and the implications of trade for the coming elections. In my remarks this morning, I would like to put these issues into the broader context of the debate over free trade and its implications for the American economy.
Though my focus will be on free trade, we must remember that prospects for the average American depend on many other factors as well, including technological progress, the education required to exploit this progress, a dynamic market-oriented economy, a framework of limited but effective regulation, healthy and well-governed financial institutions, and a stable macroeconomic environment. And free trade is not necessarily the most important item on this list. Even so, it has been a focus of interest and aspiration for economists dating back to Adam Smith and David Ricardo. As you know, finding overwhelming agreement on issues is difficult among economists, but free trade is an exception.1
The supporters of free trade have not been ignored. In the past half-century, global trade has become freer and has expanded rapidly. The ratio of trade (exports plus imports) to worldwide gross domestic product rose from only 16 percent in 1960 to 40 percent by 2001. In 1960, the United States, Germany, and Japan had average tariff rates of around 7 percent; these rates were more than halved by 1993. The number of members of the World Trade Organization (WTO), or its predecessor, the General Agreement on Tariffs and Trade, rose from 18 in 1948 to 146 in 2003, and the number of regional trade agreements in the world ballooned from only 1 in 1958 to 161 in 2003.
Although most economists welcome these trends, the public at large has been much more ambivalent about international trade. Attitudes toward free trade in principle remain generally positive, but a substantial--and, perhaps, growing--minority of Americans hold more negative views. According to a poll completed around the beginning of this year, 41 percent of respondents viewed the process of increasing international trade through reduction of barriers as proceeding too quickly; this number was up from 30 percent in 1999. And 43 percent of respondents believed that the government should try to slow or reverse the expansion of international trade, up from 39 percent in 1999.2
What accounts for the apparent deterioration in public support for free trade over the past five years? The widening of the U.S. trade deficit may have exacerbated concerns about the country's international competitiveness. More important, some have blamed overseas competition for the job losses associated with the economic slowdown earlier in this decade.
Without solid public support for free trade, achieving continued progress in reducing protectionist barriers, both at home and abroad, may become more difficult. In the remainder of my remarks, I'd like to review the arguments for and against free trade, explore why it has been difficult to muster more widespread public support for this goal, and address some of the consequences of trade protection as it has been implemented in practice.
Arguments for Free TradeInternational trade contributes to prosperity and growth through several channels. These channels are not especially subtle or esoteric, and I would argue that the public at large understands them reasonably well. At the same time, however, quantifying the contributions of trade to national welfare is by no means straightforward.
First, and most obviously, trade increases the variety of goods available to consumers. Trade provides some products that otherwise would be beyond the reach of most American households, such as roses for Valentine's Day, or peaches and nectarines during the winter. More generally, international trade allows us to choose from a wider array of goods than would otherwise be available: Japanese and German cars in addition to American, Chilean apples as well as Washington state, French and Australian wine as well as Californian. It is difficult to put a dollar figure on the value of this increased variety to the consumer, but estimates range as high as nearly 3 percent of GDP.3
A second benefit of international trade is its role in reducing the cost of goods and hence in raising our standard of living. To anyone who has walked into a large discount store and surveyed the range of low-priced items produced in any number of distant economies, this benefit is abundantly clear. However, actually measuring the extent to which trade holds down consumer costs is tricky. Between 1990 and 2003, for example, the overall consumer price index rose 41 percent, whereas prices declined for many highly traded goods, including toys (whose prices fell 26 percent), televisions (53 percent), and clocks and lamps (15 percent); in just the past five years, the price of telephones, calculators, and other such items has fallen 42 percent. Yet, we do not know how much of the decline in these prices can be attributed to trade, as most traded products are manufactures and are subject to greater productivity growth (and hence steeper declines in costs) than nontraded products such as services.
A more fruitful approach may be to compare the prices of goods that are protected from international competition with what they would be in the absence of such barriers. A recent study by the U.S. International Trade Commission indicates that sectoral trade liberalization would lower the price of sugar for U.S. consumers by 8 percent, of apparel by 5 percent, and of footwear and leather products by 4 percent.4 Clearly, if international trade were curtailed for a much broader range of goods, the cost of living for American workers would be higher and the standard of living correspondingly lower.
A third key benefit of free trade is that it allows economies to specialize in the activities they do best. This notion was at the core of the classical economists' defense of free trade. By allowing England to specialize in cloth production and Portugal in wine, for example, international commerce leads to a higher income for both countries than if each tried to produce both goods for themselves. By the same token, no American today would object to trade between Massachusetts and Montana, or between Alaska and Alabama--the various U.S. states obviously have their own comparative advantages in producing a variety of different products, and trade among them makes such specialization possible. Extending the example of trade among states to trade among countries is not much of a stretch.
Can we measure the extent to which the specialization associated with free trade may boost incomes and welfare? Such an estimate is obviously no simple thing to calculate. Economists frequently use so-called computable general equilibrium models, often consisting of hundreds of equations, to address this issue. A recent analysis of the effects of past trade liberalizations on the U.S. economy puts the gains to U.S. welfare at about 1/2 percent of GDP.5 A separate analysis of a hypothetical 33 percent reduction in trade barriers around the world suggests it would raise welfare by 1-1/2 percent of global GDP.6
In addition to promoting specialization, trade boosts productivity through a fourth channel of influence: opening the economy to heightened competition. This effect could occur either as firms are spurred by foreign competitors to become more efficient, or as the least productive firms are forced to close, thus raising the average level of productivity for the economy as a whole. Again, most Americans likely recognize the importance of competition in boosting performance--the ascendancy of Japanese automobiles, for example, has been cited as a factor that has spurred Detroit to greater innovation and better quality. By heightening competitive forces and thus incentives for productivity and innovation, international trade has likely accelerated the process of "creative destruction" by which outdated and less productive activities are replaced by new technologies and more dynamic enterprises.
Academic research supports the view that import competition has led U.S. manufacturing firms to become more capital intensive;7 trade liberalization apparently has enhanced productivity in some import-competing firms in foreign countries as well.8 Producing for export markets may also yield dividends: Research suggests that exporters are more productive than non-exporters in the same industry and that they grow more rapidly as well.9 Finally, many studies suggest that countries that are more open to international trade have enjoyed higher rates of economic growth.10 Our sad experience after adoption of the Smoot-Hawley tariff of 1930, as well as the record of Latin America, India, and other regions that experimented with "import-substituting industrialization," point to the deterioration in economic performance that occurs when countries erect barriers to trade.11
Arguments against Free TradeIf the benefits conferred by international trade are reasonably straightforward, how can we explain the apparent ambivalence toward trade picked up by recent surveys? Clearly, many people view the benefits of free trade as being outweighed by its perceived costs.
One concern about free trade may be that it has given rise to large trade and current account deficits, thereby adding to the nation's debt and putting future prosperity at risk. Now at more than 5 percent of GDP, the current account deficit is in record territory, it is growing, and it cannot be sustained indefinitely. We cannot foresee when the deficit will stop growing and return to more-sustainable levels, through what mechanisms this adjustment will occur, or whether this adjustment will be smooth or disruptive for financial markets and the economy more generally. No matter how a correction of the external imbalance proceeds, however, it will involve a range of adjustments to investment, saving, and asset prices, both for the U.S. economy and for our trading partners. Research suggests that past corrections of large external imbalances in industrial countries generally have occurred without crisis.12 Whether or not this will remain the case, I am confident that protectionism is not the appropriate response to our growing current account deficit. The amount of current account adjustment that would be gained from a given tightening of import controls is questionable. Yet, it is certain that such actions would impose costs on the economy that would persist long after concerns about the deficit dissipated.
A second concern about free trade that is frequently voiced, and probably a more important one to many people, is that trade destroys American jobs and creates unemployment. The same survey I mentioned earlier, showing a deterioration in general attitudes toward trade, also indicated that 40 percent of respondents believed that trade barriers should be maintained because of the threat to U.S. jobs, up from 31 percent in 1999.13
It is worth distinguishing among several variants of the concern about trade and jobs. The first variant holds that the rise in imports lowers employment and raises the unemployment rate by shifting jobs overseas. This claim is strongly contradicted both by theory and by experience. Make no mistake: Import competition clearly has cost some American workers their jobs and has caused them considerable hardship as a result. However, economywide equilibrating forces, including monetary policy, ensure that over time such employment losses are offset by gains elsewhere in the economy, so that the nationwide unemployment rate averages around its equilibrium level. In fact, the inflow of foreign capital that finances our trade deficit provides the funding for investment projects that employ U.S. workers just as surely as does any other productive activity in the economy. Between 1960 and 2003, the trade balance moved from a slight surplus to a deficit of 4-1/2 percent of GDP, and nominal imports rose from about 4 percent of GDP to 14 percent--yet, the current unemployment rate of about 5-1/2 percent is little changed from its 1960 level, while nonfarm private employment has grown by more than 60 million jobs.14
It has also been suggested that import competition has caused a significant portion of the decline in employment since the recession of 2001. Yet, the ratio of the nominal trade deficit to GDP widened less than 1 percentage point between 2000 and 2003. Moreover, this deterioration came entirely from a decline in the ratio of exports to GDP, from 11.2 percent in 2000 to 9.5 percent in 2003; the ratio of imports to GDP actually declined about 1 percentage point over this period.
A second variant of the concern over trade and jobs is certainly valid: Import competition can be highly disruptive and cause considerable pain for those who lose their jobs. One study of worker displacement indicates that only about two-thirds of displaced workers found another job within three years, and even when they were successful in finding full-time work, the earnings of these workers on average declined 8 percent.15 Another study found that job losers in industries facing heavy import competition were slightly less likely to be reemployed, and suffered greater earnings losses, than workers who lost their jobs in industries facing less import competition.16
We cannot and should not minimize the hardships of workers displaced by imports. However, we must also keep in mind that their numbers are relatively small compared with either the total labor force or even the total number of jobs lost in the United States. Estimates of the gross number of jobs lost to imports vary, but one representative estimate puts them at a bit more than 300,000 per year during the 1980s and 1990s.17 This number, while hardly negligible, is dwarfed by the roughly 15 million job losses estimated to occur each year in the United States. As our dynamic market economy evolves, it generates substantial churning in labor markets as jobs are gained in some sectors and lost in others; jobs gained and lost because of trade are only a small part of that process.
It is understandable that concerns about job losses from import competition may extend far beyond their actual incidence in the labor market, given more general anxieties about employment security among American workers. However, to echo a point that has been made before, the proper response to the disruptions associated with trade is not to reduce trade, but rather to ameliorate the pain associated with those disruptions through enhanced assistance and retraining for displaced workers.
A final concern about trade that I would like to discuss is that import competition, whether or not it affects the number of jobs, shifts the employment mix from high-quality jobs to low-quality jobs. For example, critics have long held that international trade pushes workers out of manufacturing jobs and into less desirable service-sector jobs. However, no conclusive evidence has shown that, over the long haul, the service jobs being created pay less or are otherwise less desirable than manufactured jobs being displaced. Moreover, the declining share of manufacturing in U.S. employment most likely stems less from import competition than it does from the rapid pace of productivity growth in manufacturing; this growth outpaced the productivity growth of the overall economy by about 1-1/4 percentage points annually from 1973 to 1994 and by 1-1/2 percentage points from 1994 to 2000. The higher rate of productivity growth in manufacturing has restrained both price increases and employment in the sector, thus leading the services area of the economy to expand its share of spending and jobs. This phenomenon is hardly unique to the United States--the share of manufacturing has declined in most of our major foreign trading partners as well.
More recently, the outsourcing of service jobs to developing countries has come under the spotlight. The increasing use of computer programming talent in India and other low-wage countries has, understandably, struck a chord of anxiety among American workers. For years, the response of pro-trade advocates to the loss of low-wage jobs in manufacturing has been that they are being made up by the creation of higher-paid, higher-skilled jobs in the service sector. The loss of highly paid programming jobs to lower-paid workers abroad now appears to suggest that there is no place where American workers can hold their own.
Yet, as in the case of import competition more generally, we must not exaggerate the importance of outsourcing to the nation's overall employment picture. There are no conclusive data, but a prominent study puts the number of jobs displaced through services outsourcing over the next decade or so at fewer than 300,000 annually, or less than 2 percent of the 15 million in total gross job losses I noted earlier.18 Moreover, only a fraction of those jobs represent high-skilled, high-wage jobs; these numbers are quite difficult to pin down, but one study puts the number of software jobs lost to India since 2000 at fewer than 50,000 annually.19 Finally, we should remember that the United States gains jobs through what is often referred to as "insourcing," that is, performing service jobs for other countries. In fact, the United States has consistently run a surplus in those categories of the balance-of-payments associated with trade in business services.
Turning from the sectoral job mix to the impact of import competition on wages, the evidence is particularly unclear. Some studies have suggested that import competition from low-wage countries has depressed wages for low-skilled workers relative to those for higher-skilled workers in recent decades. However, other studies have argued that the rise in skill premiums is attributable to technological developments that have raised relative demands for educated workers. Focusing on the past few years, we see no consensus on how the mix of low- and high-wage jobs in the economy has evolved; estimates are extremely sensitive to the definition of job classes, the source of data, the time period, and method of calculation. In any event, it is doubtful that changes in the pattern of wages in the U.S. economy can be explained by any single factor--trends in trade, in population and immigration, in unionization and labor market competition, in minimum wage policy, in the skill mix of the labor force, and in technology all play a role.
Drawbacks of ProtectionismTo sum up the discussion so far, the public likely has a reasonably good grasp of the benefits of free trade. It is the perceived drawbacks to international trade that probably account for the ambivalence indicated in opinion surveys. Some of these fears may be overstated--for example, the claim that imports lower aggregate employment. But other concerns cannot be dismissed out of hand--especially the claim that trade leads to disruptions for some workers. Balancing the pain for a few against the lasting gains for the economy as a whole, economists generally view the latter as outweighing the former, but it is admittedly difficult for many individuals in American society to share this assessment.
Rather than arguing the merits of international trade in the abstract, advocates of free trade might gain more traction by arguing against concrete examples of protectionism. Each year brings new actions by the U.S. government to protect individual sectors from imports. Antidumping duties are imposed when domestic industry is believed to be injured by the sale of imported goods at less than "fair value." Countervailing duties are intended to counteract subsidies to foreign producers. Safeguard actions are intended to protect a domestic industry that has been seriously injured by a surge in imports.20 As of August 2004, 359 antidumping and countervailing duty orders were in place in the United States against imports from 51 countries.21
By discouraging unfair commercial practices, such actions, in principle, promote a more stable and competitive environment for international trade. In practice, identifying anticompetitive practices is a murky process. For example, in antidumping cases, determining the "fair value" of a good may involve a degree of discretion, thereby complicating the assessment of whether foreign goods are being sold below their appropriate price.22 Domestic producers have a strong incentive to lobby for trade actions regardless of whether such actions are merited.
Because they inhibit free trade, protectionist actions have an array of adverse consequences that one would expect: They reduce variety and raise costs for consumers; they distort the allocation of resources in the economy by encouraging excessive resources to flow into protected sectors; and they foster inefficiency by reducing the extent of competition. Perhaps more important in the eyes of the public, however, may be several related and highly egregious consequences of protectionist actions.
First, by raising the cost of goods that are inputs for other producers, import barriers may destroy more jobs in so-called "downstream" sectors than they save in protected sectors. According to one study, the 2002 steel safeguard program contributed to higher steel prices that eliminated about 200,000 jobs in steel-using industries, whereas only 187,500 workers were employed by U.S. steel-producers in December 2002.23
Second, trade protection may lead to very large payouts to a small number of producers and hence is often inequitable. Any time a product receives import protection, of course, a relatively small number of domestic producers receive benefits--through higher prices--at the cost of all domestic consumers in the economy. On top of this, a disproportionately small number of sectors, and often a disproportionately small number of firms within a sector, tend to enjoy the gains from protection. For example, more than one-half of the antidumping and countervailing duty orders in place as of August were on iron and steel-related products alone; by contrast, less than one-half of 1 percent of total private nonfarm employment is accounted for by iron and steel producers.24 As another example, according to a 1993 General Accounting Office study, 42 percent of the benefits to growers from sugar protection went to just 1 percent of growers.25 Although Americans favor policies designed to help the small farmer, much larger enterprises are also benefiting from agricultural trade protection.
This disturbingly inequitable distribution of the benefits of protectionism is exacerbated under current law by provisions allowing antidumping and countervailing duties to be disbursed to the companies that petitioned for the duties. These provisions, which have been ruled illegal by the WTO, lead to protected producers being rewarded twice: Once through the higher prices stemming from the trade protection and again through the disbursal of the higher duties paid by importers. The distribution of these payouts has been extremely skewed: For fiscal year 2003, a single firm received more than one-fourth of the $190 million in countervailing and antidumping duties that were distributed to U.S. firms.26
Import quotas (as opposed to tariffs) raise a third concern about trade protection. By restricting the supply of certain types of imports within the United States, quotas may benefit those foreign producers who retain the right to sell to U.S. markets by raising the prices of their goods. For example, one study found that, of the $8.6 billion in net welfare costs induced by the Multi-Fiber Agreement, which restricts textile and apparel imports, about $6 billion accrued to those foreign producers who were allotted shares of the import quotas.27 Surely, many Americans would cease to support certain types of import protections if they knew that such actions were serving to prop up the profits of foreign producers.
Finally, we must not forget that trade actions, while sometimes protecting some American workers in import-competing industries, often invite the threat of foreign retaliation that would hurt American workers in export industries. For example, after the imposition of steel safeguard duties in March 2002, eight of our trading partners initiated safeguard investigations of their own on steel imports. Given the importance of export markets to the most dynamic areas of U.S. manufacturing, we cannot afford to jeopardize them by inviting foreign barriers to our products.
ConclusionIn conclusion, I think it unlikely that we will see a marked global reversal of trade liberalization on the order of the restrictions enacted in the 1930s. Policymakers have generally learned the lessons of that destructive episode. Nevertheless, it is not inconceivable that progress in dismantling trade barriers could stall. Many of the easiest negotiations--such as on lowering tariffs--have already taken place. More ambitious and intrusive trade liberalizations, which often involve dismantling barriers to internal competition or cherished systems of domestic subsidies, may not have the necessary public support. It is also possible that a multiplicity of narrow, targeted trade actions--such as antidumping or safeguard actions--could lead to a de facto rollback in the overall degree of free trade even without a concerted shift in national policies.
Thus, it is crucial to maintain public pressure for free trade. First, it is important to continue to educate the public and create a political environment supportive of free trade. In this respect, targeted criticisms of protectionist actions may be more effective than general paeans to free trade. In a recent speech, my colleague, William Poole, urged journalists describing trade restrictions to ask who gains, who loses, and what is the net gain or loss for the economy as a whole?28 I very much support that sentiment. Second, it is crucial to implement policies that foster stability and economic growth. Reducing unemployment and diminishing economic insecurity will likely be more effective against protectionism than a thousand speeches like this one. Toward that end, the Federal Reserve will do its part by working to promote stable financial conditions and sustainable, noninflationary growth.
International Competition: Should We Harmonize Our National Regulatory Systems?
Remarks by Governor Susan M. PhillipsAt the Seminar on Banking Soundness and Monetary Policy in a World of Global Capital Markets, Sponsored by the International Monetary Fund, Washington, D.C. January 28, 1997
International Competition: Should We Harmonize Our National Regulatory Systems?
Good afternoon. It is a pleasure to be here today to discuss a topic that has become more important in a world of global financial markets--the matter of coordinating and harmonizing our national regulatory systems. On the conference agenda, the topic was phrased as a question, that is, whether we should harmonize our systems. In a sense, the question is somewhat moot--the globalization of the markets and the breadth of international conglomerate financial institutions is forcing us in that direction. But I would quickly add that one definition of "harmony" is "a pleasing combination of elements." We can sing compatible and pleasant-sounding notes, without singing the same note. It is in that sense that I believe harmonization of our regulatory systems will develop.
In my comments this afternoon, I will mention some of the efforts underway in which the United States is working with other countries to develop more consistent supervisory and regulatory systems, particularly for large financial conglomerates. That experience may provide others with ideas about how they might pursue similar efforts, either on a bilateral or multilateral basis. Perhaps more importantly, though, I will also offer my views on where our interests are likely to be most similar and why and how regulators around the world are likely to continue working toward compatible or "harmonized" systems. Let me begin with those thoughts.
The Importance of Compatible Regulatory Regimes One cannot have dealt with U.S. and world financial markets during the past few decades without being thoroughly impressed with the rapid pace of change and the manner in which technology and financial innovation have affected market practice. The improvements in communications and transportation and, importantly, the gains from technology and the miniaturization of the goods we produce have fueled a growing volume of international trade. Our financial institutions, in turn, have sought constantly to find more effective and efficient ways to facilitate and finance these activities, and at the same time manage the related risks. As a result, we have seen dramatic growth in financial derivatives, strong support within the industry for new clearinghouses and netting procedures to reduce counterparty credit risk, a growing need to clarify our laws and regulations regarding financial contracts, and financial markets that are far more closely linked today than they were even a decade ago.
In the area of bank regulation and supervision, substantial progress has been made in developing capital standards that help to ensure the financial strength of internationally active banks and that promote greater competition. Simply put, firms in need of international financial services will utilize domestic or foreign financial institutions to the extent their prices are competitive and their financial stability can be assured. As a result, regulators are recognizing the need to harmonize laws and regulations in order to promote economic growth and to deal with important and oftentimes increasingly complex matters that are of common interest to us all.
We are recognizing also the need to enhance financial systems--including supervision and regulation--in the emerging market economies, primarily for the sake of those economies, themselves, but also because of their increasing importance in international financial markets. Indeed, G-7 leaders at their summit meeting in Lyon last summer identified this goal as an important element in efforts to promote international financial stability.
That we need some level of conformity seems, I'm sure, quite clear. Otherwise, the inconsistency and incompatibility of rules and regulations across countries may make it difficult, if not impossible, for some firms to engage in global business activities. Such barriers are detrimental to the efficiency of international trade and finance, generally.
The difficulty, of course, is the precise nature and level of conformity that is necessary to maintain an efficient and equitable world financial system. Here I submit that it may be less important that we standardize particular banking laws and regulations, than it is for us to pursue similar goals, as we independently develop our domestic regulation and supervisory structures. Specifically, if we apply market-based incentives in our regulatory structures, that, alone, should keep our rules sufficiently similar and compatible.
We must also recognize that technology and financial innovation are permitting banks today to become ever-more adept at avoiding regulatory barriers and other restrictions that artificially constrain their activities. Moreover, to the extent they are effective, such restrictions can work against local institutions, businesses, or consumers by making banks less competitive internationally or by withholding from their customers the benefits that competition can bring. Regulatory regimes are likely to be more effective in the long run for financial institutions and for domestic economic growth if they are market-compatible.
Areas of Common Interests In our roles as central bankers, bank supervisors, and regulators, what are the areas of greatest common interest to us for which we should develop compatible rules and regulations? To keep it simple, let me suggest two. First, to maintain a healthy, responsive, and financially strong banking and financial system will facilitate the growing needs of our domestic economies. Second, to build and maintain an adequate legal and regulatory structure will permit our institutions to compete safely on an equal and nondiscriminatory basis, both domestically and abroad. These thoughts may not sound original; they're not. They are essentially the two reasons the Basle Committee on Supervision exists, and they underpin most other international efforts to coordinate banking issues.
When I consider the past successes in coordinating international bank supervisory or regulatory policies, I think first of the Bank for International Settlements and the work of the supervisors' committee. After all, the BIS has been the principal forum for developing international supervisory standards for banks in industrialized countries and, by their voluntary adoption, for banks and bank supervisors in other countries throughout the world. Bilateral discussions can also serve useful functions either where particular issues are of concern or as a basis for subsequent broader dissemination.
Nearly a decade ago, such bilateral and--through the BIS--multilateral efforts produced the risk-based capital standard, known as the Basle Accord. Since then, we have produced numerous other policy statements dealing with sound risk management practices for banks. These statements related first to derivatives activities and most recently involve the management of interest rate risk. Dr. Padoa-Schioppa, chairman of the supervisors' committee, has probably already discussed these initiatives with you.
One of the Committee's most recent accomplishments, however, is the development of new capital standards for market risk in trading activities. That standard is notable because it reflects a new approach for constructing international banking standards. In particular, the internal models approach contained within that standard builds on leading industry practices and helps supervisors to promote risk management in banks.
Promoting sound risk management is a goal we should all pursue more aggressively in considering new banking policies and regulations. It is also the type of approach I had in mind when I said earlier that our laws and regulations should be compatible with underlying economics and market demands. To the extent we can continue building on "best" or sound banking practices in designing our rules and regulations, we will be working toward a common end. As we work together identifying those practices and deciding how to apply them as supervisory or regulatory standards, we will also be strengthening relations among ourselves that can prove invaluable in times of market stress.
Not to over-use the example of the market risk standard, but it illustrates another useful point, as well. Reliance on a bank's own risk measurement and modeling process in determining regulatory capital standards also acknowledges that no single or specific technique is best for everyone. Each institution should tailor its risk measurement and management process to its own needs. While adhering to basic principles, each institution must determine for itself the proper incentives and techniques for managing its affairs. No two banks or banking markets are identical in their operations, structure, or historical development. Permitting a range of compatible responses to similar situations encourages experimentation, innovation, and growth. Accommodating a certain level of flexibility is necessary for banks, and it is necessary for regulators, too.
Indeed, flexibility may be even more important for non-G-10 countries than it is for those of us with large, developed financial systems because of the greater range of capital market and economic infrastructures among developing countries. Materially different situations typically require different solutions. Accommodating differences, though, does not reduce the need for minimum regulatory or supervisory standards based upon well-known principles of sound banking. It is up to supervisors and, if necessary, legislators to craft regulations and laws consistent with internationally recognized standards, but accommodative to local customs and economic needs.
In developing sufficiently flexible, market-compatible regulations, I believe we should rely as much as prudently possible on market discipline and on banks' internal incentives to perform well. This approach requires that the public have information about the risk exposures of banks and about their procedures for managing those risks. As regulators, we can encourage this process by requiring or prodding banks to disclose information to the markets that is both relevant and comparable among institutions.
Whether such disclosures are imposed by official regulations or evolve through more subtle efforts, supervisors can help guide the process by considering carefully the kinds of information the private sector needs and that banks use--or should use--to manage risk. Even in the United States, where surveys show disclosure is relatively good, supervisors make available to the public data collected on Call Reports.
In countries where disclosure practices are minimal at best, bank regulators may be able to perform a particularly important role by publicly disclosing some, if not much, of the information banks report to them. By fueling market information in this way, regulators may stimulate greater investor interest in banks and the growth of local capital markets. Improved disclosure practices by banks may, in turn, also spill over to other industries. One thing we know for sure is that investors dislike uncertainty. By shedding light on a bank's condition and future prospects, some of that uncertainty should disappear.
While it is important that key prudential standards be sufficiently robust and consistent among countries, certain variations in the details and applications of these standards can be useful. As with private markets, some level of competition among regulators can stimulate improvements and change. I will grant that the United States may take regulatory competition to an extreme, but it also demonstrates, I believe, the advantages that derive from accommodating different views and permitting financial institutions alternative ways to do business. In my view, and considering the political difficulties we have faced in trying to change U.S. banking laws, our current regulatory structure, offering some choice in charter that is administered by multiple regulators, has provided financial institutions with more freedom and expanded powers than they would likely have received with a single regulator.
Supervisors must be careful, however, as they try new or different techniques, that they not impair their oversight efforts or relax them beyond prudent bounds. In such global markets as we have today, weak or ineffective supervision in either large or small countries can have far reaching consequences. Those concerns were at the heart of early work of the Basle Committee and its efforts to identify the respective roles and responsibilities of home and host authorities for internationally active banks. It is important for supervisors to be able to rely on their counterparts in other countries to administer agreed-upon standards of financial institution safety and soundness.
Whether we conduct our own on-site examinations, rely on external auditors, or use combinations of other supervisory techniques, we need to assure ourselves that all banking offices are adequately managed and supervised. I would note here that among G-10 countries a more consistent approach may begin to emerge. We in the United States are making greater use of the findings of a bank's internal and external auditors to guide or supplement our on-site examinations, while some of our counterparts abroad are recognizing more the benefits of on-site exams.
Financial Conglomerates Some of the greatest challenges to bank supervisors may arise when organizations link banking activities with other financial or nonfinancial businesses. Such financial conglomerates, which often combine banking, insurance, and securities activities, are not currently allowed to provide a full array of financial services in the United States, but they may do so abroad.
The existence of such firms--and the fact that some of them are headquartered in this country--have required regulators and supervisors in the United States to work with counterparts abroad to discuss oversight arrangements and develop ways to deal with matters in times of crises. This very issue is one of our current challenges. I have to say that this is not a particularly quick or easy process and is further complicated by the diverse regulatory structures, both here and abroad, involving banking, securities, and sometimes insurance regulators.
These discussions often raise difficult issues, since they tend to break new ground in supervision. For example, what approach should be taken regarding nonbank--or even nonfinancial--activities of companies that own banks? In the context of these conglomerates, what does or should "consolidated supervision" mean? Within the context of consolidated supervision, how can the traditional safety-and-soundness approach used by bank supervisors be reconciled with the disclosure/self-regulatory approach used by many securities regulators? Moreover, do the diverse operating structures of conglomerates imply an extension of the safety net that virtually all governments currently extend to banks? One thing is clear: as we address the challenges of promoting a more consistent bank supervisory and regulatory process worldwide, we cannot always take official descriptions of regulatory and oversight regimes at face value. We need to dig deeper to understand how laws are interpreted and how individual banking agencies monitor and enforce safe banking.
Different countries necessarily have different banking and financial systems that face unique combinations of exposures and business risks. Even within the United States, for example, we have a relatively uniform supervisory approach for all banks and a risk-based capital standard that applies to them all. In practice, however, the activities of our banks, their capital levels, and their operating practices are quite diverse, and our oversight efforts take those differences into account. Small banks, themselves, recognize the greater risks they face from their lack of size and diversity, and have consistently maintained higher capital ratios than do money center banks. But they also have less formal procedures and internal controls, simply because their staffing and operations are so much smaller. The point is that even a uniform set of rules within a given country can and should be implemented differently as conditions demand.
Conclusion It seems clear that as financial markets become more and more integrated, bank regulators around the world will be seeing more of each other than they have in the past. Even in countries that have no internationally active domestic banks, authorities need to ensure that the banks operating in their markets are sound and subject to adequate supervision, whether by home or host authorities. Banks operating imprudently and without proper supervision are the ones most likely to mismeasure their risks, misprice their products, and disrupt the markets. Detecting and deterring such institutions does not require us to have uniform regulatory or supervisory systems, but it does require a certain level of cooperation and coordination and a material level of consistency in our regulatory regimes. Our experience in the United States suggests that achieving an appropriate convergence takes time, not only to develop but to maintain. Progress we have seen through the European Union and the BIS go far in coordinating, or harmonizing, banking laws, regulations, and operating standards, but that's just a start. As managers of large financial institutions develop more sophisticated and more comprehensive risk management systems, they are paying less attention every day to the peculiar legal structure of their organizations. As regulators, we need to understand how banking organizations manage and control risks and the full implications of their practices for the financial safety of depository institutions. By doing so, we can do much to protect our own interests while still recognizing and accommodating the business needs of banks.
In developing our laws and regulations we need to work together, for sure. But perhaps more importantly, we need to understand the market forces and incentives that banks face. If we keep those factors in mind in developing our individual rules, we may go far in developing regulatory systems that are both compatible among countries and less intrusive to the institutions we oversee.
Thursday, March 11, 2010
Competition in Education FED
http://www.dallasfed.org/research/indepth/2000/id0009.pdf
The views expressed are those of the authors and should not be attributed to
the Federal Reserve Bank of Dallas or the Federal Reserve System.
Based on a presentation by Lori L. Taylor, Senior
Economist and Policy Advisor, Research Department,
Federal Reserve Bank of Dallas
October 2000
Competition in
Education
1
Competition in Education Competition in Education
Society clearly benefits when businesses
compete. Competition forces firms to innovate
and adopt least-cost methods of production. It
rewards efficient producers and punishes
inefficient ones. As such, competition is a key to
economic prosperity in a market economy.
There is an increasing body of evidence that
competition is also a key to improving our
educational system. I’d like to talk today about
that evidence, about policy initiatives that can foster increased competition, and about the
complications that are frequently swept under the rug in the school choice debate.
Evidence
School competition has attracted a lot of attention from economists in recent years. Because choice
cannot be bad in traditional economic models, researchers take it as given that increased choice
benefits families that choose the newly available options. Rather than try to quantify these individual
benefits of choice, researchers have focused instead on the question “Can competition do for
schools what it does for business?” The answer is “yes”. Almost across the board, researchers have
found that competition is good for public schools.
• Academic outcomes are better. Researchers found that students who attended school in
communities where student enrollment is dispersed among many educational providers
subsequently scored higher on standardized tests, completed more years of schooling, and
earned higher wages. (For additional information, see The Evidence on Government
Competition by Lori L. Taylor, Economic and Financial Review, Second Quarter 2000.)
• Average per pupil expenditures by the public school system are substantially lower in states and
communities where there are more public school districts to choose from.
• The bottom line is that an environment where schools must compete with other educational
providers to attract students forces school districts to get more bang for their buck, or in other
words, to use their resources more efficiently. For example, my own work on Texas suggests
that school districts in highly competitive parts of the state have been up to twice as efficient as
other Texas districts.
Interestingly, the research suggests that the source of the competition doesn’t seem to matter very
much. In terms of providing market discipline, another public school can be just as effective a
competitor as a private school. Furthermore, it is not necessary that the other school be exemplary
to be an effective competitor. In fact, even mediocre competitors can induce dramatic changes. For a
local example, consider what happened when the Sherman Independent School District decided to
foster a little internal competition and brought in a private firm to run a few of its campuses. Many
believe that the private firm did no better than the rest of the school district, and that it was not
especially innovative in its practices. The management contract was not renewed. Yet, the district
was dramatically changed by the experience. Sherman’s assistant superintendent is on record as
stating his belief that the much maligned competitor’s arrival speeded the district’s reform effort by
sending “a signal to the whole community that things were going to be different.” Referring to a list
of recent improvements to the town’s schools (ranging from new academic standards to renovations
in all buildings) he said “I do not believe we would have that had Edison not come into our schools.
We’d still be writing on chalkboards and showing old film strips.”
2
Charter schools rare in most states
more than 10% (2)
less than 4% (4)
less than 2% (28)
no charters (17)
Texas charter school enrollment
0
5000
10000
15000
20000
25000
30000
35000
40000
95-96 96-97 97-98 98-99 99-00
Policy
If increased school competition could improve the public school system, then the next obvious
question is “How do we do that?” Three basic strategies for increasing school competition are
charter schools, vouchers and standardized testing. The common thread among all these strategies is
that they make it easier for parents to make educational choices.
Charter Schools. Charter schools are the most
common policy prescription for increasing
competition within the public sector. Charters
are public schools that are generally subject to
fewer regulations than traditional public schools.
Most, if not all, charter schools are openenrollment
schools, meaning that the schools
accept students from a wide geographic area. In
contrast, traditional public schools generally only
enroll those students who live within narrowly
defined attendance zones. Depending on state
law, charter schools can be run by for-profit
firms or non-profit agencies. For-profit firms
generally hold their charters indirectly under the
auspices of a university or similar institution. Charter schools have no tax base or local taxing
authority and derive their funding from the state and/or from the school districts their students
would otherwise attend. Frequently, charter schools receive less revenue per pupil than a traditional
public school. In Arizona, the state with the most extensive charter school program, charters are
funded at about 80 percent of their district peers. In Texas, the money follows the child so that the
charter school receives the same funding per pupil as the district he would otherwise attend.
The charter school movement started very small
in 1991 and remains very small in most of the
nation. Seventeen states have no charter schools,
and in only six states do charters comprise more
than two percent of public school enrollment.
Arizona and the District of Columbia are the
only states where charters have double-digit
enrollment shares.
Charters may be small but they are also
increasingly influential. Although charter school
enrollments still account for less than one
percent of the Texas public school system, the
enrollment growth has been explosive. In 1999-
2000, Texas charters enrolled nearly 35,000 students. Early estimates for the current school year are
just over 38,000.
Vouchers and Tax Preferences. Vouchers, tax credits and tax deductions are the most common policy
prescription for increasing competition from the private sector. However, these strategies are more
popular in theory than in practice. Only five states have operational voucher plans (Florida, Maine,
Ohio, Vermont, and Wisconsin) and only four states offer tax credits or deductions (Arizona,
Illinois, Iowa, and Minnesota). The Ohio plan has been declared unconstitutional, but continues to
operate on appeal.
3
The major differences between the voucher plans and the tax preferences are the scope of eligibility
and the magnitude of the subsidy. The voucher plans cover tuition, but eligibility is limited to
targeted groups such as low income students in Milwaukee or students in parts of Maine where there
are no public schools. The tax credits and deductions are available to all parents, but the dollar
amounts are modest. The Minnesota tax preference is the most generous, offering a $1000
refundable tax credit to families with incomes below $37,500.
Of course, public voucher plans are not the only voucher-based mechanism for increasing private
sector competition. A number of private foundations have set up scholarship programs across the
county. The nation’s first fully-funded voucher program that is offered to every family in a district
has been up and running for a couple of years in San Antonio. Children First CEO America offered
every low income child in the Edgewood Independent School District a voucher to attend the public
or private school of his choice. During the program’s first year (1998-99), roughly 800 of the 13,000
eligible students elected to leave Edgewood I.S.D. for private schools. The average voucher payment
was less than one-third of the average Edgewood expenditure per pupil. As one would expect,
Edgewood responded to the competitive threat (and the loss of 3.5 percent of its revenue) by
changing its policies. In the wake of the CEO vouchers, Edgewood I.S.D. instituted an inter-district
public school choice plan that attracted 200 students from other area districts, and commissioned a
$120,000 management study to improve its administrative efficiency.
Standardized Testing. Although it’s easy to go overboard on the issue, standardized testing clearly
enhances school competition. The simple act of publishing information about student performance
raises the competitive threat as the parents of current and prospective students discover that the
neighborhood school isn’t quite as strong as they thought.
There are a number of innovative people out there that can act like an educational version of
Consumers Reports, informing parents about effective ways to extract information from reams of data
about schools. For example, Tom Luce’s Just-4-the-Kids organization lets parents in Texas see how
their neighborhood school performs, not only in absolute terms but also in comparison to the best
practice of peer schools with similar student characteristics. However, without testing, such
comparisons are impossible.
In addition to its benefits to parents, testing is also a key to social accountability. To the extent that
the government has money on the table, it also has a legitimate interest in monitoring the outcomes
of the educational process. Without testing, the government has no mechanism for monitoring
outcomes and may be tempted to regulate the educational process instead. Although one could argue
that private information sources would crop up to serve the parents’ need for information, society’s
need for accountability implies that schools receiving public funds must test and publish the results.
The tests need not be national in scope, but they must make it possible to make local, apples-toapples
comparisons.
Complications
Of course, nothing is as easy as it looks. There are a number of complications that must be
considered in pursuing a policy of increased educational competition.
Highly Competitive Markets. Despite the strong support for competition as a force for good in
education, the researchers do sound a cautionary note. Not all markets suffer from a lack of
competition. It appears that most educational markets would benefit from increased competition but
some are already highly competitive and would be little changed by an increase in competition.
4
In Texas, most educational markets are highly concentrated and would benefit from increased
competition. However, the Dallas and Houston metropolitan areas appear to already be highly
competitive education markets. In 1999, the Dallas metropolitan area had 85 public school districts
and 78 private school systems to choose from; Houston had 61 public school districts and 83 private
school systems. Increased school competition in these metro areas is unlikely to create new
incentives for change or to improve the quality of education in general. If having to compete for
enrollments with more than 160 other educational providers hasn’t already provided the Dallas
Independent School District with strong incentives to behave efficiently, a few more competitors
aren’t going to do the trick.
Markets where a lack of competition is not the problem can contain a large share of the student
population. Dallas and Houston are home to over one-third of the school children in Texas.
Therefore, the analyses suggest that fostering increased competition is only a partial answer to the
question of creating “schools that work.”
Conflicting policy objectives. Enhancing competition is not necessarily the primary objective of charter
schools or voucher programs. As such, it is not surprising that from a competitive perspective, not
all plans are created equal.
For example, the plan may be focused on a narrow segment of the student population. In Texas and
Arizona, the charter school programs favor schools that serve students who are at risk of dropping
out of school. While such a focus meets the needs of the targeted population, it can diminish the
competitive impact of the charter school by segmenting the market for students. A survey of Texas
school superintendents indicates that, rather than seeing charter schools as competitors to whom
they must respond, a number of superintendents see them as a benefit to the district because they
provide an alternative for difficult to educate, disaffected, or disruptive students.
Alternatively, some plans have virtually no impact on competition because they have only a negligible
impact on the relative price of schooling. Consider, for example, Iowa. All parents are eligible for a
$250 tax credit per child for educational expenses at the public, private, or religious school of their
choice. While such a plan is attractively equitable, it is unlikely to change parental behavior very
much. With the exception of a few parents teetering on the brink of sending their children to private
schools, the primary beneficiaries of the credit are parents of existing private school students. For
these parents, the credit may be a welcome relief but it is unlikely to cause them to move their child
to a different school. If the policy doesn’t at least threaten to change enrollment patterns, it doesn’t
increase the competitive pressure.
Student segregation. When people talk about the great melting pot of American society, they frequently
mean the public school system. Many argue that the traditional public school provides a
commonality of experience that socializes children and creates a cohesive society. Economic models
predict that increased school choice should lead to increasingly homogeneous classrooms, making
many believe that increased student segregation, a loss of social cohesion and “cream-skimming” by
selective private schools are major potential costs of increased competition.
The evidence is mixed, however. The “melting pot” virtues of the existing system are probably
overstated. There is little commonality of practice among public schools in the United States, so it is
hard to argue that the system provides a common educational experience. Furthermore, there is a lot
of classroom homogeneity in the current system. The courts have tried to stamp out racial
segregation, but any system of neighborhood schools clusters kids according to family income.
Second, this argument heavily discounts the potential benefits from specialized instruction. The
Texas school system has been deliberately set up to favor charter schools that serve students at risk
5
of dropping out of school. The benefits of providing these students with an alternative educational
environment should not be overlooked.
Finally, there is the fear that the best and brightest of the public school system will be siphoned off
by vouchers or charters, leaving only the weaker students in public schools. This is a substantive
concern, particularly given the apparent benefits that children receive from taking classes with highachieving
peers. However, at least in Texas, there is little evidence that charters and vouchers skim
the cream out of the public school system. Voucher children in Edgewood I.S.D. were middle-ofthe-
road academically, low income and ethnically similar to the district as a whole. Charter school
enrollments vary according to the mission of the charters, but as a whole charter school children in
Texas are similar to traditional school children in term of socioeconomic background while
disproportionately black and Hispanic.
Regulatory Burden. Competition creates incentives for school districts to behave efficiently, yet those
incentives are moot if the regulatory environment prevents school districts from responding to those
incentives. Without judicious deregulation of the public school system, many of the social benefits
from increased educational competition would be lost. In Texas, the regulatory burden has lightened
as the state has emphasized accountability and competition. However, regulations are still the most
plausible explanation for a significant part of school district inefficiency.
Conclusions
The evidence is clear—competition makes public schools better. Furthermore, a well designed policy
can greatly enhance the competitive environment. However, not all markets suffer from a lack of
competition, and the benefits of competition can be lost to a poorly designed policy or a regulatory
environment that prevents schools from responding to competitive pressure.
The views expressed are those of the authors and should not be attributed to
the Federal Reserve Bank of Dallas or the Federal Reserve System.
Based on a presentation by Lori L. Taylor, Senior
Economist and Policy Advisor, Research Department,
Federal Reserve Bank of Dallas
October 2000
Competition in
Education
1
Competition in Education Competition in Education
Society clearly benefits when businesses
compete. Competition forces firms to innovate
and adopt least-cost methods of production. It
rewards efficient producers and punishes
inefficient ones. As such, competition is a key to
economic prosperity in a market economy.
There is an increasing body of evidence that
competition is also a key to improving our
educational system. I’d like to talk today about
that evidence, about policy initiatives that can foster increased competition, and about the
complications that are frequently swept under the rug in the school choice debate.
Evidence
School competition has attracted a lot of attention from economists in recent years. Because choice
cannot be bad in traditional economic models, researchers take it as given that increased choice
benefits families that choose the newly available options. Rather than try to quantify these individual
benefits of choice, researchers have focused instead on the question “Can competition do for
schools what it does for business?” The answer is “yes”. Almost across the board, researchers have
found that competition is good for public schools.
• Academic outcomes are better. Researchers found that students who attended school in
communities where student enrollment is dispersed among many educational providers
subsequently scored higher on standardized tests, completed more years of schooling, and
earned higher wages. (For additional information, see The Evidence on Government
Competition by Lori L. Taylor, Economic and Financial Review, Second Quarter 2000.)
• Average per pupil expenditures by the public school system are substantially lower in states and
communities where there are more public school districts to choose from.
• The bottom line is that an environment where schools must compete with other educational
providers to attract students forces school districts to get more bang for their buck, or in other
words, to use their resources more efficiently. For example, my own work on Texas suggests
that school districts in highly competitive parts of the state have been up to twice as efficient as
other Texas districts.
Interestingly, the research suggests that the source of the competition doesn’t seem to matter very
much. In terms of providing market discipline, another public school can be just as effective a
competitor as a private school. Furthermore, it is not necessary that the other school be exemplary
to be an effective competitor. In fact, even mediocre competitors can induce dramatic changes. For a
local example, consider what happened when the Sherman Independent School District decided to
foster a little internal competition and brought in a private firm to run a few of its campuses. Many
believe that the private firm did no better than the rest of the school district, and that it was not
especially innovative in its practices. The management contract was not renewed. Yet, the district
was dramatically changed by the experience. Sherman’s assistant superintendent is on record as
stating his belief that the much maligned competitor’s arrival speeded the district’s reform effort by
sending “a signal to the whole community that things were going to be different.” Referring to a list
of recent improvements to the town’s schools (ranging from new academic standards to renovations
in all buildings) he said “I do not believe we would have that had Edison not come into our schools.
We’d still be writing on chalkboards and showing old film strips.”
2
Charter schools rare in most states
more than 10% (2)
less than 4% (4)
less than 2% (28)
no charters (17)
Texas charter school enrollment
0
5000
10000
15000
20000
25000
30000
35000
40000
95-96 96-97 97-98 98-99 99-00
Policy
If increased school competition could improve the public school system, then the next obvious
question is “How do we do that?” Three basic strategies for increasing school competition are
charter schools, vouchers and standardized testing. The common thread among all these strategies is
that they make it easier for parents to make educational choices.
Charter Schools. Charter schools are the most
common policy prescription for increasing
competition within the public sector. Charters
are public schools that are generally subject to
fewer regulations than traditional public schools.
Most, if not all, charter schools are openenrollment
schools, meaning that the schools
accept students from a wide geographic area. In
contrast, traditional public schools generally only
enroll those students who live within narrowly
defined attendance zones. Depending on state
law, charter schools can be run by for-profit
firms or non-profit agencies. For-profit firms
generally hold their charters indirectly under the
auspices of a university or similar institution. Charter schools have no tax base or local taxing
authority and derive their funding from the state and/or from the school districts their students
would otherwise attend. Frequently, charter schools receive less revenue per pupil than a traditional
public school. In Arizona, the state with the most extensive charter school program, charters are
funded at about 80 percent of their district peers. In Texas, the money follows the child so that the
charter school receives the same funding per pupil as the district he would otherwise attend.
The charter school movement started very small
in 1991 and remains very small in most of the
nation. Seventeen states have no charter schools,
and in only six states do charters comprise more
than two percent of public school enrollment.
Arizona and the District of Columbia are the
only states where charters have double-digit
enrollment shares.
Charters may be small but they are also
increasingly influential. Although charter school
enrollments still account for less than one
percent of the Texas public school system, the
enrollment growth has been explosive. In 1999-
2000, Texas charters enrolled nearly 35,000 students. Early estimates for the current school year are
just over 38,000.
Vouchers and Tax Preferences. Vouchers, tax credits and tax deductions are the most common policy
prescription for increasing competition from the private sector. However, these strategies are more
popular in theory than in practice. Only five states have operational voucher plans (Florida, Maine,
Ohio, Vermont, and Wisconsin) and only four states offer tax credits or deductions (Arizona,
Illinois, Iowa, and Minnesota). The Ohio plan has been declared unconstitutional, but continues to
operate on appeal.
3
The major differences between the voucher plans and the tax preferences are the scope of eligibility
and the magnitude of the subsidy. The voucher plans cover tuition, but eligibility is limited to
targeted groups such as low income students in Milwaukee or students in parts of Maine where there
are no public schools. The tax credits and deductions are available to all parents, but the dollar
amounts are modest. The Minnesota tax preference is the most generous, offering a $1000
refundable tax credit to families with incomes below $37,500.
Of course, public voucher plans are not the only voucher-based mechanism for increasing private
sector competition. A number of private foundations have set up scholarship programs across the
county. The nation’s first fully-funded voucher program that is offered to every family in a district
has been up and running for a couple of years in San Antonio. Children First CEO America offered
every low income child in the Edgewood Independent School District a voucher to attend the public
or private school of his choice. During the program’s first year (1998-99), roughly 800 of the 13,000
eligible students elected to leave Edgewood I.S.D. for private schools. The average voucher payment
was less than one-third of the average Edgewood expenditure per pupil. As one would expect,
Edgewood responded to the competitive threat (and the loss of 3.5 percent of its revenue) by
changing its policies. In the wake of the CEO vouchers, Edgewood I.S.D. instituted an inter-district
public school choice plan that attracted 200 students from other area districts, and commissioned a
$120,000 management study to improve its administrative efficiency.
Standardized Testing. Although it’s easy to go overboard on the issue, standardized testing clearly
enhances school competition. The simple act of publishing information about student performance
raises the competitive threat as the parents of current and prospective students discover that the
neighborhood school isn’t quite as strong as they thought.
There are a number of innovative people out there that can act like an educational version of
Consumers Reports, informing parents about effective ways to extract information from reams of data
about schools. For example, Tom Luce’s Just-4-the-Kids organization lets parents in Texas see how
their neighborhood school performs, not only in absolute terms but also in comparison to the best
practice of peer schools with similar student characteristics. However, without testing, such
comparisons are impossible.
In addition to its benefits to parents, testing is also a key to social accountability. To the extent that
the government has money on the table, it also has a legitimate interest in monitoring the outcomes
of the educational process. Without testing, the government has no mechanism for monitoring
outcomes and may be tempted to regulate the educational process instead. Although one could argue
that private information sources would crop up to serve the parents’ need for information, society’s
need for accountability implies that schools receiving public funds must test and publish the results.
The tests need not be national in scope, but they must make it possible to make local, apples-toapples
comparisons.
Complications
Of course, nothing is as easy as it looks. There are a number of complications that must be
considered in pursuing a policy of increased educational competition.
Highly Competitive Markets. Despite the strong support for competition as a force for good in
education, the researchers do sound a cautionary note. Not all markets suffer from a lack of
competition. It appears that most educational markets would benefit from increased competition but
some are already highly competitive and would be little changed by an increase in competition.
4
In Texas, most educational markets are highly concentrated and would benefit from increased
competition. However, the Dallas and Houston metropolitan areas appear to already be highly
competitive education markets. In 1999, the Dallas metropolitan area had 85 public school districts
and 78 private school systems to choose from; Houston had 61 public school districts and 83 private
school systems. Increased school competition in these metro areas is unlikely to create new
incentives for change or to improve the quality of education in general. If having to compete for
enrollments with more than 160 other educational providers hasn’t already provided the Dallas
Independent School District with strong incentives to behave efficiently, a few more competitors
aren’t going to do the trick.
Markets where a lack of competition is not the problem can contain a large share of the student
population. Dallas and Houston are home to over one-third of the school children in Texas.
Therefore, the analyses suggest that fostering increased competition is only a partial answer to the
question of creating “schools that work.”
Conflicting policy objectives. Enhancing competition is not necessarily the primary objective of charter
schools or voucher programs. As such, it is not surprising that from a competitive perspective, not
all plans are created equal.
For example, the plan may be focused on a narrow segment of the student population. In Texas and
Arizona, the charter school programs favor schools that serve students who are at risk of dropping
out of school. While such a focus meets the needs of the targeted population, it can diminish the
competitive impact of the charter school by segmenting the market for students. A survey of Texas
school superintendents indicates that, rather than seeing charter schools as competitors to whom
they must respond, a number of superintendents see them as a benefit to the district because they
provide an alternative for difficult to educate, disaffected, or disruptive students.
Alternatively, some plans have virtually no impact on competition because they have only a negligible
impact on the relative price of schooling. Consider, for example, Iowa. All parents are eligible for a
$250 tax credit per child for educational expenses at the public, private, or religious school of their
choice. While such a plan is attractively equitable, it is unlikely to change parental behavior very
much. With the exception of a few parents teetering on the brink of sending their children to private
schools, the primary beneficiaries of the credit are parents of existing private school students. For
these parents, the credit may be a welcome relief but it is unlikely to cause them to move their child
to a different school. If the policy doesn’t at least threaten to change enrollment patterns, it doesn’t
increase the competitive pressure.
Student segregation. When people talk about the great melting pot of American society, they frequently
mean the public school system. Many argue that the traditional public school provides a
commonality of experience that socializes children and creates a cohesive society. Economic models
predict that increased school choice should lead to increasingly homogeneous classrooms, making
many believe that increased student segregation, a loss of social cohesion and “cream-skimming” by
selective private schools are major potential costs of increased competition.
The evidence is mixed, however. The “melting pot” virtues of the existing system are probably
overstated. There is little commonality of practice among public schools in the United States, so it is
hard to argue that the system provides a common educational experience. Furthermore, there is a lot
of classroom homogeneity in the current system. The courts have tried to stamp out racial
segregation, but any system of neighborhood schools clusters kids according to family income.
Second, this argument heavily discounts the potential benefits from specialized instruction. The
Texas school system has been deliberately set up to favor charter schools that serve students at risk
5
of dropping out of school. The benefits of providing these students with an alternative educational
environment should not be overlooked.
Finally, there is the fear that the best and brightest of the public school system will be siphoned off
by vouchers or charters, leaving only the weaker students in public schools. This is a substantive
concern, particularly given the apparent benefits that children receive from taking classes with highachieving
peers. However, at least in Texas, there is little evidence that charters and vouchers skim
the cream out of the public school system. Voucher children in Edgewood I.S.D. were middle-ofthe-
road academically, low income and ethnically similar to the district as a whole. Charter school
enrollments vary according to the mission of the charters, but as a whole charter school children in
Texas are similar to traditional school children in term of socioeconomic background while
disproportionately black and Hispanic.
Regulatory Burden. Competition creates incentives for school districts to behave efficiently, yet those
incentives are moot if the regulatory environment prevents school districts from responding to those
incentives. Without judicious deregulation of the public school system, many of the social benefits
from increased educational competition would be lost. In Texas, the regulatory burden has lightened
as the state has emphasized accountability and competition. However, regulations are still the most
plausible explanation for a significant part of school district inefficiency.
Conclusions
The evidence is clear—competition makes public schools better. Furthermore, a well designed policy
can greatly enhance the competitive environment. However, not all markets suffer from a lack of
competition, and the benefits of competition can be lost to a poorly designed policy or a regulatory
environment that prevents schools from responding to competitive pressure.
Tuesday, March 2, 2010
Promoting cooperation through sports
Promoting cooperation through sports
Place: Kosovo*
Author: Gezim Baxhaku
Date: 28 August 2009
Commander of the Multinational Task Force South, Brigadier General Benedikt Zimmer, at the kick off before the game.
Sports, particularly football, is proving to be an effective instrument of bringing together members of the international peace keeping troops in Kosovo (KFOR) and the local youth, irrespective of their ethnic background. A large tournament was held in the summer of 2009 in the municipalities of Prizren, Suva Reka, Mališevo, and Orahovac, which house the mission's of Multinational Task Force South. The competition included a team of local KFOR members, whose commander, Brigadier General Benedikt Zimmer, has said that football and other sports games are a symbol of cooperation between the mission and Kosovo's population. The football cup -- organized by the Task Force South -- featured the local KFOR team and one team from each municipality. In the finale, Suva Reka competed against Orahovac, and ultimately took home the trophy. For the President of the Dragas Municipality, Salim Jenuzi, this event was yet another opportunity for socializing with the international peacekeepers. According to him, the locals both respect and gladly cooperate with them. Jenuzi stressed that the Turkish KFOR members who are present in his municipality have staged many football and other sports events that engage the majority Albanian population as well as Goranians and Bosniaks. Interestingly enough, these Turkish peacekeepers include several first-team players from their country's second football league. Jenuzi says that such competitions, together with the mission's assistance, have done much to alleviate and improve life in his poverty-stricken municipality. He believes that football has become yet another link between the locals and the KFOR members. What is more, Jenuzi says this situation is echoed throughout Kosovo. KFOR's leadership has also emphasized that all KFOR commands in Kosovo have contributed to building sports fields and halls, which are used by school children and other local people. "We are here to ensure a better life for the people of Kosovo, both through the security and the aid we provide. Sports activities, of which football is the most popular, are one more way in which we are fulfilling our mandate by earning the trust of the people and building mutual understanding," the press officers of the Turkish KFOR say. KFOR has helped Kosovo schools in acquiring equipment and learning aids, and has also assisted the construction of necessary infrastructure, such as water supply and sewage systems as well as sports fields. According to data from the mission's Chief Command, KFOR has contributed over EUR3 billion to Kosovo's development, in labour and funds.
* Under UNSCR 1244/1999
http://www.southeast-europe.eu/index.php?id=839&print=1&no_cache=1
Currently 2.75/5 1 2 3 4 5 Rating: 2.8/5 (total: 4)
Place: Kosovo*
Author: Gezim Baxhaku
Date: 28 August 2009
Commander of the Multinational Task Force South, Brigadier General Benedikt Zimmer, at the kick off before the game.
Sports, particularly football, is proving to be an effective instrument of bringing together members of the international peace keeping troops in Kosovo (KFOR) and the local youth, irrespective of their ethnic background. A large tournament was held in the summer of 2009 in the municipalities of Prizren, Suva Reka, Mališevo, and Orahovac, which house the mission's of Multinational Task Force South. The competition included a team of local KFOR members, whose commander, Brigadier General Benedikt Zimmer, has said that football and other sports games are a symbol of cooperation between the mission and Kosovo's population. The football cup -- organized by the Task Force South -- featured the local KFOR team and one team from each municipality. In the finale, Suva Reka competed against Orahovac, and ultimately took home the trophy. For the President of the Dragas Municipality, Salim Jenuzi, this event was yet another opportunity for socializing with the international peacekeepers. According to him, the locals both respect and gladly cooperate with them. Jenuzi stressed that the Turkish KFOR members who are present in his municipality have staged many football and other sports events that engage the majority Albanian population as well as Goranians and Bosniaks. Interestingly enough, these Turkish peacekeepers include several first-team players from their country's second football league. Jenuzi says that such competitions, together with the mission's assistance, have done much to alleviate and improve life in his poverty-stricken municipality. He believes that football has become yet another link between the locals and the KFOR members. What is more, Jenuzi says this situation is echoed throughout Kosovo. KFOR's leadership has also emphasized that all KFOR commands in Kosovo have contributed to building sports fields and halls, which are used by school children and other local people. "We are here to ensure a better life for the people of Kosovo, both through the security and the aid we provide. Sports activities, of which football is the most popular, are one more way in which we are fulfilling our mandate by earning the trust of the people and building mutual understanding," the press officers of the Turkish KFOR say. KFOR has helped Kosovo schools in acquiring equipment and learning aids, and has also assisted the construction of necessary infrastructure, such as water supply and sewage systems as well as sports fields. According to data from the mission's Chief Command, KFOR has contributed over EUR3 billion to Kosovo's development, in labour and funds.
* Under UNSCR 1244/1999
http://www.southeast-europe.eu/index.php?id=839&print=1&no_cache=1
Currently 2.75/5 1 2 3 4 5 Rating: 2.8/5 (total: 4)
Cooperative Sports
Cooperative Sports
Lebanon, NH, USA(603) 298-9882
Introducing Cooperative Sports
Joe plays sport X. His friend asks him, “Hey Joe, are you going to enter the X tournament next week?”
“No,” he replies, “I don't play competitively, I just play for fun.”
Have you ever heard this snippet of a conversation before? I have heard it many times. The funny thing is, if you just heard the phrase, “I just play for fun” out of this context it would sound pretty obvious, because play activities are of course designed to be fun. Or are they? Does everyone find it fun to compete? Clearly the answer is no.
But it is not just the bigger, formal meets, races and tournaments people are avoiding. Many people avoid competitive sports altogether. Why? Are they lazy? Too busy to exercise? Don't like to be around other people? These may be the reasons for some people, but I think for many others the answer lies in the competitive nature of traditional sports.
In today's world, we spend most of our time competing. From an early age, we are told that only the best students get into the really good universities and that when we graduate, that only the best will land the job of their dreams. We use the phrase “get ahead” interchangeably with “succeed”. So when it comes time to play, it should not come as a surprise that many people choose not to participate in competitive sports. They simply need a break from the pressure and stress of competition. In their precious leisure time, they want to play with their friends as partners, not rivals.
Cooperative Sports allow you to play with other people and stay physically fit without spending your leisure time in competition. In sport, Pure Cooperation = Pure Fun!
In Cooperative Sports, each team can be made up of a diverse group of boys and girls, women and men of various levels of athletic ability. This makes it easy to form teams made up of the people that are available to play. Each team member contributes as much as they can, (which is always enough) as the team discovers its strengths and weaknesses and learns to use them to its advantage. There is no way you can lose! Each time a team plays, it tries to better its past scores. As long as the team as a whole is improving its athletic and/or cooperation skills, they will see some improvement from game to game. In sport, Pure Cooperation = Pure Flexibility!
Since having fun is the most important thing in Cooperative Sports, players will be encouraged to play lots of them. Specialization is the dominant theme of the working world, but variety is the spice of life! Each game provides different athletic and cooperative opportunities and challenges. The newer you are to a game, the greater your potential for improvement! In sport, Pure Cooperation = Pure Variety!
In sport as in business, education or in our homes, we need ways to measure our progress so we can better understand what works well and what does not. This is one of the best aspects of traditional sports: they provide an environment where we can strive for excellence. Cooperative Sports provide this feedback via scoring systems that measure your teams athletic and cooperative skills. The higher the score, the better your team did. When your team plays again, it tries to better its score, or at least stay above the average score for its last few games.
Scoring systems automatically enable competition, even if the teams involved are playing at different times or places. For example, relay race teams require good cooperation to excel. The reason this sport is competitive and not cooperative is the social environment in which is is played. Relay race teams certainly try to better their past records, but those times are also formally recorded, published and compared against their rivals. In the end, the team with the lowest lapsed time wins. When a team really wants to win in this environment, it will do best if it keeps its “secrets of success” to itself. This limits the development of our athletic and cooperation skills.
In Cooperative Sports, we compare our new scores to our own teams past scores. But importantly, we also combine our teams best score with the best scores of other teams to create a sport-wide “best score average” that everyone can work to improve together! When you get together with players from other teams, you have a real incentive to help them improve their game. Thus, we provide an environment of Pure Cooperation. In sports, Pure Cooperation = Pure Excellence!
In Summary, Cooperative Sports Provide You With:
Pure Cooperation
Pure Fun
Pure Flexibility
Pure Variety
Pure Excellence
Cooperative SportsLebanon, NH, USA(603) 298-9882
Copyright © 1996, 2000, 2003, 2005, 2009 David Gaia Kano
3/17/2009 page version
Lebanon, NH, USA(603) 298-9882
Introducing Cooperative Sports
Joe plays sport X. His friend asks him, “Hey Joe, are you going to enter the X tournament next week?”
“No,” he replies, “I don't play competitively, I just play for fun.”
Have you ever heard this snippet of a conversation before? I have heard it many times. The funny thing is, if you just heard the phrase, “I just play for fun” out of this context it would sound pretty obvious, because play activities are of course designed to be fun. Or are they? Does everyone find it fun to compete? Clearly the answer is no.
But it is not just the bigger, formal meets, races and tournaments people are avoiding. Many people avoid competitive sports altogether. Why? Are they lazy? Too busy to exercise? Don't like to be around other people? These may be the reasons for some people, but I think for many others the answer lies in the competitive nature of traditional sports.
In today's world, we spend most of our time competing. From an early age, we are told that only the best students get into the really good universities and that when we graduate, that only the best will land the job of their dreams. We use the phrase “get ahead” interchangeably with “succeed”. So when it comes time to play, it should not come as a surprise that many people choose not to participate in competitive sports. They simply need a break from the pressure and stress of competition. In their precious leisure time, they want to play with their friends as partners, not rivals.
Cooperative Sports allow you to play with other people and stay physically fit without spending your leisure time in competition. In sport, Pure Cooperation = Pure Fun!
In Cooperative Sports, each team can be made up of a diverse group of boys and girls, women and men of various levels of athletic ability. This makes it easy to form teams made up of the people that are available to play. Each team member contributes as much as they can, (which is always enough) as the team discovers its strengths and weaknesses and learns to use them to its advantage. There is no way you can lose! Each time a team plays, it tries to better its past scores. As long as the team as a whole is improving its athletic and/or cooperation skills, they will see some improvement from game to game. In sport, Pure Cooperation = Pure Flexibility!
Since having fun is the most important thing in Cooperative Sports, players will be encouraged to play lots of them. Specialization is the dominant theme of the working world, but variety is the spice of life! Each game provides different athletic and cooperative opportunities and challenges. The newer you are to a game, the greater your potential for improvement! In sport, Pure Cooperation = Pure Variety!
In sport as in business, education or in our homes, we need ways to measure our progress so we can better understand what works well and what does not. This is one of the best aspects of traditional sports: they provide an environment where we can strive for excellence. Cooperative Sports provide this feedback via scoring systems that measure your teams athletic and cooperative skills. The higher the score, the better your team did. When your team plays again, it tries to better its score, or at least stay above the average score for its last few games.
Scoring systems automatically enable competition, even if the teams involved are playing at different times or places. For example, relay race teams require good cooperation to excel. The reason this sport is competitive and not cooperative is the social environment in which is is played. Relay race teams certainly try to better their past records, but those times are also formally recorded, published and compared against their rivals. In the end, the team with the lowest lapsed time wins. When a team really wants to win in this environment, it will do best if it keeps its “secrets of success” to itself. This limits the development of our athletic and cooperation skills.
In Cooperative Sports, we compare our new scores to our own teams past scores. But importantly, we also combine our teams best score with the best scores of other teams to create a sport-wide “best score average” that everyone can work to improve together! When you get together with players from other teams, you have a real incentive to help them improve their game. Thus, we provide an environment of Pure Cooperation. In sports, Pure Cooperation = Pure Excellence!
In Summary, Cooperative Sports Provide You With:
Pure Cooperation
Pure Fun
Pure Flexibility
Pure Variety
Pure Excellence
Cooperative SportsLebanon, NH, USA(603) 298-9882
Copyright © 1996, 2000, 2003, 2005, 2009 David Gaia Kano
3/17/2009 page version
Saturday, February 27, 2010
Competition in cows :P
I No doubt about it, the beef cattle industry
is in big trouble again. Several
friends and acquaintances in the feedlot
business are being forced into bankruptcy
and many others are teetering on the
brink. The small cow/calf producer has
been disappearing for years, seemingly
without notice or concern.
Today, many large
and formerly successful
large ranching operations
have exhausted
much of their equity,
are in danger of losing
the sacred trust (ranch)
passed on to them from
preceding generations.
Everyone in the cattle
business seems to be
feeling pain. But, this may just be the
needed motivation for producers at all
levels to ban together and seize this fleeting
opportunity to fix things.
We were supposed to have weeded out
excess production and inefficiency during
the bloody purge of the mid-eighties.
This being done, the industry would be
restored to balance and fairness for all
players. But, excessive and inefficient production
is clearly not the cause of this crisis
situation. The cliché; “the cure for low
prices is low prices” has been debunked.
A dysfunctional and totally broken marketing
system is
coming into focus as
the real culprit.
R a n c h i n g
and cattle feeding
has always been
tough. But today,
even those who have
traditionally been
above the fray are
feeling the pinch. In
the past, many cattle
feeders seemed to have believed that if
they became friends with the packers and
sided with them in lawsuits, they would
be able to get preferable prices for their
cattle. It didn’t work! Even the major
feeders, including those who had cozy
relationships and special deals with pack-
IT’S THE BROKEN MARKET SYSTEM
by Fred Stokes, Executive Director
ORGANIZATION FOR COMPETITIVE MARKETS POST OFFICE BOX 6486 LINCOLN, NEBRASKA 68506 ø www.competitivemarkets.com
OCM News FEBRUARY 2010
INSIDE...
What’s
the basic elements of
a solution
by Randy Stevenson 2
dig baby dig
by Richard Oswald 3
IT ’S THE PITTS ; CATTLE
FEEDE RS ANONYMOUS
by Lee Pitts 4
POEM - There’s No Lights
On In The Barn
by Lewis Baumgartner 5
ers, are now hurting and seem ready to
work (albeit clandestinely) with others to
reform the marketplace. However, they
remain concerned that if their involvement
in the ongoing market reform effort
becomes known, they will be subject to
reprisals by the packer.
This fear of packer reprisals brought
to memory an incident years back in a
local school here in Mississippi. A teenage
boy was lying helplessly on his back
with the school bully setting on his chest
pounding him in the face. The surrounding
kids yelled, “fight back Buddy”, who
replied “no that will just make him worser”.
Adults should have come to realize
that when you have to deal with a bully,
not resisting doesn’t work. Ultimately,
you’re going to either have to be totally
submissive or fight.
Please see STOKES on page 6 Cattle producers at
all levels need to rally
around their common
interests and agreements,
put aside their
differences and act to
fix this broken market
system.
What should the market look like?
In general terms that is not difficult to
describe. The market should possess
three key elements in order to function
properly. They are a balance of market
power, good procedural rules to maintain
the balance of power, and impartial
enforcement of the rules.
The balance of power, in turn consists
of elements that help describe and
determine that feature. First, there
should be no situation of asymmetric
information. That is not to say that one
side of the transaction may not be negligent
and overlook available sources
of information to his own detriment.
But rather it means that, for example,
a packer may not operate with information
about how many cattle he has
bought for next week’s kill while the
seller cannot know such information.
That information should be available
because the transactions to buy those
cattle have taken place in the open, and
not by contracts that are unavailable to
other market participants. That suggests
another feature that prevents an
imbalance of power, and that is market
transparency. When each individual
transaction between buyers and sellers
is open to the public, every market participant
can evaluate the same market
information. Nothing is hidden. Finally
the absence of compulsion for either
buyers or sellers is necessary. Buyers
and sellers may have their own internal
compulsions to buy or sell cattle, such
as pressing financial necessity, or a need
to supply a restaurant contract. That is
not what absence of compulsion means.
Absence of compulsion means that the
buyer is not giving the seller only 30
minutes to decide to sell today, or he
doesn’t get another opportunity to sell
for another week.
The second major element of a
competitive market is the presence of
a regulatory scheme to guarantee the
previously stated balance of power.
Such regulation is limited to the market
transactions and the market itself and
not to any other feature such as safety
and health. The desirability and extent
of health and safety regulations is a debate
that belongs outside the discussion
of the marketplace. Rules for a marketplace
are just as necessary as rules for
a football game. The outcome is never
determined or influenced by the rules.
Rules that preserve honesty would be
an example of something absolutely
necessary in the marketplace. The rules
simply make sure that the balance is
maintained in terms of market power.
The final major element is the impartial
enforcement of the rules. With-
Please see STEVENSON on page 7
The Basic Elements of a Solution
by Randy Stevenson
President
BOARD MEMBERS:
Randy Stevenson, President
Wheatland, WY 307-331-1980
double_s_livestock@lycos.com
Mike Callicrate, Vice President
St. Francis, KS 785-332-8218
mike@nobull.net
Brother David Andrews, Secretary
Washington, DC
Dan Hodges, Treasurer
Julian, NE
Steve Cady
Eskridge, KS
Cap Dierks
Ewing, NE
Jim Foster
Montgomery City, MO
Keith Mudd, Past President
Monroe City, MO
Paul Muegge
Tonkawa, OK
Eric Nelson
Moville, IA
Richard Oswald
Langdon, Missouri
Fred Stokes, Past President
Porterville, MS
STAFF:
Fred Stokes, Executive Director
Porterville, MS • 601-527-2459
tfredstokes@hughes.net
Pat Craycraft, Office Manager
Lincoln, NE • 402-817-4443
ocm@competitivemarkets.com
PROJECT ASSISTANTS
Jody Holland, Starkville, MS
Eric Lister, Brentwood, TN
OCM BOARD
MEMBERS & STAFF
OCM - February 2010 2
3 OCM - February 2010
DIG BABY DIG by Richard Oswald
ting close to being the best in the world.
They’re building them by the thousands
and selling most to their own people. But
analysts say that will change as more Chinese
products find their way into our markets.
Some big US retailers like Costco
may even have plans to sell them. (5)
That goes right along with our current
trade policies that I call “Buy Baby Buy”
According to the folks at the January
27th Clean Energy Works Forum in
Washington DC, (1) the US gets 60% of
its oil from foreign sources. If Baby gets
lucky and digs up a gusher, all that oil
will be sold on the open market. America
might never see a single gallon of it unless
we outbid Europe and Asia. So supply is
important to stabilizing world prices in the
short run, but not helpful to our long term
outlook as third world nations with expanding
industrial bases have more money
to spend.
Either way, it’s pay Baby pay.
Both Senators John Kerry of Massachusetts
and Lindsey Graham of South
Carolina took time to visit with forum
participants in the Russell Senate Office
Building. Graham went out on a conservative
limb by calling for carbon regulation,
saying that only through cap and
trade would America find the resolve to
be truly energy independent. That’s a fact
some forward looking investors like Warren
Buffet have recognized for quite some
time. Not only do Buffet’s newly acquired
railroads offer shipping profits, they also
offer right of way with some of the best
opportunities for renewable energy--like
solar and wind. (3)
But there were others who saw this
coming too, like the company based in
India that bought a down-on-it’s-luck
transformer factory in the Show-Me-State
where Nick Nickelson works. Nick Attended
the Clean Energy Forum as president
of IUE-CWA Local 86114 in Washington,
Missouri.
Nick said the place where he works was
on hard times because of the recession.
Business was bad even though the quality
of the products Nick and his co-workers
put out was second to none. Now with
fresh investment in wind and solar power
starting to pick up, the market for high
quality transformers like those made at
Nicks factory (4) are finding markets while
safeguarding American jobs.
There were plenty of stories like Nicks,
and other stories too. Like the one from
Hawaii State Representative Cynthia
Thielen, who came to remind delegates
that 90% of the Aloha state’s energy needs
are provided by imported oil. Cynthia
said that on the Islands, the military is the
strongest proponent of renewable energy.
Some folks want to make this energy
thing seem like a partisan issue, but as Representative
Thielen and Senator Graham
(both are Republicans) said, this is not a
Republican issue, it is not a Democratic issue,
it is an issue of national security.
While Graham believes that continued
drilling for more fossil fuel supplies is an
important part of our energy security, he
still supports carbon regulation. It’s kind of
a one-two punch for energy independence.
That’s what Cap and Trade does; it
regulates carbon by establishing a market
for it. In order to comply with EPA regulations,
coal fired power generators don’t
need to modernize right away, but slowly
over time as older equipment must be replaced.
In the meantime they just partner
with a farm or industry that removes carbon
from the air.
Winston, a Farmer’s Union friend
of mine says “You hafta call it something
else. Because all the farmers’ll say ‘we don’t
want cap and trade’”.
Winston has a point. Thielen and
Please see OSWALD on page 6
O One of the things I remember best
about my Dad was his shovel, because
Dad’s shovel was eternally shiny and rust
free. The last thing he always did when he
finished digging on the farm was clean and
oil his spade to perfection.
From irrigation ditches to postholes,
Dad could dig about anything. But even he
knew that when you’re too deep in the hole,
the first order of business is Stop Digging.
When oil was $12 a barrel we thought
we’d never see the end of it. America just
kept right on excavating. Then oil went to
$70 a barrel and the hole got deeper. At
$150 a barrel we put the shovel down and
started to think. That’s when America decided
that never again will we ever allow
ourselves to be suckered into imported petroleum
dependence. That didn’t last long.
When oil fell in a crack at $70 a barrel,
we went right back digging. Dad would
not approve.
If “Drill Baby Drill” is our best solution,
then Baby’s drill had better be shiny
and oiled, because right now the United
States of America imports 60% of the oil
we use. In fact we’ve never imported more.
Add to that the fact our Asian friends, the
ones who loan us money and keep Wal-
Mart stocked, are leading the pack in alternative
energy development.
The dirt is really starting to fly.
While Chevrolet was negotiating a
loan so they could make their delinquent
payments, China was putting up factories
to build electric cars,(2) solar cells, wind
generators…just about everything anyone
needs to be energy independent.
Like Daily Yonder Editor Bill Bishop
says about China; “It helps when you can
just decide something and tell everybody to
get busy!!!”
Some say China’s electric cars are getOCM
- February 2010 4
My name is Lee Pitts and I was
once a cattle feeder. Yes, I was addicted
to cattle feeding. I have seen
firsthand the impact this can have on
families and their net worth so I am
proud to say that I have been clean
now for 20 years.
Since there is no Betty Ford Clinic
for helping cattle feeding addicts I
had to cure my own addiction by developing
a 12 step program like those
used in Alcoholics Anonymous, Sexual
Compulsive Anonymous, Gamblers
Anonymous and over 200 other
such programs. (It may not have been
just the 12 step program that enabled
me to quit cold turkey; a 58 cent fat
market and a balky banker also contributed.)
I offer my 12 step program
in hopes that it may help others become
cattle-feeding-sober.
Step 1: Stand up in a gathering
of fellow cattlemen, in a bar or at a
convention, and admit you are an addict
and your behavior is unmanageable.
Admit that when you see a pen
of green feeders enter an auction ring
and hear the auctioneer’s chant you
are powerless in the face of your addiction
and your hand automatically
goes up.
Step 2: Because no one has yet
developed a patch, drug, or chewing
gum to rein in your cattle feeding addiction
chew on alfalfa stems. You’ve
already paid for them and you might
as well put the hay to a better use than
feeding it to cattle.
Step 3: If you absolutely must go
to an auction take a person of higher
authority with you, such as your wife,
banker or Cattle Feeders Anonymous
(CFA) sponsor to stop you when you
try to bid on a cheap set of preggy
Corriente feeding heifers.
Step 4: Remove the enablers; those
people or things that are enabling you
to feed cattle. These would include
your banker, order buyer and futures
trader. Sell your cattle truck and airplane.
Cancel your membership in the
Texas Cattle Feeders.
Step 5: Sell your calves at auction
and don’t even consider retaining
ownership. Let someone else have all
the fun.
Step 6: Rediscover the other days
in the week besides Thursdays when
the price of fat cattle is usually established.
Quit living solely for that 30
minute period when prices are set by
the Big Three and admit that there is
a higher power in this universe than
Tyson, JBS and Cargill.
Step 7: Remove the temptation to
be a farmer as well as a rancher. It is
a short slippery step from growing
your own hay or grain to building a
set of corrals and having 3,500 head
on feed.
Step 8: Cleanse your mind of the
obsession. Quit reading articles authored
by university professors or economists
that advise that you are leaving
$50 per head on the table by selling
your calves instead of feeding them.
Ask yourself, where are the teacher’s
and economist’s feedlots?
Step 9: Break old habits. Don’t check
the DTN machine first thing when you
get up in the morning and every ten
minutes thereafter until the markets
close. Don’t let the price of corn ruin
your day and rediscover a new life without
margin calls, feed bills, mad cows,
dairy buyouts and e coli outbreaks.
Step 10: Remove defects in your
character. Become a CFA sponsor and
don’t enable anyone to become an addict
by financing them. Help wives and
children who have been hurt by your
fellow cattle feeding addicts by forming
a CFA-anon group in your area.
Step 11: Pay your taxes. Stop buying
trainloads of grain in December just to
avoid paying taxes. Burn the money instead
and save yourself a lot of grief.
Step 12: Replace the risk-taking
behavior and euphoria you feel when
feeding cattle with other activities. You
may find you get the same rush from
less risky activities such as hang gliding,
sword juggling, car racing or bull
riding. LP
It’s The Pitts: Cattle Feeders Anonymous
By Lee Pitts
5 OCM - February 2010
There’s No Lights On In The Barn
Lewis Baumgartner
Not so many years ago,
If you were to take a drive,
Across America’s farmland
And thru the countryside;
If by chance your ride should happen,
As the day was nearly done,
Most every farmstead on the road,
Would have the barn lights on.
The farmer and a kid or two,
Or maybe even more.
Each one busy with a task,
Doin’ up the evenin’ chores.
Milk the cow, feed the chickens
And gather up the eggs.
Throw some hay down from the loft
And water the sow and pigs.
Sometimes my mind will wander back,
And I’ll recall those days, now gone,
Of peaceful winter evenings,
And the lights on in the barn.
The smell of all the cattle,
Mixed with the grain and hay.
To me it was a pleasing smell,
Though, to you, it may not sound that way.
And while filling up the water tank,
I’d watch the cats at play.
A nearly perfect ending,
To another busy day.
Then gazing toward the house,
I could see the kitchen light.
Momma’s fixin’supper,
To feed us all tonight.
And the warm glow from that window,
Made this country boy work hard,
To get in to that apple pie
And that chicken fried in lard.
But the trend today is larger,
And fewer family farms.
Not so many places left now,
With the lights on in the barn.
They tell us that it’s progress,
And nothin’ stays the same.
We must look toward the future,
And not the past from where we came.
And I know, that is true,
But tell me, what’s the harm?
If I feel a twinge of sadness,
Cause There’s No Lights On In The Barn.
Everything is gettin’ big,
And no one seems alarmed,
That the chickens and the hogs now,
Are mostly raised on Factory Farms.
We’ve taken out the fences,
And..the barn.... it’s been torn down.
It takes a lot of room,
To turn 16 rows around.
My favorite memories take me back,
To the way we used to farm.
To a peaceful winter evening,
With the lights on in the barn.
OCM - February 2010 6
STOKES (continued from page 1)
I don’t believe we’re going to see any
legislative relief from these rigged markets
anytime soon. The regulatory agencies
seem to be the only reasonable hope
in the near term. I know that there is lots
of cynicism and skepticism concerning
DOJ and USDA moving against these
big firms and their anticompetitive practices.
Some dismiss the upcoming joint
DOJ/USDA workshops as just the usual
bureaucratic smoke-blowing.
But I believe these folks are sincere
and that something good will come
from this new cooperation between DOJ
and USDA and the five workshops. I
view the formal inquiry DOJ launched
against Monsanto and Dean Foods and
the $900,000 fine against Smithfield for
jumping the gun on its merger with Seaboard
as pretty good evidence that they
are serious.
Trial and appellate court judges seem
to have a habit of legislating from the
bench and encroaching on the established
regulatory authority of GIPSA. In at
least three cases they reversed jury verdicts
that were sound and consistent with
the facts and plain language of the P&S
Act. But I am optimistic that the ongoing
rulemaking process for the Packers and
Stockyards Act of 1921 will reestablish
the original intent of this act which is so
vital for the protection of cattle producers.
I see this as a moment in time in which
the stars are in proper alignment for
bringing competition and fairness back
to the marketplace. If there was ever an
opportunity for market reform, this is it.
Cattle producers at all levels need to rally
around their common interests and agreements,
put aside their differences and act
to fix this broken market system. The
survival of our industry and our national
food security depends on it.FS
OSWALD (continued from page 3)
Graham haven’t won over fellow conservatives
who think “cap and trade”
caps profits, too. But farms could be the
biggest beneficiaries of carbon trading
when they sell the greenhouse gas credits
from their fields, ethanol refining,
biomass pellets, methane capture, or
farm based wind and solar energy.
In these troubled times with the domestic
budget facing cutbacks, farmers
can no longer be sure that low prices will
get the same helpful subsidy consideration
from USDA. That means new energy
products and markets might make
a difference between earning a profit, or
going in the hole.
Retired military officers Marine
Brigadier General Steve Cheney and
Army Major General Paul Eaton both
agree that climate and energy are important
to national security. General Cheney
said that sometimes our focus on current
problems like energy costs, keeps
us from focusing on problems down
the road. Things like our climate-- and
energy independence. General Eaton,
whose three children serve their country
in the military, agreed, saying “What
happens to them depends on climate
change (and US energy policy)”.
A lot of farmers haven’t made the
connection that without an energy bill
and carbon trading, there’s no real fundamental
support for the renewable energy
products we rely on to make our
farming profitable today. They, right
along with General Eaton’s offspring,
are at the mercy of big oil and lobbyists.
Ethanol was struggling against competition
from petroleum and the gasoline
additive MTBE, until MTBE in
ground water convinced EPA to require
it’s removal. That left ETBE (ethanol)
as the only oxygenate available for
blending. Big oil argued to have the
entire oxygenate rule rescinded because
they didn’t want to buy our product. It
was the only fuel additive they couldn’t
manufacture themselves. (6) EPA stuck
by their guns, and blended gasoline remains
a requirement, which is the main
reason most US ethanol refiners are still
in business.
Even if they don’t want to, the petroleum
companies have to provide us with
a market. Let’s face it, not many farmers
own a filling station.
Anytime a farmer says there’s nothing
wrong with CO2 in the atmosphere,
he’s also saying we don’t need biofuels.
It’s simple as that. The longer we oppose
carbon trading, the deeper we burrow
into big oil’s control.
Sometimes digging isn’t all bad. It
gets the crops watered and holds the
livestock in. It even keeps foxhole bound
soldiers out of harms way.
But for farmers, digging for the
wrong reason just makes the hole deeper.
RO
(1) http://www.cleanenergyworks.us/
(2) http://www.businesswire.com/portal/site/home/
permalink/?ndmViewId=news_view&newsId=201
00126006473&newsLang=en
(3) h t t p : / / w w w. g u r u f o c u s . c o m / n e w s .
php?id=83089
(4) http://www.pauwels.com/launch.cfm
(5) http://gas2.org/2009/03/31/chinese-electriccars-
coming-to-costco-wal-mart/
(6) http://www.cato.org/pub_display.php?pub_
id=4609
The opinions of the author are his own and are not intended to
imply the organizations position on this or any other issue. OCM
has membership with diverse viewpoints on all issues. OCM is
committed to one and only one principal; competition.
7 OCM - February 2010
Type of Membership: _____Renewal _____New
__ Gold Member ($1,000 and over) __ Regular Member ($200)
__ Friend Of OCM (Non-Voting Member) ($50) __Donation $_________
Name
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Reclaiming the ✓ Yes, I would like to become a member!
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Communities!
Make checks payable to: OCM, PO Box 6486, Lincoln, NE 68506
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FOR 2010
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ARE TAX DEDUCTIBLE
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this year to help in our mission to reclaim
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We can make a difference.
OCM is an approved nonprofit, charitable
organization pursuant to IRC
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STEVENSON (continued from page 2)
out enforcement, rules are meaningless. As
previously stated transparency provides a head
start in rule enforcement. When the eyes of the
whole market are on each and every transaction,
it makes it easier to enforce the competitive marketplace
requirements.
We don’t have to re-invent the wheel in order
to find an example that has many of these
features. The stock exchanges provide many
examples of how to conduct a competitive market.
There is seldom a debate about whether a
stock price is the “natural” price. Adam Smith’s
“natural” price will occur anytime these features
exist in the marketplace.
Of course there would be many tweaks to
make such an exchange work for cattle. That
remains to be addressed. The fact is that a competitive
market is absolutely necessary for both
consumers and producers. Whatever is needed
to attain it should be done.RS
Organization for Competitive Markets
Tel: (402) 817-4443 • Fax: (360) 237-8784
P.O. Box 6486
Lincoln, NE 68506
ADDRESS SERVICE REQUESTED
February 2010
NON-Profit ORG
U.S. POSTAGE PAID
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PERMIT #1734
68506
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ocm
OCM - February 2010 8
See us on the web
www.competitivemarkets.com
http://www.competitivemarkets.com/images/stories/2010Newsletters/ocmfeb10.pdf
is in big trouble again. Several
friends and acquaintances in the feedlot
business are being forced into bankruptcy
and many others are teetering on the
brink. The small cow/calf producer has
been disappearing for years, seemingly
without notice or concern.
Today, many large
and formerly successful
large ranching operations
have exhausted
much of their equity,
are in danger of losing
the sacred trust (ranch)
passed on to them from
preceding generations.
Everyone in the cattle
business seems to be
feeling pain. But, this may just be the
needed motivation for producers at all
levels to ban together and seize this fleeting
opportunity to fix things.
We were supposed to have weeded out
excess production and inefficiency during
the bloody purge of the mid-eighties.
This being done, the industry would be
restored to balance and fairness for all
players. But, excessive and inefficient production
is clearly not the cause of this crisis
situation. The cliché; “the cure for low
prices is low prices” has been debunked.
A dysfunctional and totally broken marketing
system is
coming into focus as
the real culprit.
R a n c h i n g
and cattle feeding
has always been
tough. But today,
even those who have
traditionally been
above the fray are
feeling the pinch. In
the past, many cattle
feeders seemed to have believed that if
they became friends with the packers and
sided with them in lawsuits, they would
be able to get preferable prices for their
cattle. It didn’t work! Even the major
feeders, including those who had cozy
relationships and special deals with pack-
IT’S THE BROKEN MARKET SYSTEM
by Fred Stokes, Executive Director
ORGANIZATION FOR COMPETITIVE MARKETS POST OFFICE BOX 6486 LINCOLN, NEBRASKA 68506 ø www.competitivemarkets.com
OCM News FEBRUARY 2010
INSIDE...
What’s
the basic elements of
a solution
by Randy Stevenson 2
dig baby dig
by Richard Oswald 3
IT ’S THE PITTS ; CATTLE
FEEDE RS ANONYMOUS
by Lee Pitts 4
POEM - There’s No Lights
On In The Barn
by Lewis Baumgartner 5
ers, are now hurting and seem ready to
work (albeit clandestinely) with others to
reform the marketplace. However, they
remain concerned that if their involvement
in the ongoing market reform effort
becomes known, they will be subject to
reprisals by the packer.
This fear of packer reprisals brought
to memory an incident years back in a
local school here in Mississippi. A teenage
boy was lying helplessly on his back
with the school bully setting on his chest
pounding him in the face. The surrounding
kids yelled, “fight back Buddy”, who
replied “no that will just make him worser”.
Adults should have come to realize
that when you have to deal with a bully,
not resisting doesn’t work. Ultimately,
you’re going to either have to be totally
submissive or fight.
Please see STOKES on page 6 Cattle producers at
all levels need to rally
around their common
interests and agreements,
put aside their
differences and act to
fix this broken market
system.
What should the market look like?
In general terms that is not difficult to
describe. The market should possess
three key elements in order to function
properly. They are a balance of market
power, good procedural rules to maintain
the balance of power, and impartial
enforcement of the rules.
The balance of power, in turn consists
of elements that help describe and
determine that feature. First, there
should be no situation of asymmetric
information. That is not to say that one
side of the transaction may not be negligent
and overlook available sources
of information to his own detriment.
But rather it means that, for example,
a packer may not operate with information
about how many cattle he has
bought for next week’s kill while the
seller cannot know such information.
That information should be available
because the transactions to buy those
cattle have taken place in the open, and
not by contracts that are unavailable to
other market participants. That suggests
another feature that prevents an
imbalance of power, and that is market
transparency. When each individual
transaction between buyers and sellers
is open to the public, every market participant
can evaluate the same market
information. Nothing is hidden. Finally
the absence of compulsion for either
buyers or sellers is necessary. Buyers
and sellers may have their own internal
compulsions to buy or sell cattle, such
as pressing financial necessity, or a need
to supply a restaurant contract. That is
not what absence of compulsion means.
Absence of compulsion means that the
buyer is not giving the seller only 30
minutes to decide to sell today, or he
doesn’t get another opportunity to sell
for another week.
The second major element of a
competitive market is the presence of
a regulatory scheme to guarantee the
previously stated balance of power.
Such regulation is limited to the market
transactions and the market itself and
not to any other feature such as safety
and health. The desirability and extent
of health and safety regulations is a debate
that belongs outside the discussion
of the marketplace. Rules for a marketplace
are just as necessary as rules for
a football game. The outcome is never
determined or influenced by the rules.
Rules that preserve honesty would be
an example of something absolutely
necessary in the marketplace. The rules
simply make sure that the balance is
maintained in terms of market power.
The final major element is the impartial
enforcement of the rules. With-
Please see STEVENSON on page 7
The Basic Elements of a Solution
by Randy Stevenson
President
BOARD MEMBERS:
Randy Stevenson, President
Wheatland, WY 307-331-1980
double_s_livestock@lycos.com
Mike Callicrate, Vice President
St. Francis, KS 785-332-8218
mike@nobull.net
Brother David Andrews, Secretary
Washington, DC
Dan Hodges, Treasurer
Julian, NE
Steve Cady
Eskridge, KS
Cap Dierks
Ewing, NE
Jim Foster
Montgomery City, MO
Keith Mudd, Past President
Monroe City, MO
Paul Muegge
Tonkawa, OK
Eric Nelson
Moville, IA
Richard Oswald
Langdon, Missouri
Fred Stokes, Past President
Porterville, MS
STAFF:
Fred Stokes, Executive Director
Porterville, MS • 601-527-2459
tfredstokes@hughes.net
Pat Craycraft, Office Manager
Lincoln, NE • 402-817-4443
ocm@competitivemarkets.com
PROJECT ASSISTANTS
Jody Holland, Starkville, MS
Eric Lister, Brentwood, TN
OCM BOARD
MEMBERS & STAFF
OCM - February 2010 2
3 OCM - February 2010
DIG BABY DIG by Richard Oswald
ting close to being the best in the world.
They’re building them by the thousands
and selling most to their own people. But
analysts say that will change as more Chinese
products find their way into our markets.
Some big US retailers like Costco
may even have plans to sell them. (5)
That goes right along with our current
trade policies that I call “Buy Baby Buy”
According to the folks at the January
27th Clean Energy Works Forum in
Washington DC, (1) the US gets 60% of
its oil from foreign sources. If Baby gets
lucky and digs up a gusher, all that oil
will be sold on the open market. America
might never see a single gallon of it unless
we outbid Europe and Asia. So supply is
important to stabilizing world prices in the
short run, but not helpful to our long term
outlook as third world nations with expanding
industrial bases have more money
to spend.
Either way, it’s pay Baby pay.
Both Senators John Kerry of Massachusetts
and Lindsey Graham of South
Carolina took time to visit with forum
participants in the Russell Senate Office
Building. Graham went out on a conservative
limb by calling for carbon regulation,
saying that only through cap and
trade would America find the resolve to
be truly energy independent. That’s a fact
some forward looking investors like Warren
Buffet have recognized for quite some
time. Not only do Buffet’s newly acquired
railroads offer shipping profits, they also
offer right of way with some of the best
opportunities for renewable energy--like
solar and wind. (3)
But there were others who saw this
coming too, like the company based in
India that bought a down-on-it’s-luck
transformer factory in the Show-Me-State
where Nick Nickelson works. Nick Attended
the Clean Energy Forum as president
of IUE-CWA Local 86114 in Washington,
Missouri.
Nick said the place where he works was
on hard times because of the recession.
Business was bad even though the quality
of the products Nick and his co-workers
put out was second to none. Now with
fresh investment in wind and solar power
starting to pick up, the market for high
quality transformers like those made at
Nicks factory (4) are finding markets while
safeguarding American jobs.
There were plenty of stories like Nicks,
and other stories too. Like the one from
Hawaii State Representative Cynthia
Thielen, who came to remind delegates
that 90% of the Aloha state’s energy needs
are provided by imported oil. Cynthia
said that on the Islands, the military is the
strongest proponent of renewable energy.
Some folks want to make this energy
thing seem like a partisan issue, but as Representative
Thielen and Senator Graham
(both are Republicans) said, this is not a
Republican issue, it is not a Democratic issue,
it is an issue of national security.
While Graham believes that continued
drilling for more fossil fuel supplies is an
important part of our energy security, he
still supports carbon regulation. It’s kind of
a one-two punch for energy independence.
That’s what Cap and Trade does; it
regulates carbon by establishing a market
for it. In order to comply with EPA regulations,
coal fired power generators don’t
need to modernize right away, but slowly
over time as older equipment must be replaced.
In the meantime they just partner
with a farm or industry that removes carbon
from the air.
Winston, a Farmer’s Union friend
of mine says “You hafta call it something
else. Because all the farmers’ll say ‘we don’t
want cap and trade’”.
Winston has a point. Thielen and
Please see OSWALD on page 6
O One of the things I remember best
about my Dad was his shovel, because
Dad’s shovel was eternally shiny and rust
free. The last thing he always did when he
finished digging on the farm was clean and
oil his spade to perfection.
From irrigation ditches to postholes,
Dad could dig about anything. But even he
knew that when you’re too deep in the hole,
the first order of business is Stop Digging.
When oil was $12 a barrel we thought
we’d never see the end of it. America just
kept right on excavating. Then oil went to
$70 a barrel and the hole got deeper. At
$150 a barrel we put the shovel down and
started to think. That’s when America decided
that never again will we ever allow
ourselves to be suckered into imported petroleum
dependence. That didn’t last long.
When oil fell in a crack at $70 a barrel,
we went right back digging. Dad would
not approve.
If “Drill Baby Drill” is our best solution,
then Baby’s drill had better be shiny
and oiled, because right now the United
States of America imports 60% of the oil
we use. In fact we’ve never imported more.
Add to that the fact our Asian friends, the
ones who loan us money and keep Wal-
Mart stocked, are leading the pack in alternative
energy development.
The dirt is really starting to fly.
While Chevrolet was negotiating a
loan so they could make their delinquent
payments, China was putting up factories
to build electric cars,(2) solar cells, wind
generators…just about everything anyone
needs to be energy independent.
Like Daily Yonder Editor Bill Bishop
says about China; “It helps when you can
just decide something and tell everybody to
get busy!!!”
Some say China’s electric cars are getOCM
- February 2010 4
My name is Lee Pitts and I was
once a cattle feeder. Yes, I was addicted
to cattle feeding. I have seen
firsthand the impact this can have on
families and their net worth so I am
proud to say that I have been clean
now for 20 years.
Since there is no Betty Ford Clinic
for helping cattle feeding addicts I
had to cure my own addiction by developing
a 12 step program like those
used in Alcoholics Anonymous, Sexual
Compulsive Anonymous, Gamblers
Anonymous and over 200 other
such programs. (It may not have been
just the 12 step program that enabled
me to quit cold turkey; a 58 cent fat
market and a balky banker also contributed.)
I offer my 12 step program
in hopes that it may help others become
cattle-feeding-sober.
Step 1: Stand up in a gathering
of fellow cattlemen, in a bar or at a
convention, and admit you are an addict
and your behavior is unmanageable.
Admit that when you see a pen
of green feeders enter an auction ring
and hear the auctioneer’s chant you
are powerless in the face of your addiction
and your hand automatically
goes up.
Step 2: Because no one has yet
developed a patch, drug, or chewing
gum to rein in your cattle feeding addiction
chew on alfalfa stems. You’ve
already paid for them and you might
as well put the hay to a better use than
feeding it to cattle.
Step 3: If you absolutely must go
to an auction take a person of higher
authority with you, such as your wife,
banker or Cattle Feeders Anonymous
(CFA) sponsor to stop you when you
try to bid on a cheap set of preggy
Corriente feeding heifers.
Step 4: Remove the enablers; those
people or things that are enabling you
to feed cattle. These would include
your banker, order buyer and futures
trader. Sell your cattle truck and airplane.
Cancel your membership in the
Texas Cattle Feeders.
Step 5: Sell your calves at auction
and don’t even consider retaining
ownership. Let someone else have all
the fun.
Step 6: Rediscover the other days
in the week besides Thursdays when
the price of fat cattle is usually established.
Quit living solely for that 30
minute period when prices are set by
the Big Three and admit that there is
a higher power in this universe than
Tyson, JBS and Cargill.
Step 7: Remove the temptation to
be a farmer as well as a rancher. It is
a short slippery step from growing
your own hay or grain to building a
set of corrals and having 3,500 head
on feed.
Step 8: Cleanse your mind of the
obsession. Quit reading articles authored
by university professors or economists
that advise that you are leaving
$50 per head on the table by selling
your calves instead of feeding them.
Ask yourself, where are the teacher’s
and economist’s feedlots?
Step 9: Break old habits. Don’t check
the DTN machine first thing when you
get up in the morning and every ten
minutes thereafter until the markets
close. Don’t let the price of corn ruin
your day and rediscover a new life without
margin calls, feed bills, mad cows,
dairy buyouts and e coli outbreaks.
Step 10: Remove defects in your
character. Become a CFA sponsor and
don’t enable anyone to become an addict
by financing them. Help wives and
children who have been hurt by your
fellow cattle feeding addicts by forming
a CFA-anon group in your area.
Step 11: Pay your taxes. Stop buying
trainloads of grain in December just to
avoid paying taxes. Burn the money instead
and save yourself a lot of grief.
Step 12: Replace the risk-taking
behavior and euphoria you feel when
feeding cattle with other activities. You
may find you get the same rush from
less risky activities such as hang gliding,
sword juggling, car racing or bull
riding. LP
It’s The Pitts: Cattle Feeders Anonymous
By Lee Pitts
5 OCM - February 2010
There’s No Lights On In The Barn
Lewis Baumgartner
Not so many years ago,
If you were to take a drive,
Across America’s farmland
And thru the countryside;
If by chance your ride should happen,
As the day was nearly done,
Most every farmstead on the road,
Would have the barn lights on.
The farmer and a kid or two,
Or maybe even more.
Each one busy with a task,
Doin’ up the evenin’ chores.
Milk the cow, feed the chickens
And gather up the eggs.
Throw some hay down from the loft
And water the sow and pigs.
Sometimes my mind will wander back,
And I’ll recall those days, now gone,
Of peaceful winter evenings,
And the lights on in the barn.
The smell of all the cattle,
Mixed with the grain and hay.
To me it was a pleasing smell,
Though, to you, it may not sound that way.
And while filling up the water tank,
I’d watch the cats at play.
A nearly perfect ending,
To another busy day.
Then gazing toward the house,
I could see the kitchen light.
Momma’s fixin’supper,
To feed us all tonight.
And the warm glow from that window,
Made this country boy work hard,
To get in to that apple pie
And that chicken fried in lard.
But the trend today is larger,
And fewer family farms.
Not so many places left now,
With the lights on in the barn.
They tell us that it’s progress,
And nothin’ stays the same.
We must look toward the future,
And not the past from where we came.
And I know, that is true,
But tell me, what’s the harm?
If I feel a twinge of sadness,
Cause There’s No Lights On In The Barn.
Everything is gettin’ big,
And no one seems alarmed,
That the chickens and the hogs now,
Are mostly raised on Factory Farms.
We’ve taken out the fences,
And..the barn.... it’s been torn down.
It takes a lot of room,
To turn 16 rows around.
My favorite memories take me back,
To the way we used to farm.
To a peaceful winter evening,
With the lights on in the barn.
OCM - February 2010 6
STOKES (continued from page 1)
I don’t believe we’re going to see any
legislative relief from these rigged markets
anytime soon. The regulatory agencies
seem to be the only reasonable hope
in the near term. I know that there is lots
of cynicism and skepticism concerning
DOJ and USDA moving against these
big firms and their anticompetitive practices.
Some dismiss the upcoming joint
DOJ/USDA workshops as just the usual
bureaucratic smoke-blowing.
But I believe these folks are sincere
and that something good will come
from this new cooperation between DOJ
and USDA and the five workshops. I
view the formal inquiry DOJ launched
against Monsanto and Dean Foods and
the $900,000 fine against Smithfield for
jumping the gun on its merger with Seaboard
as pretty good evidence that they
are serious.
Trial and appellate court judges seem
to have a habit of legislating from the
bench and encroaching on the established
regulatory authority of GIPSA. In at
least three cases they reversed jury verdicts
that were sound and consistent with
the facts and plain language of the P&S
Act. But I am optimistic that the ongoing
rulemaking process for the Packers and
Stockyards Act of 1921 will reestablish
the original intent of this act which is so
vital for the protection of cattle producers.
I see this as a moment in time in which
the stars are in proper alignment for
bringing competition and fairness back
to the marketplace. If there was ever an
opportunity for market reform, this is it.
Cattle producers at all levels need to rally
around their common interests and agreements,
put aside their differences and act
to fix this broken market system. The
survival of our industry and our national
food security depends on it.FS
OSWALD (continued from page 3)
Graham haven’t won over fellow conservatives
who think “cap and trade”
caps profits, too. But farms could be the
biggest beneficiaries of carbon trading
when they sell the greenhouse gas credits
from their fields, ethanol refining,
biomass pellets, methane capture, or
farm based wind and solar energy.
In these troubled times with the domestic
budget facing cutbacks, farmers
can no longer be sure that low prices will
get the same helpful subsidy consideration
from USDA. That means new energy
products and markets might make
a difference between earning a profit, or
going in the hole.
Retired military officers Marine
Brigadier General Steve Cheney and
Army Major General Paul Eaton both
agree that climate and energy are important
to national security. General Cheney
said that sometimes our focus on current
problems like energy costs, keeps
us from focusing on problems down
the road. Things like our climate-- and
energy independence. General Eaton,
whose three children serve their country
in the military, agreed, saying “What
happens to them depends on climate
change (and US energy policy)”.
A lot of farmers haven’t made the
connection that without an energy bill
and carbon trading, there’s no real fundamental
support for the renewable energy
products we rely on to make our
farming profitable today. They, right
along with General Eaton’s offspring,
are at the mercy of big oil and lobbyists.
Ethanol was struggling against competition
from petroleum and the gasoline
additive MTBE, until MTBE in
ground water convinced EPA to require
it’s removal. That left ETBE (ethanol)
as the only oxygenate available for
blending. Big oil argued to have the
entire oxygenate rule rescinded because
they didn’t want to buy our product. It
was the only fuel additive they couldn’t
manufacture themselves. (6) EPA stuck
by their guns, and blended gasoline remains
a requirement, which is the main
reason most US ethanol refiners are still
in business.
Even if they don’t want to, the petroleum
companies have to provide us with
a market. Let’s face it, not many farmers
own a filling station.
Anytime a farmer says there’s nothing
wrong with CO2 in the atmosphere,
he’s also saying we don’t need biofuels.
It’s simple as that. The longer we oppose
carbon trading, the deeper we burrow
into big oil’s control.
Sometimes digging isn’t all bad. It
gets the crops watered and holds the
livestock in. It even keeps foxhole bound
soldiers out of harms way.
But for farmers, digging for the
wrong reason just makes the hole deeper.
RO
(1) http://www.cleanenergyworks.us/
(2) http://www.businesswire.com/portal/site/home/
permalink/?ndmViewId=news_view&newsId=201
00126006473&newsLang=en
(3) h t t p : / / w w w. g u r u f o c u s . c o m / n e w s .
php?id=83089
(4) http://www.pauwels.com/launch.cfm
(5) http://gas2.org/2009/03/31/chinese-electriccars-
coming-to-costco-wal-mart/
(6) http://www.cato.org/pub_display.php?pub_
id=4609
The opinions of the author are his own and are not intended to
imply the organizations position on this or any other issue. OCM
has membership with diverse viewpoints on all issues. OCM is
committed to one and only one principal; competition.
7 OCM - February 2010
Type of Membership: _____Renewal _____New
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STEVENSON (continued from page 2)
out enforcement, rules are meaningless. As
previously stated transparency provides a head
start in rule enforcement. When the eyes of the
whole market are on each and every transaction,
it makes it easier to enforce the competitive marketplace
requirements.
We don’t have to re-invent the wheel in order
to find an example that has many of these
features. The stock exchanges provide many
examples of how to conduct a competitive market.
There is seldom a debate about whether a
stock price is the “natural” price. Adam Smith’s
“natural” price will occur anytime these features
exist in the marketplace.
Of course there would be many tweaks to
make such an exchange work for cattle. That
remains to be addressed. The fact is that a competitive
market is absolutely necessary for both
consumers and producers. Whatever is needed
to attain it should be done.RS
Organization for Competitive Markets
Tel: (402) 817-4443 • Fax: (360) 237-8784
P.O. Box 6486
Lincoln, NE 68506
ADDRESS SERVICE REQUESTED
February 2010
NON-Profit ORG
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PERMIT #1734
68506
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OCM - February 2010 8
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