Friday, March 28, 2008

The economics of internet (II)

Internet is expected to have a lasting impact on society, but we still do not know the full strength of it. However, one thing for sure is that any way to limit its effect, will means costs higher than the benefit. Let analyze this assessment in more details. So far, both global society (global village) and global economies seems to move, pretty much up to the pace internet has settled, in terms of information flows, communication channel, and transaction facilities. With TV soon placed massively on internet, conventional TV will become not just global, but instantaneous and so it will its influence. Therefore ,any attempt to restraint this dynamic looks like trying to stop the unstoppable, in what it is an useless effort .The rate of increase of internet users is more than 100%.
Ronald Coase said some years ago (1971), that the market for ideas, is not that much different than the markets for goods, such that both are accountable for regulation. The implication was that as long as there was regulation for imperfect competition ,so it was necessary to apply regulation in the markets for ideas. But how can be possible to apply such regulation ,to what has become a global multimedia source of new ideas?. Society needs all the information available to make the best decisions about different issues concerning their welfare level increase. For example, if had not been by internet , the environment damage caused by human intervention, would not have gone so far other than the daily news ,which means that the global warming issue would not have been more than a debatable topic for scientist and expert on climate change. Internet has made it not only a debatable topic , but also a priority because every one connected to this network has the chance to make comments, suggestion , critic and evaluations ;pressing the world organizations dealing with it, to pursue a more active role. As a matter of fact ,this year there are planned more than 26 conferences related to the global warming issue, all of them possible to track by internet. Physically it is impossible for anyone to attend them all , however internet allow to all who want to participates to register on line. On the other side, there are a global community worried about the environment, based upon internet facilities, which made possible for the year 2007 ,to become the year of the environment. Thus, because society has better information, key element to develop a deeper consciousness about the complexity of such challenge, these days the environment issue is on top of the agenda , and the expectations are to make further progress into the near future. In short ,in just a few years it has been possible to move forward on the environment dilemma, at a faster pace than in the previous decade .On the other side, information flows allow the global economy a quicker response and adjustment to random shocks at lower cost than otherwise. Any restriction on these flows, would mean welfare cost for global community.-
Blogging is the new wave of internet communication. More than 30 million of them live in the cyberspace, and it will become more relevant in the near future ,as each one person´ s point of view will matter in a more fractionated global society. The willingness to reach out other people, exceeds any attempt to impose limits and control . Chile has been working very actively on the internet platform for public services(education, health), privates firms, services,(financial, job seeking opportunities), and news media (comments segment),in what it looks increasingly like a virtual society although. with real effects. It is one of the leading countries in Latin America on this issue. However, while most of Latin America newspapers, have been moving forward to allow their readers a broader space to shape public opinion, some Chilean news papers seems to restrain their connectivity with its readers.

Friday, March 14, 2008

The economics of internet (I)

Since it was widely available for world audience a few years ago, internet has had a deep impact on the way of life around the world ,such that it is not possible to assume a situation without it. How can that impact be explained?. Internet is a communication revolution which allow people to be themselves, to speak out their fears and hopes to a world audience with no real involvement, because it is all virtual, therefore it is all imagination in real time, but it looks like real, and its implications are real. On the other side, it is its impact on transaction cost which has a deep effect on a variety of daily events, more so with the new tecnological development(video, voice, images applications) which make its effect more relevant .
Transaction cost represent a constraint not just for commercial transaction purposes , but also for research requirements in terms of both data gathering and analysis. Throughout internet, any researcher might go virtually any place in the world to get the material or data he or she needs, in a way which is impossible to do otherwise. Imagine a flight to the New York Public library, or for that matter to the NYU or Columbia Universities libraries,just to to check some articles, concerning for instance the impact of environment damages, on global economy. Internet induces an exponential increase in knowledge.
For commercial purposes, it facilitates the commercial transaction and decision making process, reducing the time requirement to get it done. Global Corporations ,are connected into global commercial networks which allows them to get quick access ( saving up to two a more weeks )to the best available alternative to buy any of their inputs , supporting more efficiently the production chain with the “just in time scheme”, and allowing important gains in competitiveness. Because it allows companies a better insight about the markets forces trends and expectations they deal with , it improves efficiency in the management decision process as well.
Far beyond global TV impact ,Internet has made the world a smaller place, because it is faster , in fact it is instantaneous. Besides it is available on the computer screen of everyone , reducing any world event to something “usual” and “closer” which "share space" with your own daily stuff. Moreover, it has concentrated both the past and the future into one single observation through simulation. In short, only the present matter, because has become the connecting point between the past and the future. The uncertainty is about the unexpected event, out of the boundaries, not necessarily about the future itself because somehow we have it already with us in our computer screen!.
There is no other revolution of such magnitude in human history , and beware that we are still away from its limits. Having said that, the next question is this ¿why could anyone cut this flow of communication, information and data exchanges? .Internet means improving welfare level at a global scale ,so it improves welfare levels to a smaller scale as well. It means a global democracy, where an opportunity create more opportunities for others. It allow citizen to evaluate government performance on public issues , improving the effectiveness of public polices.-
It follows that any restriction about this flow of information, would be equivalent to freezing time, while it keep rolling on outside the freezing area anyway . In other word , is like keeping fixed our own clock, while others ´s one , continues moving. -

Friday, March 07, 2008

The next decade Dilemma for Latin America economies:Distribution or growth

After the nineties most of the Latin America countries, followed a turn to the left, probably searching a new path more socially inclusive to guarantee Governance and democratic stability,not necessarily because of markets failure but more so because of lack of adjustment in the instituional framework to allow markets to work properly.
Governance and social inclusion are legitimate objective which come out not only from the left, but also from the right( Compassionate Conservative approach). The difference lies upon the means to achieve it. While the Latin America left, quite differently to their moderate European counterparts, believe in distributive policies based on more taxes, subsidies, and regulations, in short a bigger State to get better living conditions, the moderate right believes in the ability of individual choices throughout markets both based and within the proper institutional framework, to get such objectives. Given the fact that leftist Government in the majority of the cases, have followed the traditional old fashioned paradigm of trying to replace markets instead of cooperate actively with it, few countries like Brazil, Peru, Uruguay ,and Chile arise like the pragmatic exceptions, to counterweigh the more ideological approach of other Latin America economies. But Chile´s experience of focusing too much on distribution, is currently showing its limitations as well, because of the negative impact on the rate of economic growth.(This year, with copper price above U$$4,02 lb, the Chilean economy is expected to growth at annual rate of 4 -4.5%,half the average rate of the nineties).-
Thus, the dilemma for the next decade is already settled down: Latin America must decide the proper economic path to improve its living standard. Distribution based on the State means more poverty, because the State is political by nature, which means that Social problems like poverty and inequality, are constrained to political realities,(poor people can wait the next election), and it is not in the State ´s interest to solve it other than to save face. The link between the State privileges, political interest and power concentration on those who run the State, mean that they need “customers” to survive. Therefore,without any reforms on the colonial State, the real path is to focus on growth , free trade agreements with the new arising markets and more flexible approach to private initiative.