New Economist

Vietnam: the world's next factory?

Bloomberg's Andy Mukherjee has been to Ho Chi Minh City - and he likes what he sees: After China, Vietnam Will Be World's Factory

After China, Vietnam is emerging as the world's next factory of choice for labor-intensive goods.

One can see that in the changing composition of the country's exports. Rice and coffee -- two of Vietnam's biggest agricultural exports -- are now becoming less significant to the $61 billion economy than textiles. Footwear shipments are gaining prominence over seafood.

The other fast-growing export industry is furniture. Exports of wood-based products have grown 24 percent from last year to more than $2 billion.

James Koh, a Singapore businessman, makes dining tables and chairs in Vietnam for customers around the world, including Williams-Sonoma Inc.'s Pottery Barn stores in the U.S. Koda Ltd., of which Koh is the managing director, also has factories in Malaysia and China. Yet, it's Vietnam's lower costs that are prompting the company to expand capacity here by 25 percent. "The labor cost in Vietnam is half that of China, while worker productivity is about the same,'' says Koh.

Starting next year, the government will increase the mandated minimum wage for foreign-funded companies in Ho Chi Minh City and Hanoi, the national capital, by 13 percent to 1 million Vietnamese dong ($62), a level that is still affordable, Koh says.

Chinese-made goods have become increasingly expensive in the U.S. for the past six months. That gives Vietnamese manufacturers an opportunity to win a bigger share in their largest export market.

Vietnam's accession to the World Trade Organization in January has provided its textile industry with quota-free access to the U.S. Joining the WTO regime has also caused a 37 percent surge this year in overseas investment commitments to $13 billion.

The biggest draw of the country is clearly its labor. The median age in Vietnam is 25 years. The workforce isn't just young, but also literate and healthy: The proportion of people who are undernourished has been cut in half over the past three decades.

But there are also challenges ahead:

Why Is Elvis on Burkina Faso postage stamps?

The University of Michigan's Joel Slemrod has a fascinating new paper examining how many small states commercialise their state sovereignty. This can ioccur in a variety of ways, from stamps to tax havens. His paper, Why Is Elvis on Burkina Faso Postage Stamps? Cross-National Evidence on the Commercialization of State Sovereignty (PDF), looks at four forms of commercialisation and the relationship between them. He concludes that countries that are poorer and smaller are, ceteris paribus, more likely to commercialise state sovereignty:

Commercialization is more attractive to poorer countries in three out of four cases, and in two cases to more agricultural countries at a given level of per capita income. This provides some support to the notion that when revenue is difficult to raise in other ways commercialization becomes more attractive. In three of four cases these activities are more attractive to small countries, a finding that is consistent with the Slemrod and Wilson (2007) hypothesis about tax havens that the benefits are unrelated to size but the costs are.

But there are downsides too, ranging from "costs related to integrity" to sanctions "for less benign activities".

Should public schools be privatised? A bloggish debate

Two Australian econo-bloggers, Labor supporter Andrew Leigh and 'classical liberal' Andrew Norton, are running "a bloggish debate" over the next week or so on the topic: Should public schools be privatised?

The Day 1 post is by Andrew Norton. He writes:

People are used to the idea of state schools, so they don’t think about how uneasily government-controlled education fits with liberal democracy. If someone said that Australia’s media should be owned by the state, with journalists told by the state what they should say, with media audiences examined to make sure they had absorbed the official line, there would be predictable and justifiable outrage.

Yet public education means essentially that for Australia’s young people. The government owns most schools, employs most teachers, tells them what to teach through state-set curricula, and examines students to make sure they have it right—even kids escaping to private schools can’t avoid these last two aspects of state-run education. And unlike state-owned media, there are severe consequences for ignoring state education.

...Rather than fostering social unity, as some of its supporters claim, state-controlled education is a source of division and nastiness. Instead of allowing different groups to devise their own curriculum, and letting parents choose between them, we fight over a common curriculum. The public education lobby stirs class and sectarian resentment in its attempts to take funding from private schools.

And what is it, can you remind me, that makes public education worth preserving?

Not views that I share. but it's good to see them aired.

Born to be mild?

A new IZA discussion paper by Andrew Clark, Born To Be Mild? Cohort Effects Don’t (Fully) Explain Why Well-Being Is U-Shaped in Age, advances the long-running debate on the relationship between age and happiness. Chris Dillow at Stumbling and Mumbling explains it well:

For some time, those of us in our early 40s have been able to find comfort in economic research, as this has shown that happiness is U-shaped in age; people become unhappier until their early 40s, but then cheer up.

But why? Early research was unable to distinguish between two possibilities - that there's something abut the average life which causes this U-shape, or that it's a cohort effect; people born 40-odd years ago are unhappier than those born earlier or later.

This new paper by Andrew Clark finds that it's the former. His evidence is fairly straightforward. Let's say we found in 1995 that 41-year-olds were the most unhappy people, controlling for other things. If this were a cohort effect, you'd expect the unhappiest people in 1996 to be 42-year-olds, the unhappiest in 1997 to be 43-year-olds, and so on.

But this isn't so, he finds. Which implies that the U-shape is due to life events, not the fact that people born the in the mid-50s are naturally misery-guts.

The U-shape, he finds, is more pronounced for men than women, and for the higher-educated than less educated. Well-being troughs, on average, just after our 41st birthday.

But why? One possibility is that men in their late 30s become increasingly stressed out by work or their kids, and realize the missus is losing her looks. But they begin to sort these problems out, or get used to them, by their mid-40s.

I'm suprised by this. Intuitively, one could equally well argue that one's early 40s are the best times. You're old enough not to worry about money, but young enough not to worry about health. And you're old enough to have some happy memories, but not so old as to have lost hope of turning things around. So why are these considerations - on average -  offset by others?