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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 9, Issue 44: October 29, 2007

  1. Security Contractor’s Mistakes Reflect Government-Created Incentives, Not “Market Failure”
  2. Despite Hostile Critics, Capitalism Continues to Reduce Poverty
  3. Media Markets and Murdoch
  4. Market Solutions to Traffic Congestion, Housing Affordability, and More

1) Security Contractor’s Mistakes Reflect Government-Created Incentives, Not “Market Failure”

Earlier this month, the shooting deaths of 17 innocent Iraqi civilians brought unwanted publicity to Blackwater USA, a private firm under contract with the U.S. military to provide diplomatic security and similar services in Iraq and other hotspots. Some people may be tempted to view the Blackwater deaths as an example of the pitfalls of privatization, but in his characteristically nuanced column for the New York Times, George Mason University economist Tyler Cowen explains why this gross oversimplification is highly misleading.

“The overall problem is not private contracting itself; contractors do not set the tone but rather reflect the sins and virtues of their customers, namely their sponsoring governments,” writes Cowen, co-editor of the Independent Institute book Market Failure or Success. “A private contractor doesn’t have a financial incentive to protect Iraqi citizens, who are not paying customers. Ultimately, this reflects the priorities of the United States military itself.”

Cowen notes some of the trade-offs that the use of private contractors entails. He also notes some of their unrealized potential. For example, had the UN chosen to hire private contractors in central Africa in the mid-1990s, as it had contemplated, instead of employing poorly trained police from Zaire, it’s conceivable that many of the 800,000 lives lost during Rwanda’s bloody civil war would have been spared.

Cowen also notes that his colleague (and Independent Institute Research Director) Alexander Tabarrok discusses the history of private contractors—namely, the privateers of the 19th century—in the spring 2007 issue of The Independent Review. Although Cowen doesn’t say so, Tabarrok’s article makes essentially the same point as his own. To paraphrase: the “contracting out” of security services should not be conflated with the full privatization of security, because the chain of “contracting out” is only as strong as its weakest link—in this case, Uncle Sam.

“To Know Contractors, Know the Government,” by Tyler Cowen (The New York Times, 10/28/07)

Market Failure or Success: The New Debate, edited by Tyler Cowen and Eric Crampton

“The Rise, Fall, and Rise Again of Privateers,” by Alexander Tabarrok (The Independent Review, Spring 2007)

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2) Despite Hostile Critics, Capitalism Continues to Reduce Poverty

Despite a large and growing body of evidence that free markets, open trade, individual initiative, and the strict protection of private-property rights together foster economic progress—just as they have throughout the development of the West—many of the world’s most popular pundits are unwilling to open their eyes to this evidence. In a series of debates held recently in Monterrey, Mexico, one of the participants, Independent Institute Senor Fellow Alvaro Vargas Llosa, witnessed the obfuscations and evasions of those who disdain free trade agreements and instead favor policies embraced by Cuba and Venezuela—two countries whose economies have deteriorated significantly since the 1950s.

Fortunately, despite widespread economic illiteracy and hostility to free markets, much of the world has in recent decades reduced trade barriers, deregulated industry and expanded economic freedom—and enjoyed the resulting benefits. “The fact that 20 percent of the world’s population is extremely poor should not make us forget that millions of lives have improved dramatically in the last three decades,” Vargas Llosa writes in his latest column for the Washington Post Writers Group. “Illiteracy has dropped from 44 percent to 18 percent, and only three countries out of a total of 102 included in the U.N.’s Human Development Index have seen their socioeconomic conditions deteriorate.”

Even the economic retrogression of Cuba and Venezuela are reversible—provided their leaders reverse direction and foster productive entrepreneurship by introducing free-market reforms, Vargas Llosa suggests. “The world was not rich and suddenly turned poor,” he continues. “The progress of the market economy that began to free the world of its shackles continues at an even faster pace today despite the many restrictions still faced by the people who create wealth and exchange it, and despite the fears that these momentous times understandably inspire in those who have difficulty adapting. What a heartening thought.”

“The Glass Is Half Full,” by Alvaro Vargas Llosa (10/24/07) Spanish Translation

Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa

El Independent—the Independent Institute’s Spanish-language website and blog

Don’t miss Alvaro Vargas Llosa’s chapter on Latin America progress in the forthcoming (late November) book, Making Poor Nations: Entrepreneurship and the Process of Development, edited by Benjamin Powell (co-published by Stanford University Press and the Independent Institute).

View book’s Table of Contents and pre-order information. Order before the Christmas rush!

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3) Media Markets and Murdoch

Will Rupert Murdoch’s recent takeover of the venerable Wall Street Journal help or hamper the cause of journalistic objectivity? Ultimately, only time will tell. But as economics writer Karen Horn points out, in an op-ed that drew in part from an article she wrote last summer for The Independent Review, many of the assumptions shared by critics of Murdoch—assumptions that support government interference in media markets to support “diversity” in editorial content—are misguided.

“In a 2002 study for the Federal Communications Commission, University of Wisconsin professor David Pritchard found that integrated news companies such as Murdoch’s News Corp. may find it worthwhile to enlarge their publishing program in order to cater to differing needs,” writes Horn. “In such an instance, variety would increase rather than decrease with concentration of media ownership.”

Prichard studied 17 TV channels and newspapers owned by the same companies during the U.S. presidential election in 2000 and found that half the time the TV station and the newspaper took the same position. The other half of the time Prichard found “diversity,” that is, a noteworthy difference in position between the TV station and the newspaper. “This proves that as a rule, media conglomerates don’t necessarily manipulate opinions; rather, they follow their respective customers,” Horn concludes.

“Murdoch Is No Threat to Democracy, but Media Protectionism Is,” by Karen Horn (8/13/07)

“A Market Like Any Other: Against the Double Standard in Judging the Media,” by Karen Horn (The Independent Review, Summer 2007)

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4) Market Solutions to Traffic Congestion, Housing Affordability, and More

In a new op-ed published in the Long Beach Press-Telegram, Independent Institute Research Fellow and former World Bank transportation economist Gabriel Roth reprises his proposal to reduce traffic congestion by implementing variable road pricing and earmarking the toll revenues for the construction of more roads.

Toll roads could be modeled after Southern California’s 91 Express Lanes, “a 10-mile stretch of express lanes built in the median of 91 Freeway where the charges are set to ensure free flow at all times and vary from $1.20 at night to $9.50 at the busiest times,” writes Roth, editor of Street Smart: Competition, Entrepreneurship, and the Future of Roads. “The 91 Freeway express toll lanes are used and favored by all income groups, as they allow rich and poor alike to keep urgent deadlines, such as getting to work on time or picking up a child from day care.”

Gabriel Roth will discuss market-based alternatives for enhancing the road system at “Recovering from Smart Growth,” a conference hosted by the American Dream Coalition, to be held November 10-12 in San Jose, California. Dozens of speakers will address such topics as transportation, housing and land use, including Independent Institute Research Fellows Edward Stringham (author of the forthcoming policy report, Below-Market Housing Mandates as Takings), Peter Gordon (co-editor, The Voluntary City), and Fred Foldvary (contributor to both Street Smart and The Voluntary City).

Why attend? From the conference website, here are some of the conference’s features and benefits:

* Tour one of the most-regulated, least-affordable cities in America
* Learn what cities must do to recover from unaffordable housing
* Learn how light-rail transit can turn into a disaster for transit riders
* Find out how states and cities routinely ignore property rights
* Exchange ideas with fellow activists
* Attend workshops on transportation, eminent domain, and other key issues
* Learn how to protect your freedom, mobility, and property rights

“Recovering from Smart Growth” Conference Website. November 10-12, San Jose, California

“Toll Roads to the Rescue,” by Gabriel Roth (Long Beach Press-Telegram, 10/24)

Street Smart: Competition, Entrepreneurship, and the Future of Roads, edited by Gabriel Roth

The Voluntary City: Choice, Community, and Civil Society, edited by David Beito, Peter Gordon, and Alexander Tabarrok

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