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 / Third Quarter 2000 / Issue 20(originally published by Booz & Company)


China, Branding, and Other Studies of Value

What workers do expect is to be treated respectfully and be given as much information as possible about why a layoff is occurring.

Globalization Makes You Happy
Ronald Inglehart, "Globalization and Postmodern Values," Washington Quarterly, MIT Press, Winter 2000.

Looking for a suitable place to invest? Ronald Inglehart, director of the University of Michigan's Institute for Social Research, suggests that one way of predicting which Third World countries will become stable democracies is to see how happy their residents are.

Mr. Inglehart directs the World Values Survey, which has, since 1970, polled people in 40 countries about their state of well-being. Based on 30 years of survey research, he argues that countries pass through three stages of economic development:

1. Authoritarianism. When poor people feel unable to control their lives, they express their unhappiness as a desire to replace democracy with a strong leader who will bring order out of chaos. This was the general condition of the world in the 1930s and is still the norm in ex-Soviet nations. In the 1990 survey, a majority of the residents of the Communist nations of Eastern Europe and the USSR were unhappy, an important signal that the Soviet Union was doomed. By 1995, Russians registered the unprecedented low score of -12, which meant that nearly all Russians "were unhappy and dissatisfied with their lives." Russian discontent, Mr. Inglehart predicts, means hard times in the near future for Russia and the other former Soviet republics.

2. Materialism. Until a nation's GDP reaches $10,000 per person (comparable to Ireland and South Korea today), most citizens are primarily concerned with making money through hard work and sacrifice for the future.

3. Postmaterialism.Once a nation's GDP crosses the $10,000 per capita barrier, "postmaterial" values prevail, including tolerance for different lifestyles, an interest in "exotic things and cultural diversity," and an increasing distaste for bureaucracy. Postmaterial societies also tend to be stable democracies. Increasing happiness, Mr. Inglehart argues, is an important clue that voters will prefer democracy, since voters tend to trust political systems under which their lives improve. He predicts that Mexico is likely to become a democracy, since its residents are as happy as Spaniards and Italians. And the Chinese, thanks to the wealth that comes through increased trade, "show a predisposition to democracy that will probably surprise most observers."

Inflation: Dead and Loving It
W. Michael Cox and Richard Alm, "The New Paradigm," 1999 Annual Report, Federal Reserve Bank of Dallas.

Even with today's steady prices, there's always a possibility that inflation will come back. But Federal Reserve Bank of Dallas chief economist W. Michael Cox and Dallas Morning News business writer Richard Alm suggest that one lesson of the 1990s is "the upper limit for non-inflationary [GDP] growth might be a full point higher" than economists of 1990 foresaw. Economic forecasters would do a better job if they simply studied price levels instead of examining other warning signs for inflation, they say. "We cannot assume," they write, "that strong GDP or vigorous demand makes a spike in prices inevitable."

The old economics taught that there was a "rivalry" among consumers for goods and services, and that increasing demand too drastically would lead to scarcity and inflation. But many products in the New Economy, such as information and entertainment, don't disappear or degrade with use, so increased demand doesn't lead to scarcity.

Moreover, in the New Economy, most producers have high R&D costs that rapidly amortize once their goods are produced in mass quantities, ensuring "high fixed and low marginal costs." A pharmaceutical manufacturer might invest $350 million in a new drug that costs a penny a pill to produce. Thus the average cost of one pill is $350 million and of 10 million pills $.04. Similar economies of scale occur in other New Economy products, such as software, electronics, and CDs, and in network industries, such as telecommunications, electricity, and natural gas.

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