Milken Institute Review First Quarter 2002

March 2002

Ricardo Bayon, a fellow at the New America Foundation who specializes in environmental finance, explains how some clever folks have discovered ways to make money by preserving endangered species. "The idea is to take living plants, animals and ecosystems and turn them into fungible assets that can be sold through newly formed markets," writes Bayon in this issue's cover story, "A Bull Market in ... Woodpeckers?"

Alice Amsden of MIT takes on both the left and right in the debate over globalism. "Instead of labor and environmental standards, which many disparage as protectionism in disguise, the developing countries want room to grow through exports of agricultural products, textiles and steel," writes Amsden. But by the same token, she argues, the World Bank approach "works better on paper than on the ground."

The Milken Institute's Ross DeVol and Perry Wong report on their findings that the Sept. 11 terrorist attacks will result in hundreds of thousands of fewer jobs in the United States. "The impact of the September 11 attacks on the World Trade Center and the Pentagon are still pulsing through the American economy," they write.

Daniel Gross of the New America Foundation offers historical perspective to the current bust in the telecommunications industry. He found eerily similar cycles in the development of the telegraph, telephone and railroad industries. "When it comes to the construction of nationwide networks for commerce and information, the cycle we have just seen in fiber optics - overbuilding, excess capacity, ruinous competition, falling prices, bankruptcy and consolidation - is nothing new," he writes.

What are the three biggest myths about the U.S. economy? Authors Charles Zwick, former director of the U.S. Bureau of the Budget, Robert Levine of RAND and Peter Lewis of Lazard LLC say they are: 1. The virtue of a balanced budget; 2. Social Security is in crisis; and 3. Washington is the problem. They offer a counter view.

Greg Rushford takes his own myth-breaking look at the "fair-trade" label that is finding its way onto products around the world. "Consumers beware: when you buy fair-trade coffee, there is slim reason to believe that you are empowering exploited farmers," he writes.

Ross DeVol of the Milken Institute makes the case that what counts in the 21st century economy is not physical assets, but a mix of tangible and intangible resources, especially intellectual capital. "The degree to which a region's knowledge assets are harnessed and converted into successful innovations, products and services will determine its economic future," DeVol writes.

Barry Bosworth, a senior fellow at The Brookings Institution, says fears of a deflating economy are unwarranted. "The concern," he argues, "ought to be with recession, not with deflation per se."

Institute ChairmanMichael Milken reflects on the resilience of the American economy. "Access to capital," he writes, "is a key reason the U.S. has outpaced Europe five to one in net new jobs over the past generation."

This issue's book excerpt is from The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, by renowned development economist Hernando DeSoto, whose ideas on property rights and legal institutions are as original as they are powerful.

And, of course, we have our regular features: The Charticle (this time by the Institute's Bill Frey on the rise in Spanish-speaking households in the United States) and a puzzle.